Sargent`s Court Reporting Service, Inc.

Transcription

PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
* * * * * * * * *
IN RE: APPALACHIAN POWER COMPANY
*
AND WHEELING POWER COMPANY
* 10-0577-E-PC
BOTH d/b/a AMERICAN
*
ELECTRIC POWER AND AEP
*
WEST VIRGINIA TRANSMISSION
*
COMPANY, INC.
*
* * * * * * * * * * * *
HEARING TRANSCRIPT
* * * * * * * * * * * *
BEFORE:
MICHAEL ALBERT, Chairman
JON MCKINNEY, Commissioner
RYAN PALMER, Commissioner
HEARING:
Tuesday, June 14, 2011
9:31 a.m.
LOCATION:
PSC Howard M. Cunningham
Hearing Room
201 Brooks Street
Charleston WV
Reporter: Leslie Blake
Any reproduction of this transcript
is prohibited without authorization
by the certifying agency.
Sargent's Court Reporting Service, Inc.
(814) 536-8908
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A P P E A R A N C E S
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3
LESLIE J. ANDERSON, ESQUIRE
4
West Virginia Public Service Commission
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201 Brooks Street
6
Charleston, WV
7
25323
Counsel for the Staff
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9
DAVID A. SADE, ESQUIRE
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Consumer Advocate Division
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Public Service Commission of West Virginia
12
700 Union Building
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723 Kanawha Boulevard, East
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Charleston, WV
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25301
Intervener for Consumer Advocate Division
16
17
SUSAN J. RIGGS, ESQUIRE
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Spilman, Thomas & Battle, PLLC
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Spilman Center
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300 Kanawha Boulevard, East
21
Post Office Box 273
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Charleston, WV
23
25321-0273
Intervener for West Virginia Energy User Group
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25
(814) 536-8908
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A P P E A R A N C E S (continued)
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WILLIAM C. PORTH, ESQUIRE
4
Robinson & McElwee, PLLC
5
Post Office Box 1791
6
700 Virginia Street East
7
Charleston, WV
8
25301
Counsel for the Applicants
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(814) 536-8908
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INDEX TO WITNESSES
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DISCUSSION AMONG PARTIES
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WITNESS: ROBERT C. GRIFFINS
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DIRECT EXAMINATION
6
7
8
9
10
By Attorney Porth
By Attorney Sade
By Chairman Albert
12
By Attorney Porth
13
WITNESS: JERALD R. BOTELER
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DIRECT EXAMINATION
17
18
19
20
21
By Attorney Porth
By Commissioner Palmer
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22 - 26
27 - 28
EXAMINATION
By Chairman Albert
29 - 40
CROSS EXAMINATION
By Attorney Sade
REDIRECT EXAMINATION
23
By Attorney Porth
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20 - 21
EXAMINATION
22
24
18 - 19
EXAMINATION
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13 - 17
CROSS EXAMINATION
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15
10 - 13
40 - 41
42
RE-EXAMINATION
By Chairman Albert
(814) 536-8908
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INDEX TO WITNESSES (continued)
2
3
WITNESS: CHRIS POTTER
4
DIRECT EXAMINATION
5
6
7
8
9
10
11
12
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By Attorney Porth
CROSS EXAMINATION
By Attorney Sade
By Attorney Anderson
By Chairman Albert
By Attorney Sade
16
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By Attorney Porth
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WITNESS: LISA M. BARTON
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DIRECT EXAMINATION
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24
58 - 61
EXAMINATION
15
22
55 - 58
EXAMINATION
RECROSS EXAMINATION
21
49 - 55
CROSS EXAMINATION
14
20
44 - 48
By Attorney Porth
62 - 69
69 - 71
72
73 - 77
CROSS EXAMINATION
By Attorney Sade
77 - 82
CROSS EXAMINATION
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(814) 536-8908
83 - 86
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1
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EXAMINATION
EXAMINATION
By Chairman Albert
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RECROSS EXAMINATION
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By Attorney Sade
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RECROSS EXAMINATION
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11
12
By Attorney Porth
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WITNESS: BYRON L. HARRIS
