AEP unit approved for interim capacity pricing system

The Public Utilities Commission of Ohio (PUCO) March 7 established an interim two-tier capacity pricing system for AEP-Ohio, a unit of American Electric Power (NYSE: AEP). The interim capacity charges take effect immediately and will remain in place through May 31, 2012.

Capacity charges are costs billed by AEP to competing electric suppliers that sell power to customers using AEP’s infrastructure. Competitive suppliers pay capacity charges to ensure that there is enough electricity on the grid to meet demand.

Under the two-tier pricing system, suppliers will pay a market-priced capacity charge of $110 per MW-day up to the first 21 percent of customers in each customer class. All government aggregations will receive unlimited tier-one market-priced capacity. The second-tier capacity pricing of $255 per MW-day will be applied beyond the first 21 percent of customers in each class. The Commission will hold a hearing no later than April 17, 2012 to begin determining long-term capacity charges.

“Today’s decision by the Public Utilities Commission of Ohio (PUCO) provides an appropriate short-term solution that fairly balances the interests of electric consumers with the need to protect the financial health of AEP Ohio,” said Nicholas Akins, president and chief executive officer of AEP. “We recognize, however, that this is the first step in a longer process of addressing the transition to a fully competitive market that is structured equitably for all market participants and provides benefits for consumers. The transition must be done in a manner that doesn’t unduly harm or unfairly enrich any individual utility or retail energy provider.”

AEP Ohio filed a motion for relief and request for an expedited ruling with PUCO on Feb. 27 to determine an interim capacity charge. AEP Ohio also requested that the commission conduct an expedited proceeding to consider the revised Electric Security Plan (ESP) proposal once filed. The company is asking PUCO to adopt a procedural schedule that would provide a decision within 60 days so new rates would become effective June 1.

The Commission also approved the merger of AEP-Ohio operating companies Columbus Southern Power and Ohio Power. The Commission previously approved the merger on Dec. 14, 2011 as a part of the consolidated AEP ESP agreement. The merger became final at the end of 2011.

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