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February 28, 2020

Texas PUC approves $40M decrease in AEP rate case settlement

by Kelso King, Grid Monitor
Posted 02/28/2020

At the February 27 Open Meeting, Chairman Walker suggested the first thing to do would be to reopen the record to admit the stipulation and supporting testimony that were filed on October 13, 2019.

Chairman Walker stated that she would adopt the stipulation with modifications to clarify that, like in the CenterPoint case, although the parties agreed to it, the Commission cannot bind future Commissions.

The Chairman stated that she was also in the same place she was with CenterPoint concerning the ring fence, adding that she was even less inclined in this case than the CenterPoint case to do the ring fencing.

The other commissioners agreed.

The Commission adopted an order consistent with its discussion. Chairman Walker added that there was no way to get the order out on the following day, as AEP had hoped.

Background

On May 1, 2019, AEP Texas Inc. (AEP Texas or the Company) filed an application with the PUCT requesting authority to change rates.

AEP Texas proposed to increase its annual distribution revenues by $59.1 million. The Company also proposes to implement a rider that would refund the difference between the revenues collected under the former federal corporate income tax rates and the revenues that would have been collected under the lower federal income tax rates that became effective on January 1, 2018. Net of the proposed income-tax-refund credit of approximately $21 million per year for the next four years, AEP Texas sought to increase its annual distribution revenues by approximately $38.3 million, an increase of 4.2% compared to current rates. AEP Texas also sought to reduce its transmission revenues by $3.16 million, a decrease of 0.7%, and proposed a one-time credit of $29 million related to the reduction in the federal income tax rate.

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.

The administrative law judges recommended an overall revenue decrease of $59,741,451, or 4.49%, below present base revenues.

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 they know 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 will decide both cases on the day they are taken up “even if it takes until 3 AM.”

On February 13, 2020, the day before the Open Meeting, parties to the AEP Texas rate case filed a settlement, agreeing to reduce base rates by $40 million, set ROE at 9.4%, grant the Company’s request to consolidate its rates and two Divisions into one operating unit, and implement numerous ring-fence provisions, while allowing the PUCT to decide whether to adopt dividend restriction provisions. AEP Texas will file a base rate case no later than four years from the date of the Commission’s final order.

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