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DIRECT EXAMINATION
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17
18
19
20
21
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86 - 91
By Attorney Sade
92 - 106
106 - 110
110 - 115
114
114 - 115
116 - 117
CROSS EXAMINATION
By Attorney Porth
117 - 119
EXAMINATION
120 - 122
EXAMINATION
By Chairman Albert
122 - 123
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(814) 536-8908
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2
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WITNESS: THOMAS D. SPRINKLE
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DIRECT EXAMINATION
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CERTIFICATE
124 - 126
126 - 128
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(814) 536-8908
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E X H I B I T S
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Page
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Number
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Company:
6
One
Description
Offered
Application
13
Direct Testimony from Mr. Griffin
14
Direct Testimony from Mr. Boteler
24
7
8
RCG:
9
One
10
11
JRB:
12
One
13
14
JRB Rebuttal:
15
One
Rebuttal Testimony from Mr. Boteler
25
45
16
17
CP:
18
One
Direct Testimony of Mr. Potter
19
Two
Additional Information Submitted
20
10/22/10
46
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CP Rebuttal:
23
One
Rebuttal Testimony from Mr. Potter
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(814) 536-8908
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E X H I B I T S (continued)
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Page
3
Number
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LMB:
5
One
Description
Offered
Direct Testimony from Ms. Barton
74
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7
LMB Rebuttal:
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One
Rebuttal Testimony from Ms. Barton
75
9
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CAD Cross:
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One
4/21/11 Order Approving Contested
12
Settlement and Dismissing Request
13
for Re-hearing
108
Direct Testimony of Mr. Harris
116
14
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CAD BHL:
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D
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Staff TDS:
19
D
Direct Testimony of Mr. Sprinkle
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21
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(814) 536-8908
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P R O C E E D I N G S
2
---------------------------------------------------------
3
CHAIRMAN:
4
Okay.
5
Power Company's case number 10-0577-E-PC.
6
more than just Appalachian.
7
morning.
8
Wheeling Power and West Virginia Transmission Company,
9
who we'll just call Transco, filed a petition for consent
We are here for Appalachian
It involves
The hearing will begin this
And it's based on an April 23rd, 2010 APCo,
10
and approval of an arrangement among affiliates to plan,
11
construct, own, operate, manage and control facilities
12
within the State of West Virginia for transmission of
13
electricity on the wholesale level to its customers
14
including APCo and Wheeling Power.
15
is a West Virginia Public Service Corporation.
16
member as of January 12th, 2010 of PJM Interconnections.
17
Transco service will be subject to both the Commission
18
West Virginia Transco
It's a
and FERC regulation.
19
The Petitioners are proposing that
20
Transco develop and own only new transmission assets
21
within the State of West Virginia that are not currently
22
in service or under development.
23
characterization.
24
forward if this is not accurate.
25
the case may be, will retain ownership of all
This is our
You can correct the record as we go
APCo or Wheeling, as
(814) 536-8908
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1
transmission assets currently in service and all
2
transmission assets under development that either has
3
incurred costs construct --- that either of those
4
entities has incurred costs to construct.
5
Petitioners request consent and approval pursuant to
6
24.2.12(i) of service agreements between APCo and Transco
7
and WPCo and Transco and the American Electric Power
8
Service Corporation and Transco and APCo and ADEPT ---
9
AEPTCo and to participate in the AEP Utility Money Pool.
The
10
11
With that, my name is Mike Albert.
12
Chairman of the Commission.
13
one of our Commissioners.
14
also one of our Commissioners.
15
take appearances.
I'm
On my right is Jon McKinney,
And on my left is Ryan Palmer,
And with that, we will
Mr. Porth.
16
ATTORNEY PORTH:
17
Thank you, Your Honor.
My name is
18
William Porth with the law firm Robinson and McElwee,
19
PLLC.
