What is the main impact of the PUCO order on AEP's subsidiaries, CSPCo and OPCo?

The main impact is the approval of modified Electric Security Plans (ESPs) through 2011, which allows for rate increases for customers. These increases are capped annually to limit the overall bill impact, but they are projected to result in significant revenue increases for both CSPCo and OPCo over the three-year period.

How will fuel costs be handled under the new ESPs?

The order includes a Fuel Adjustment Clause (FAC) that permits the companies to pass through actual fuel costs, along with purchased power and related expenses. Importantly, if these fuel costs exceed the annual rate caps, the unrecovered amounts can be deferred, accrual carrying charges, and recovered over a later period (2012-2018) via a surcharge. This provides a mechanism to recover volatile fuel expenses.

Are there any potential negative financial implications or uncertainties for AEP from this order?

Yes, there are a few. The companies are required to fund a minimum of $15 million for low-income customer programs, which will be recognized as a liability and an adjustment to earnings for Q1 2009. Additionally, the PUCO deferred a decision on the recovery of certain regulatory assets ($56M for CSPCo, $38M for OPCo) to a future rate case. The companies also intend to seek a rehearing on certain aspects of the order, indicating potential for further adjustments or delays in implementation.

What are gridSMART and how are their costs being handled?

gridSMART appears to be a program related to the electricity distribution system. The PUCO approved new distribution riders for its recovery, subject to true-up. However, the companies were ordered to seek matching funds under the American Recovery and Reinvestment Act of 2009 to mitigate costs, suggesting a potential reliance on external funding to offset their own expenditures for this initiative.

AEP 8-K SEC Disclosure — Mar 24, 2009

Summary

This 8-K filing from AMERICAN ELECTRIC POWER CO INC (AEP) details a significant order from the Public Utilities Commission of Ohio (PUCO) regarding the Electric Security Plans (ESPs) for its subsidiaries, Columbus Southern Power Company (CSPCo) and Ohio Power Company (OPCo). The PUCO's order, issued on March 18, 2009, modifies and approves these ESPs, which, if accepted by the companies, would be in effect through 2011. A key takeaway for investors is the authorization of rate increases for customers, albeit capped annually. These caps are designed to limit overall bill increases to between 6-8% annually, depending on the subsidiary and year, while allowing for the pass-through of actual fuel costs subject to review. The order also addresses the recovery of fuel costs through a Fuel Adjustment Clause (FAC), allowing for deferral of unrecovered fuel expenses due to the caps, with recovery planned over a later period. Additionally, the PUCO approved cost recovery for environmental investments and a portion of a Provider of Last Resort charge. However, certain other requests, including for other distribution system reliability programs and some regulatory assets, were deferred to future rate cases, indicating potential for future revenue adjustments. The companies intend to seek a rehearing on certain aspects of the order.

Key Highlights

1PUCO issued an order approving modified Electric Security Plans (ESPs) for CSPCo and OPCo, effective through 2011, if accepted.
2The order authorizes rate increases for customers, capped annually at 6-8% for CSPCo and OPCo respectively, to be effective retroactively from January 1, 2009.
3Projected increased revenues for CSPCo are approximately $116M (2009), $109M (2010), and $116M (2011).
4Projected increased revenues for OPCo are approximately $130M (2009), $125M (2010), and $153M (2011).
5A Fuel Adjustment Clause (FAC) allows pass-through of actual fuel costs, with mechanisms to defer unrecovered fuel costs due to caps and recover them later.
6PUCO approved recovery for environmental investments made from 2001-2008 and 90% of a Provider of Last Resort charge.
7The companies plan to file motions for rehearing on certain elements of the PUCO order.

AMERICAN ELECTRIC POWER CO INC 8-K Report, Corporate Update (Mar 24, 2009)

Summary

Key Highlights

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