February 17, 2020

Parties in AEP TEXAS rate case agree to reduce rates by $40 million

by Kelso King, Grid Monitor
Posted 02/14/2020

On February 13, 2020, the parties filed a stipulation and settlement agreement. According to the settlement:

·      AEP Texas’ total base rate revenue requirement should be decreased by a “black box” amount of $40 million.

·      AEP Texas’ Weighted Average Cost of Capital shall be 6.45% based upon a 4.2758% Cost of Debt, an agreed Return on Equity of 9.4%, and an agreed regulatory capital structure of 57.5% long-term debt and 42.5% equity.

·      AEP Texas will file a base rate case no later than four years from the date of the Commission’s final order in this docket.

·      AEP Texas proposal to consolidate the rates and tariffs of its Central and North Divisions, which is consistent with the existing organizational and operational structure of AEP Texas, is reasonable and should be approved.

·      The settlement includes numerous Ring-Fencing provisions. However, the Signatories agreed that the Commission will decide whether to adopt dividend restriction ring-fencing provisions for AEP Texas based on the record and the parties’ briefing currently on file with the Commission.

Parties to the settlement are AEP Texas; the Staff of the Public Utility Commission of Texas (Staff); Office of Public Utility Counsel; Cities Served by AEP Texas; Texas Industrial Energy Consumers; South Texas Electric Cooperative, Inc.; Public Utilities Board of the City of Brownsville; Alliance for Retail Markets; Texas Cotton Ginners’ Association; the Department of the Navy on behalf of the Federal Executive Agencies; Texas Energy Association for Marketers; and Walmart, Inc. Golden Spread Electric Cooperative, Inc. is not a signatory to the settlement but does not oppose it.

At the February 14 Open Meeting, Chairman Walker announced that a stipulation had been filed on the previous day and the Commission would attempt to get this item back on the agenda for discussion at the February 27 Open Meeting.


On May 1, 2019, AEP Texas Inc. filed an application with the PUCT requesting authority to change rates. AEP Texas proposed to increase its annual distribution revenues by $59.1 million.

Staff and a number of intervenors requested an overall rate decrease. Staff recommended reducing AEP Texas’s overall revenues by $48 million, without taking into account a tax credit rider proposed by the Company. Revisions proposed by Texas Industrial Energy Consumers (TIEC) solely to the Company’s return on equity and capital structure would result in a $63.1 million decrease. The Cities Served by AEP Texas (Cities) originally recommended a $155.4 million reduction to present revenues.

In their Proposal for Decision (PFD), the Administrative law judges (ALJs) recommended:

·      an overall revenue decrease of $59.7 million, or 4.49%, below present base revenues;

·      granting the Company’s request to consolidate its rates and two Divisions into one operating unit; and

·      a return on equity (ROE) of 9.40%; a cost of debt of 4.28%; a capital structure comprised of 55% long-term debt and 45% equity; and an overall rate of return of 6.58%.

At the January 16, 2020 Open Meeting, Chairman Walker addressed the CenterPoint and AEP rate cases, noting that she did not want to decide anything on the AEP case until the Commission knew more about the CenterPoint case. The Chairman noted that many issues are very similar and she did not want to get into a situation where they would do something in one case that would send a “wrong signal” in the other. She concluded that the PUCT would decide both cases on the day they are taken up “even if it took until 3 AM.”

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