AEP seeks retail provider rate hike

Austin, TX, Nov. 10, 2006 — American Electric Power (AEP) subsidiaries Texas Central Co. (TCC) and Texas North Co. (TNC), which make up its AEP Texas operating unit, filed requests with the Public Utility Commission of Texas (PUCT) to increase the transmission and distribution rates charged to retail electric providers (REPs).

The rate requests include the amounts that the REPs are charged for the delivery of electricity over TCC’s and TNC’s transmission and distribution lines. TCC is seeking approval of an $82.7 million increase, which includes the expiration of $20 million in billing credits that have been in place since 2000. TNC is seeking approval of a $25 million increase, which includes the expiration of $6.2 million in billing credits that have been in place since 2000.

If the requests are approved by the PUCT, and assuming the REPs pass the full amount on to their customers, the increase for a residential customer using 1,000 kilowatt-hours a month of electricity in the TCC service area would be around $4.17 a month, said AEP. The increase for a customer in the TNC service territory would be about $1.24 a month according to AEP.

Current charges to the REPs by TCC and TNC are not sufficient to cover the companies’ cost of delivering electricity, according to Charles Patton, AEP Texas president and COO. He noted that the 2005 Earnings Monitoring Report filed with the PUCT showed a return on equity of about 2 percent for TCC and about 6 percent for TNC. Most other investor-owned transmission and distribution companies in the Electric Reliability Council of Texas (ERCOT) are earning 10 percent or more.

Additional investment in transmission and distribution facilities, as well as cost increases that have occurred since 2005, have compounded the problem, Patton added.

“We know the overall price of electricity has risen dramatically over the last few years, and it’s a major concern for all of us,” Patton said. “It is important to remember, however, that TCC and TNC do not bill the end-use customer. We bill the retail electric providers through our wires charge. The REPs then consider the delivery charge along with their own supply costs and bill the retail end-use customer. The charges associated with energy delivery in the TCC and TNC service territories are approximately 20 to 25 percent of a typical residential customer’s total bill. While overall prices have increased substantially, the wires charges by TCC and TNC have remained essentially constant since retail competition began in 2002.”

The requested revenue requirement in both proceedings is based on a test year for the 12 months ending June 30, 2006. The test year revenue requirement requested in the proceedings reflects the ongoing level of activity, investment and expenses that TCC and TNC will incur to provide transmission and distribution service in their service areas. TCC and TNC are requesting a return on equity of 11.25 percent with a capital structure of approximately 60 percent debt/40 percent equity.

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