2nd UPDATE: AEP Shares Fall After Ohio Regulators Reverse Rate Increases
24 February 2012 - 10:08AM
Dow Jones News
American Electric Power Co. Inc. (AEP) shares fell as much as 5%
after Ohio regulators reversed a previous decision that allowed the
company's Ohio utility to raise rates and spin off its power
plants.
In a highly unusual move, the Public Utilities Commission of
Ohio revoked a December decision that had approved the rate
increases under a settlement agreement that AEP Ohio had reached
with customer and business groups. The commission's decision also
reversed its earlier approval for the utility to spin off its Ohio
power plants, a key move for AEP.
The commission ordered AEP Ohio to return its rates to December
2011 levels until a new rate plan is approved, and for AEP to
modify its plans to separate its Ohio power plants from the
utility.
Shares of AEP closed 4.8% lower at $37.91, paring earlier
losses.
AEP Chief Executive Nick Akins said he was disappointed with the
decision, which the company was still reviewing.
"We are concerned by the commission's reaction to what we
believe were solvable issues on rehearing," Akins said in a
statement. "We are currently evaluating our options and the
potential financial and operational impacts on AEP Ohio."
The commission said it was compelled to reverse its decision
after AEP changed its story with regard to how it plans to spin off
its Ohio power plants, and after electricity rate increases for
small-commercial customers turned out to be much larger than
advertised.
In particular, the PUCO and some of the parties to AEP's rate
settlement believed that AEP had agreed to transfer all its Ohio
power plants to an AEP unit that would then offer the electricity
from all the plants for sale at auctions held by the Mid-Atlantic
grid operator, PJM Interconnection. A proposal AEP filed this month
with the Federal Energy Regulatory Commission, from what the
company agreed with Ohio groups, and suggested that the company
might not offer all the power from its plants at the auction, the
PUCO said.
"The complexity of the issues required us to take a step back,"
PUCO Chairman Todd Snitchler said in an interview. He added that he
thinks the issue could be resolved in a relatively short period of
time.
AEP Ohio has 30 days to modify its rate proposal before the
commission reopens the case and sets a new schedule that would lead
to a new decision.
Consumer advocates, who had opposed the rate settlement, lauded
the PUCO decision.
"We've been against this plan from the get-go because it wasn't
in the best interest of residential consumers," said Anthony
Rodriguez, a spokesman for the Ohio Consumers Counsel.
AEP, based in Columbus, Ohio, predicted earlier this month that
its Ohio operations would cost the company roughly 32 cents a share
in 2012, on charges associated with customers switching to other
utilities and with AEP's requirement to serve as Ohio's utility "of
last resort" as that state deregulates its electricity market.
In addition to Ohio, AEP operates utilities in 10 other states
and serves about 5 million customers.
The company plans to spend $5 billion to $6 billion from 2012 to
2020 to comply with new federal limits on emissions of mercury and
other heavy metals and other air and water pollutants. As a result,
AEP expects to shut down as much as 6,000 megawatts of aging
coal-fired power plants, about half of which are in Ohio.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468;
cassandra.sweet@dowjones.com
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