20
Appalachian Power Company, Wheeling Power Company and
21
AEP, West Virginia Transmission Company, Inc., the
22
Applicants in this matter.
And I am appearing here today on behalf of
23
CHAIRMAN:
24
Thank you, sir.
25
ATTORNEY SADE:
Mr. Sade.
(814) 536-8908
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Good morning, Mr. Chairman,
2
Commissioners.
3
Division.
David Sade for the Consumer Advocate
4
CHAIRMAN:
5
Ms. Riggs?
6
ATTORNEY RIGGS:
7
Good morning, Chairman, Commissioners.
8
Susan Riggs, Spilman, Thomas and Battle, Charleston, West
9
Virginia, on behalf of the West Virginia Energy Users
10
Group.
And for today's proceeding the group includes Air
11
Products and Chemicals, Inc., Alcan Rolled Products,
12
Bayer CropScience, Bayer MaterialScience, E.I. du Pont de
13
Nemours and Company, EQT Corporation, Globe
14
Metallurgical, Huntington Alloys Corporation and PPG
15
Industries, Inc.
Thank you.
16
CHAIRMAN:
17
Thank you, Ms. Riggs.
18
ATTORNEY ANDERSON:
19
On behalf of the Staff I'm Leslie
20
Anderson and with me today is Thomas D. Sprinkle from the
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Utilities Division.
22
CHAIRMAN:
23
All right.
24
25
Fine.
Thank you.
preliminary matters, Mr. Porth?
ATTORNEY PORTH:
(814) 536-8908
Any
13
1
Not really preliminary, Your Honor.
2
Since the application will be sponsored by different
3
witnesses, different pieces of it, perhaps I just ask
4
initially that the application be identified for the
5
record as Company Exhibit Number One.
6
CHAIRMAN:
7
All right.
The application filed at
8
this proceeding will be identified as Company Exhibit
9
One.
10
(Company Exhibit Number One marked for
11
identification.)
12
CHAIRMAN:
13
Call your first witness.
14
ATTORNEY PORTH:
15
The Company is calling Robert C.
16
Griffin.
17
---------------------------------------------------------
18
ROBERT C. GRIFFIN, HAVING FIRST BEEN DULY SWORN,
19
TESTIFIED AS FOLLOWS:
20
---------------------------------------------------------
21
DIRECT EXAMINATION
22
BY ATTORNEY PORTH:
23
Q.
Good morning, Mr. Griffin.
24
A.
Good morning.
25
Q.
Is the blue light on on your microphone there?
(814) 536-8908
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A.
It is now.
2
Q.
Okay.
3
position and business address for the record?
4
A.
5
Regulated Accounting for the American Electric Power
6
Service Corporation.
7
Columbus, Ohio.
8
Q.
9
proceeding?
Would you please state your name, your
My name is Robert C. Griffin.
I'm a manager of
I work at 1 Riverside Plaza,
Have you submitted direct testimony in this
10
A.
Yes, I have.
11
Q.
Do you have it there in front of you?
12
A.
Yes, sir.
13
Q.
Does it consist of six pages of questions and
14
answers captioned on the first page, RCG Exhibit Number
15
One?
16
A.
Yes, sir.
17
ATTORNEY PORTH:
18
Your Honor, may that exhibit be so
19
marked for the record?
20
CHAIRMAN:
21
RCG Number One is Mr. Griffin's Direct
22
testimony.
23
(RCG Exhibit Number One marked for
24
identification.)
25
ATTORNEY PORTH:
(814) 536-8908
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1
Correct.
2
BY ATTORNEY PORTH:
3
Q.
4
in RCG Exhibit Number One?
5
A.
No, sir, I do not.
6
Q.
If I were to ask questions set forth therein
7
would your answers be the same as indicated?
8
A.
Yes, sir, they would.
9
Q.
And do you adopt RCG Exhibit Number One as part
Mr. Griffin, do you have any corrections to make
10
of your evidence in these proceedings?
11
A.
Yes, sir, I do.
