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American Electric Power : Power customers speak out against rate hike

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05/27/2018 | 12:11pm CEST

HUNTINGTON - A proposed rate increase by Appalachian Power is being met with criticism by customers who say West Virginia residents living on fixed incomes will be hard hit.

And many also aren't pleased by part of the rationale for the hike request - that less electricity usage means the power company needs to raise their customers' monthly bills.

Kay Dick, of Wayne, says she doesn't know one person in her area who is not opposed to Appalachian Power's request to raise residential customers' rates by 11 percent.

"It's just my husband and me living in my home and we don't even use electric for heating our home in the wintertime, but we still got a bill this past December for $370," she said.

Dick, 66, says both she and her husband are on fixed incomes and do everything to try to keep their electric costs down.

"They tell us to conserve and we do, and now they want more money due to less usage by customers," she said. "It just doesn't make any sense to me. My father is also on a fixed income of $700 a month, so what is he going to do?"

Appalachian Power officials, however, say the increase is needed because no matter the level of electricity usage, the company still needs to maintain the infrastructure allowing electricity to be delivered.

But that justification isn't good enough and the higher rates would hurt many households, critics say.

The rate increase, as well as one also being sought by the state's largest water utility, West Virginia American Water, combined with declining or stagnant wages in the state could lead to more economic hardship for families, according to an official with the West Virginia Center on Budget and Policy.

"Over the last several decades, real inflation adjusted wages in West Virginia have declined or stagnated for most workers, and median house income has been stagnant since the beginning of the Great Recession," said Ted Boettner, executive director of the policy research organization that is nonpartisan, nonprofit and statewide.

Boettner says the proposed 11 percent increase for residential customers doesn't seem fair when compared with the power company's industrial customers.

"It is awfully high compared to the 1 percent rate increase for industrial customers," Boettner said. "This is interesting since AEP (American Electric Power, Appalachian Power's parent company) cites industrial load loss as a major problem. Without larger increases in pay or income for most working families, AEP's rate increase means more economic hardship for families in West Virginia."

Customer concerns

Sherri Wilmoth Rhodes, of Culloden, is a Tamarack artist with a home business that is her sole income and says the recent rate increase request by Appalachian Power would not only hurt her as an individual, but would also hurt her business.

"I worked really hard and use less power each month. I am saving about $15 per month. Now I am being rewarded for my hard work with a $15 rate hike because I am using so much less electricity," she said. "That effort to conserve electricity also meant cutting back on business use, which caused me to lose money in my business as well."

Brandon Reed, of Huntington, says he believes many people are leaving the state because of the high rates already being charged by the power company.

"I know people that moved to Kentucky due to cheaper housing and utility costs," he said. "They are saving tons. People around here already can't afford their service. Raising bills even more will put the nail in the coffin and send even more people out of our state."

For Dick, moving out of the state isn't an option.

"Most elderly folks can't or aren't going to move out of West Virginia," she said. "I guess we would just have to suffer through it, like we have been doing every time they are granted these rate increases."

Rate increase request

When Appalachian Power recently announced its rate increase request with the state's Public Service Commission, it cited a significant decline in the amount of electricity being used by customers as well as declines in population.

"Traditionally, revenue from increasing customer usage has been used to offset some increases in the cost of doing business, thereby lessening the need for rate increases," said Jeri Matheney, spokesperson for the power company. "However, customer usage has been declining for the last several years. For residential customers as a whole, electricity usage has dropped by 14 percent since 2013. The number of residential customers has also declined, dropping by 11,000 since 2013."

Appalachian Power Co. and Wheeling Power filed a request for a $114.6 million revenue increase. If approved, the request would raise overall rates in West Virginia by 7.85 percent, but residential and commercial customers would see rates increase by more than 11 percent.

Under the proposal, residential customers' bills would go up about $15 a month.

Matheney said the rate request also factors in the cost of maintaining and improving utility infrastructure, higher state and local taxes, a reduction in federal income taxes and significantly lower customer usage.

She said driving the need for increased rates is the company's major infrastructure investments in the past several years. These include investments in generation facilities, the transmission system serving the region, and distribution facilities, including upgrades to the underground distribution networks in Huntington, Charleston and Wheeling.

"Our goal is to balance our customers' service expectations with the need to keep prices as low as possible," she said.

Winter power bills already high

This past winter, many AEP customers reported bills ranging from $300 to $800.

"What are those bills going to look like if this rate increase is granted?" Dick asked. "I don't know what they expect people to do."

Matheney said the rate request is based on power company costs in 2017, and not those in 2018.

"We had a couple of very cold weeks in which customers saw increased usage during the cold period," she said. "But overall, it doesn't mean a lot over a year's period of time."

Matheney said it is true that many customers, like Dick and Rhodes, are trying to save money by using less power, and they should continue doing it.

"AEP offers a weatherization program," she said. "Rate payers may request an AEP representative to walk through their homes and point out ways that weatherization can help save money. For customers, there is still no better way to control usage than using our weatherization program."

However, she says the fact remains that AEP is losing customers in West Virginia and overall usage is down.

"We need to develop the economy in West Virginia and grow the state," she said. "That could possibly lead to lower rates in the future."

For now, Matheney said the company is also proposing changes to its rate structure that would help to reduce high winter electric heating bills and seasonal bill volatility for residential customers.

