American Electric Power portrays itself as the victim. In its recent ad campaign, running parallel to its request for a rate increase, the utility warns about diminished competition and lost jobs. What Ohioans should know is that the company mostly is concerned about its own competitive posture. The jobs at risk? AEP has warned that if it doesn’t get its way with regulators, it may reduce the ranks of its employees.
On Monday, the Public Utilities Commission of Ohio is expected to decide a crucial aspect of the rate case — the “capacity charge” that AEP will assess competitors entering its territory. The level of the charge is decisive. Set too high, and it will discourage competition, resulting in higher prices for customers. AEP has proposed charging as much as $355 per megawatt day for three years. The current market-based capacity charge? Around $16.
The difference offers a glimpse at the height of the barrier the utility seeks. AEP encountered heavy turbulence at the start of the year when its initial rate plan produced whopping increases in many monthly bills — churches, school districts and small businesses especially hard hit. Under pressure, the PUCO withdrew its approval and told the utility to start over on a rate plan.
AEP has massaged the proposal, yet the essence remains. The utility wants to put off FirstEnergy and other competitors in its territory (while it competes elsewhere), hold customers hostage and generate the revenue it deems sufficient.
Unfortunately, the PUCO has appeared most sympathetic to the story AEP has been telling. What commission members must do is take into account the whole record in weighing whether to give the utility what amounts to a bailout.
The Ohio Manufacturers Association has been most critical of the utility’s new proposal, arguing that the issue is not merely about electricity rates but involves economic development. The association noted an Ohio Supreme Court ruling last year that from 2009 to 2011, AEP collected more than $500 million in excess charges. In 2009, Columbus Southern Power, a part of AEP, exceeded the excess earnings threshold. It was ordered to return $43 million to customers.
Consider the conclusion of the PUCO staff: “AEP Ohio is attempting to confuse the commission into believing it is the one that will suffer significant financial harm if its excessive demand is not granted. In reality, retail competition and customer choice will be harmed. … ” Add to the opposition hospitals, schools districts and other businesses, all finding the AEP request unreasonable.
The utility may be facing expectations on Wall Street. What the commission must bear in mind is the altered landscape for power companies in the state, the transition to deregulated markets long in process, even AEP making adjustments. Today, when market prices favor customers, the market prevails. Bow to what AEP wants, and customers will be the victims.