12
Q.
Are you sponsoring any portions of the Company's
13
application in this case?
14
A.
Yes, sir, I am.
15
Q.
Could you identify the portions which you are
16
sponsoring?
17
CHAIRMAN:
18
Hold on just a second.
19
ATTORNEY SADE:
20
Your Honor, if I may have a
All right.
21
clarification here.
Quite frankly, I can't remember a
22
previous instance of having different witnesses
23
sponsoring different portions of an initial petition or
24
application.
25
of that fragmented sponsorship that Counsel are free to
Would it be safe to assume that regardless
(814) 536-8908
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ask questions of the witness on any matter contained in
2
the application assuming, of course, that the witness has
3
no knowledge of matters in that application.
4
could just indicate that.
5
CHAIRMAN:
6
Sure.
7
ATTORNEY SADE:
8
Thank you.
9
ATTORNEY PORTH:
10
That's fine.
The Company certainly has no objection
11
to that.
12
case.
13
the Rule 42 filing.
We regard it as rather analogous to a base rate
Different witnesses sponsor different schedules of
14
CHAIRMAN:
15
That's fine.
16
And they
If he does not know the
answer, he can just say ---
17
ATTORNEY PORTH:
18
Sure.
19
CHAIRMAN:
20
--- he didn't know it.
21
BY ATTORNEY PORTH:
22
Q.
23
of Company Exhibit Number One, the Application that you
24
are sponsoring?
25
A.
So, Mr. Griffin, can you identify which portions
Yes, sir.
On page three of my testimony, I
(814) 536-8908
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1
detailed that out.
I sponsor Exhibit C-1, the Service
2
Agreement between APCo and West Virginia Transco.
3
the Service Agreement between Wheeling Power and West
4
Virginia Transco.
5
Agreement between the Service Corporation and West
6
Virginia Transco.
7
Exhibit G, the proposed agreement between Service
8
Corporation and West Virginia Transco.
9
Q.
C-2,
Exhibit D, the Application and Service
Exhibit E, the allocation factors and
The four service agreements are legal documents,
10
so I would assume that you did not draft them yourself.
11
A.
That's correct.
12
Q.
But you were familiar with all five of the
13
exhibits to the application which you are sponsoring?
14
A.
Yes, sir, I am.
15
Q.
And to the best of your information and belief,
16
is the information reflected in those exhibits accurate?
17
A.
Yes, sir, it is.
18
Q.
And you're prepared to sponsor them and take
19
examination on them here today?
20
A.
I did not.
Yes, sir, I am.
21
ATTORNEY PORTH:
22
Thank you.
23
ATTORNEY PORTH:
24
Your Honor, I would move the exhibit
25
subject to Cross of RCG Exhibit Number One.
(814) 536-8908
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CHAIRMAN:
2
All right.
3
ATTORNEY PORTH:
4
And Mr. Griffin is available for Cross
5
To be admitted.
Examination.
6
ATTORNEY SADE:
7
8
CROSS EXAMINATION
9
BY ATTORNEY SADE:
10
Q.
Good morning, Mr. Griffin.
11
A.
Good morning.
12
Q.
Would you turn to page four of your testimony,
13
please?
14
A.
Yes, sir.
15
Q.
On this page you described the purposed Service
16
Agreements between the Transportation entity, which I'm
17
going to call Transco from here on out and AEP Service
18
Company and APCo and Wheeling.
19
A.
Yes, sir, I do.
20
Q.
Will the Transportation Company, Transco, have
21
any direct employees?
22
A.
23
not have any direct employees.
24
Q.
25
AEP, APCo or Wheeling Power?
It's the Transmission Company and, no, they will
So all services of Transco will be provided by
(814) 536-8908
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1
A.
That's correct.
2
Q.
And if under the current arrangement, if APCo
3
were interested in constructing a transmission facility
4
today, it would rely, I assume, on personnel from AEP
5
Service Company or its own personnel?
6
A.
