FERC: AEP Formula Capacity Rate "May Be Substantially Excessive"

FERC accepted for filing but suspended for five months the formula capacity rate filed rate by Indiana Michigan Power (I&M) Company, an AEP company, that would be charged to retail suppliers taking capacity under I&M's Fixed Resource Requirement plan, as FERC's preliminary analysis, "indicates that I&M's filing has not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful."

See prior story for background

The formula capacity rate would be $394 per MW-day under current input values. Absent the adoption of the formula rate at FERC (or a state compensation mechanism), any competitive load would be charged the RPM price for capacity, which will be about $20/MW-day starting June 1. While no load at I&M has shopped to date, as only reported by Matters, customers are expected to take competitive supply in the near future.

The formula rate has been protested by retail suppliers on various grounds.

"The Commission's preliminary analysis in this proceeding indicates that the proposed rate may be substantially excessive," FERC said.

However, FERC did not reject I&M's filing outright, notwithstanding FERC's conclusion that I&M has not justified its request for waiver of section 35.13, concerning submission of cost-of-service data, and therefore denied the requested waiver. "To the extent additional data is required during the hearing proceedings directed herein, we direct AEP to provide the data," FERC ordered.

"However, having evaluated AEP's filing, the Commission finds that it minimally satisfies the Commission's threshold filing requirements and is not patently deficient. Therefore, the Commission denies the requests for rejection," FERC said.

"The Commission accepts I&M's proposed formula rate, subject to maximum suspension ... I&M's proposed formula rate raises issues of material fact that cannot be resolved based on the record before us and are more appropriately addressed in the hearing procedures," FERC said.

FERC therefore accepted the filing, suspended the tariff revisions for the maximum five-month period, to be effective October 1, 2012, subject to refund, and the outcome of hearing and settlement judge proceedings. FERC set, "the entire rate and its design for hearing and settlement proceedings."

FERC said that the hearing should address the issues raised by protesting retail suppliers in addition to other issues including, but not limited to, whether the inclusion of construction work in progress (CWIP) in rate base is consistent with the Commission's regulations and accounting procedures; whether proper procedures are in place to ensure there is no double recovery of capitalized Allowances for Funds Used During Construction (AFUDC) and corresponding amounts of CWIP included in rate base; whether the costs included in the formula rate have already been paid for by other customers through other rate schedules; the extent to which retail suppliers have relied on RPM clearing prices through June 2015; the inclusion of derivative hedges in the calculation of the overall rate-of-return; customer review procedures; the proper level of the ROE; and the resulting rate.

The docket is ER12-1173