"We are proposing a low kilowatt hour charge to all customers that use over 1,100 kilowatt hours during the months of December, January and February," she said. "We believe this rate structure would smooth out seasonal bill problems for many customers."

That rate structure change would also have to be approved by the PSC.

Fewer requests for help

While many have expressed concerns about the proposed increase, not as many people have been seeking government help with their electric bills. That, too, might stem from a declining population.

According to the West Virginia Department of Health and Human Resources (DHHR), those seeking assistance from the Low Income Energy Assistance Program (LIEAP) have continued to decline and it's not due to a lack of funding for the program.

"It is due to declining requests," said Jessica Holstein, assistant director of communications for the DHHR.

In 2013, 82,173 West Virginians were assisted by the DHHR in covering utility costs. But those assisted in 2016 totaled 63,753, and the number dropped to 62,946 in 2017 according to the DHHR. In 2018, the combined number of households that received assistance totaled 53,854.

"That is the total number of households assisted either by regular LIEAP, emergency LIEAP, or both," Holstein said.

The LIEAP program assists eligible households with the cost of home heating through direct cash payments or payments to utility companies on their behalf.

AEP's return on equity

Dick says she would like to know what AEP's profits are.

"Is this more profit for them at customers' expense?" she asked.

Boettner says the rate proposal is hard to reconcile with the 10.22 percent return on equity that AEP received in 2017.

"Broadly speaking, West Virginia families are paying the price for past investment and policy decisions that were tilted toward investing more in coal generation when it was clear that natural gas was cheaper and that we should have moved toward energy efficiency and decentralized power generation," he said.

However, Matheney said earning a fair return on equity is critical to the company's ability to do business.

"It directly affects bond ratings and therefore the cost to finance infrastructure improvements, make long-term investments and provide reliable electricity," she said.

AEP reported fourth-quarter 2017 earnings of $401 million, or $0.81 per share. Year-end 2017 earnings were $1.913 billion, or $3.89 per share, according to a company news release in January.

Utilities' federal tax savings

Another element in the utility rate mix is the lower federal income tax that utilities are expected to pay under the tax cuts passed by Congress and signed by President Donald Trump late last year.

The PSC said it has directed all privately owned utilities to trace the tax savings from the new lower federal income tax rate. They said those utilities should file testimony with the commission by May 30, explaining the impact of the new federal tax law on their business.

The PSC said based on the information gathered, adjustments to utility rates should be made to ensure that customers are treated fairly.

AEP's rate increase already has accounted for the tax savings, Matheney said.

"The company's filing reflects the lower federal income tax rate and other benefits of the Tax Cuts and Jobs Act of 2017," Matheney said. "These changes in federal income taxes reduced the company's request by approximately $52 million. The company also recently filed a proposal to use additional federal tax reform savings to offset almost $132 million in unrecovered fuel and vegetation management costs, allowing rates for those charges to remain unchanged. Additional federal tax reform savings will be addressed in a separate ongoing commission proceeding."

The PSC said it couldn't comment on AEP's filing and testimony until after the May 30 deadline.

"This will be one of many issues the commission will address in the case," said West Virginia PSC spokesperson Susan Small.

History of AEP rate increases

In 2010, AEP requested a $155.5 million rate increase, or 13.8 percent. AEP and the PSC signed a joint stipulation agreeing to a rate increase of $60 million, or 5.36 percent, but the PSC modified and lowered that amount to $51.12 million, or 4.6 percent.

In 2014, the power company asked for a rate increase of $226.04 million, or 16.48 percent, but was only granted a $79 million increase, or 5.76 percent.

However, a total increase of $123.457 million was announced in the May 26, 2015, final order from the PSC that included the recovery of costs for the new vegetation management program through a surcharge. Only $79 million of the total was an increase in base rates, according to the PSC.

While the company requested a June 8, 2018, effective date for its latest proposed increase, rates will not be put into effect until approved by the PSC, which can take up to 300 days to make its decision.

All the documents filed in the 2018 rate case (case No. 18-0646-E-42T) are available on the West Virginia Public Service Commission website at http://www.psc.state.wv.us/.

Follow reporter Fred Pace at Facebook.com/FredPaceHD and via Twitter @FredPaceHD.

© Copyright (c) 2018 H-D Media Company, LLC, source Newspapers

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Financials ($)
Sales 2018 15 267 M
EBIT 2018 3 268 M
Net income 2018 1 887 M
Debt 2018 25 239 M
Yield 2018 3,73%
P/E ratio 2018 17,55
P/E ratio 2019 16,26
EV / Sales 2018 3,82x
EV / Sales 2019 3,81x
Capitalization 33 107 M
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American Electric Power Technical Analysis Chart | AEP | US0255371017 | 4-Traders
Technical analysis trends AMERICAN ELECTRIC POWER
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Mean consensus OUTPERFORM
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Average target price 73,4 $
Spread / Average Target 9,2%
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Nicholas K. Akins Chairman, President & Chief Executive Officer
Ashley M. Weaver Vice President-Operations
Brian X. Tierney Chief Financial Officer & Executive Vice President
Alberto G. Ruocco Chief Information Officer & Vice President
Lionel L. Nowell Independent Director
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