7
organization is fully integrated and some of the
8
employees are Service Corporation employees.
9
the employees are operating company employees, but it's
Yes, sir.
That's correct.
The transmission
And some of
10
all managed as a transmission entity.
11
Q.
Right.
12
A.
The Transmission Company will not have direct
13
employees.
14
Q.
15
transmission facilities to be constructed in West
16
Virginia nothing will change from a functional or
17
operating standpoint under the change.
18
facilities now will be owned by --- or if the arrangement
19
is approved, the facilities will be owned by Transco.
20
A.
With no direct employees.
I'm sorry.
That's what I meant.
Okay.
Just the
That is correct.
21
ATTORNEY SADE:
22
That's all I have.
23
CHAIRMAN:
24
Ms. Riggs?
25
ATTORNEY RIGGS:
So for
Thank you.
(814) 536-8908
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No questions, Your Honor.
2
CHAIRMAN:
3
Staff?
4
ATTORNEY ANDERSON:
5
6
CHAIRMAN:
7
Commissioners?
8
COMMISSIONER PALMER:
9
No questions.
10
COMMISSIONER MCKINNEY:
11
No.
12
CHAIRMAN:
13
It may be in somebody else's testimony.
14
I didn't see it.
One of the issues that the CAD raised
15
related to deferring our ruling until there's been a
16
ruling in Virginia, and I didn't see where that was
17
addressed or handled by you or any other witness.
18
that something that you're prepared to address?
19
A.
20
directed at our company witness, Ms. Barton.
21
CHAIRMAN:
22
Most of my questions were for her, so
No, sir, I'm not.
Is
I think that would be better
23
that will work out all right.
24
the Virginia proceeding?
25
A.
Do you know the status of
We withdrew our application out.
Other than
(814) 536-8908
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1
that, I don't know, sir.
2
CHAIRMAN:
3
I knew you'd withdrawn it.
4
been re-filed?
5
A.
It's not
Not to my knowledge.
6
ATTORNEY PORTH:
7
I have one on Redirect.
8
CHAIRMAN:
9
Sure, sure.
10
11
BY ATTORNEY PORTH:
12
Q.
13
pre-Transco, Appalachian will also contract from time to
14
time with third party contractors to do construction
15
work; is that correct?
16
A.
That is correct.
17
Q.
And is that something that West Virginia Transco
18
might do as well?
19
A.
Mr. Griffin, under the current arrangement
Yes, sir.
That's correct.
20
ATTORNEY PORTH:
21
That's all.
22
CHAIRMAN:
23
You're excused.
24
25
A.
Thank you.
Thank you.
ATTORNEY PORTH:
(814) 536-8908
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The Company calls its next witness, Mr.
2
Jerald R. Boteler, Jr.
3
---------------------------------------------------------
4
JERALD R. BOTELER, JR., HAVING FIRST BEEN DULY SWORN,
5
6
---------------------------------------------------------
7
ATTORNEY PORTH:
8
Now, Your Honor, Mr. Boteler is the
9
first Company witness who has filed both a Direct and
10
rebuttal testimony.
If it's agreeable to the Commission,
11
the Companies are prepared to put on its witnesses who
12
have both Direct and rebuttal simultaneously on both
13
pieces of testimony preserving only the right to recall
14
them at the rebuttal stage in the event that something
15
comes up like a Direct Examination of other witnesses
16
which they might need to rebut.
17
CHAIRMAN:
18
That's fine.
19
That's what we
traditionally do.
20
ATTORNEY PORTH:
21
Thank you.
22
DIRECT EXAMINATION
23
BY ATTORNEY PORTH:
24
Q.
25
your position and business address for the record?
Mr. Boteler, would you please state your name,
(814) 536-8908
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1
A.
My name is Jerald R. Boteler, Jr.
2
managing director in the Corporate Group at American
3
Electric Power Service Corporation.
4
CHAIRMAN:
5
Boteler?
6
A.
Boteler (corrects pronunciation).
7
CHAIRMAN:
8
Okay.
9
A.
I'm a
I get Boteler, Boteler (changes pronunciation).
10
I've been called a number of different names.
11
CHAIRMAN:
12
Just so we're called by the correct
13
names.
14
BY ATTORNEY PORTH:
15
Q.
16
this proceeding?
17
A.
Yes, I did.
18
Q.
And do you have it there in front of you?
19
A.
Yes, I do.
20
Q.
Does it consist of seven pages of questions and
21
answers captioned on the first page, JRB Exhibit Number
22
One?
23
A.
Mr. Boteler, did you file Direct testimony in
Yes, it does.
24
ATTORNEY PORTH:
25
Your Honor, may Mr. Boteler's Direct be
(814) 536-8908
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1
identified as JRB Exhibit Number One for the record?
2
(JRB Exhibit Number One marked for
3
identification.)
4
CHAIRMAN:
5
It may.
6
BY ATTORNEY PORTH:
7
Q.
8
Exhibit Number One?
9
A.
No, I do not.
10
Q.
If I were to ask you questions set forth in JRB
11
Exhibit Number One would your answers be as indicated?
12
A.
Yes, they would.
13
Q.
Do you adopt JRB Exhibit Number One as part of
14
your evidence in this proceeding?
15
A.
Yes, I do.
16
Q.
And, Mr. Boteler, did you also file a rebuttal
17
testimony in this proceeding?
18
A.
Yes, I did.
19
Q.
Does that consist of four pages of questions and
20
answers?
21
A.
Do you have any corrections to make in JRB
Yes, it does.
22
ATTORNEY PORTH:
23
Your Honor, in the final version, the
24
designation on Mr. Boteler's rebuttal testimony is
25
incorrect.
It says JRB Exhibit Number One, which is the
(814) 536-8908
25
1
same as his Direct testimony.
We would ask that it be
2
marked for the record as JRB Rebuttal Exhibit Number One.
3
CHAIRMAN:
4
All right.
5
(JRB Rebuttal Exhibit Number One marked
6
for identification.)
7
BY ATTORNEY PORTH:
8
Q.
9
Rebuttal Exhibit Number One?
It will be so marked.
Do you have any corrections to make in JRB
10
A.
I do not.
11
Q.
And if I asked you the questions set forth
12
therein would your answers be as indicated?
13
A.
Yes, they would.
14
Q.
And do you adopt JRB Rebuttal Exhibit Number One
15
as part of your evidence in this proceeding?
16
A.
Yes, I do.
17
Q.
Mr. Boteler, are you sponsoring any portion of
18
the company's application, Company Exhibit Number One?
19
A.
Yes, I am.
20
Q.
Could you identify what those are?
21
A.
Yes.
22
the application, which are a copy of the AEP System
23
Amended and Restated Utility Money Pool Agreement and a
24
proposed amendment to the AEP Utility Money Pool
25
respectfully.
I'm sponsoring the Exhibits F-1 and F-2 of
(814) 536-8908
26
1
Q.
2
by lawyers, I think?
3
A.
4
by the AEP legal department.
5
Q.
6
understand them?
7
A.
Yes.
8
Q.
And you're prepared to sponsor them and take an
9
examination of them?
10
A.
And these are legal documents which are drafted
Yeah.
Exhibit F-2 is a legal document prepared
But you have reviewed them thoroughly and
Yes, I am.
11
ATTORNEY PORTH:
12
Your Honor, I would move for the
13
admission of JRB Exhibit Number One and JRB Rebuttal
14
Exhibit Number One subject to Cross.
15
CHAIRMAN:
16
All right.
17
Without objection, it will
be admitted.
18
ATTORNEY PORTH:
19
And Mr. Boteler is available for Cross.
20
ATTORNEY SADE:
21
CAD has no Cross.
22
CHAIRMAN:
23
Ms. Riggs?
24
ATTORNEY RIGGS:
25
No Cross.
Thank you.
(814) 536-8908
27
1
ATTORNEY ANDERSON:
2
Staff has no Cross with this witness,
3
Your Honor.
4
CHAIRMAN:
5
It sounds like a conspiracy.
6
Questions?
7
8
Just briefly.
9
In this case we've seen
a lot of testimony indicating that pure transmission
10
related financing is looked upon very favorably.
11
an accurate reading of the ---?
12
A.
Is that
That's correct.
13
14
And so if in this case, if all the
15
major transmission was put in by AEP West Virginia
16
Transmission would there ultimately be a detrimental
17
impact on APCo as a generation and distribution upgrades
18
or expansion requirements because its relative
19
transmission related investments have dropped?
20
there be sort of a detrimental affect on APCo to do that?
21
A.
22
the impacts of retaining that investment in Appalachian
23
and Wheeling Power as well as having it in separate
24
entity, West Virginia Transmission.
25
belief that it will not have a detriment.
No, I do not believe so.
Could
We've examined both
And it's our --- my
And that
(814) 536-8908
28
1
position is further supported by the White Paper that we
2
had commissioned, Julie Cannell of White Paper on Transco
3
investments.
4
5
But is it true that as time progresses,
6
unfolded this plan as it is set forth here that their
7
relative transmission related investment would drop to a
8
certain extent for APCo over time?
9
A.
There would be some decline, but it would still
10
be transmission built at Appalachian and Wheeling Power
11
as need be for various technical reasons that I'm not
12
really qualified to separate.
13
that we're moving that investment from Appalachian and
14
Wheeling Power.
15
those companies by removing capital investment since they
16
have a limited budget for capital investments, limited
17
cash flow to investing in capital projects.
18
some capital from that list of projects allows a little
19
bit more flexibility in other projects that they can
20
invest in thereby providing benefits.
21
supported in Julie Cannell, White Paper, which I believe
22
was a part of CAD --- what I'm trying to say ---.
23
filings that we made with respect to their questions as
24
part of the case.
25
However, I would point out
It also has been a beneficial effect on
Removing
Again, this is
ATTORNEY SADE:
(814) 536-8908
The
29
1
2
If I may clarify, Your Honor, it was
provided to the parties in response to a CAD depo.
3
CHAIRMAN:
4
It's not in the record.
5
ATTORNEY SADE:
6
It is not in the record.
7
8
Thank you very much.
9
CHAIRMAN:
10
Following up on Commissioner Palmer's
11
questions, you say you examined the impact.
How did you
12
examine the impact of generations?
13
APCo, outside of APCo and it's in Transco.
14
A.
15
generations per se.
16
investments.
17
budget you process at Appalachian Power or Wheeling
18
Power, you then have better --- Appalachian Power is
19
better positioned to meet its existing capital needs.
20
You've just taken some budget off --- constraints off of
21
them.
You say it was in
Well, we didn't examine the impact of
We looked at transmission
So if you remove that capital from the
22
CHAIRMAN:
23
Does it go to the substance of the type
24
of investment or is it simply that they have --- they're
25
not required to invest, therefore, they're not required
(814) 536-8908
30
1
to invest in transmission.
Therefore, they have more
2
money to spend on their distribution and other projects.
3
A.
4
to spread to other generation, distribution and the
5
remaining transmission projects that were built.
6
However, there's also a side benefit in that when you
7
build that transmission in a transmission only entity you
8
then give investors a choice of how they can invest their
9
capital in your business.
Well, it is the latter that they have more money
So that those investors can
10
then choose to invest monies in a vertically integrated
11
utility such as Appalachian or they can put it in a
12
transmission only utility such as West Virginia
13
Transmission Company.
14
they actually then can allocate dollars differently.
15
analogy I'd like to use for that is if they have $100
16
that they can invest in vertical utility debt, but you
17
also give them a choice of transmission only utilities,
18
they probably could invest say $125 total.
19
them a choice, they can have some diversification.
20
can decide exactly how much money they want to put in
21
transmission and how much into a vertically integrated
22
utility.
And by giving them that choice,
An
So by giving
They
23
CHAIRMAN:
24
Would they have a choice if they had a
25
vertically integrated utility with a bunch of
(814) 536-8908
31
1
transmission in it, too?
Wouldn't they?
2
A.
3
transmission with a utility.
But they cannot invest separately in
4
CHAIRMAN:
5
Well, I understand that, but what we're
6
hearing and what sort of puzzles us --- puzzles me anyway
7
is this argument that ---.
8
transmission investment by the market more attractive
9
than a vertically integrated power company?
Well, first of all, why does
10
A.
11
that when you look at any vertically integrated utility
12
you've got three main lines of business, the generation,
13
distribution, transmission.
14
different types of rate cases, fuel cases, base rate
15
cases, distribution rate cases, transmission cases, FERC
16
cases, when an investor looks at that mix, it's more
17
difficult for that investor to understand exactly how the
18
paths from regulation to rates to revenues flow through
19
to how they get paid back principle interest on their
20
investment itself.
21
clear path of how the business operates.
22
they can't see that path.
23
more complicated entity.
24
25
That's a very good question.
The rationale is
And when you look at the
So it's harder for them to see a
It's not that
It's just that it's a much
When you go to transmission, they look at it and
say it's a fairly straightforward business.
Transmission
(814) 536-8908
32
1
has only one kind of regulation.
You have FERC settling
2
transmission favorably and you have one type of asset, so
3
when they're looking at the assets they're not trying to
4
decide, okay, what's the yield of a generation asset?
5
What's the yield of a distribution asset?
6
yield of a transmission asset?
7
So they understand that it gives them a clearer path.
8
That transparency makes them feel that that is a very
9
understandable asset, and we need to allocate separately
What's the
Just one, transmission.
10
for transmissions.
We're starting to see this in a
11
number of jurisdictions.
12
electric transmission Texas down in Texas which is a
13
joint venture as well as some other American Transmission
14
Company in, I believe it's Wisconsin and a few other
15
states.
ITC in Michigan, our own
16
CHAIRMAN:
17
I'm not sure if I remember my question
18
now, but you didn't mention the extra points on rate of
19
return that is granted by FERC with respect to investment
20
that it regulates in transmission.
21
reason people would look at it with a different factor?
22
A.
23
believe it is.
24
witness Potter is going to address the whole issue of
25
rates and their function.
Is that part of the
Well, this is a two part answer.
No, I do not
On the other hand, I believe company
(814) 536-8908
33
1
CHAIRMAN:
2
You don't think if you had a separate
3
transmission only company that is regulated by --- that
4
receives its rate regulations from FERC, that people
5
would view that more favorably that it's state regulated?
6
A.
7
course, in this case, I'm not an expert on state
8
regulations when in comes to the differences between the
9
FERC and the state regs.
10
It depends on the state, of course, but of
So Company witness Potter would
be the best person to answer your question.
11
CHAIRMAN:
12
Who?
13
A.
Company witness Potter.
14
CHAIRMAN:
15
Okay.
Well, I'm still sort of curious
16
about when you said you examined --- the Company examined
17
the impact of this.
18
think, was that the impact is that it keeps the investors
19
from being confused.
20
enterprise to ---.
21
does.
22
distribution, I guess, and limited transmissions.
23
that basically the impact?
24
A.
25
another example.
And basically what you've told me, I
And it allows APCo to --- or the
Well, I'm not sure what exactly it
It allows them to keep their investment in
Is
Yes, but let me attempt to answer this with
And these are not specific, exact
(814) 536-8908
34
1
correlations to Appalachian Power's financial situation.
2
CHAIRMAN:
3
Well, what are they?
I mean, are they
4
scenarios?
A lot of you ---- a lot of the witnesses have
5
talked about examples.
6
And if so, under what assumptions and, you know, what
7
rates of return were embedded and that sort of thing?
8
exactly what are these examples?
9
example that's in here and all that?
Are they scenarios that were run?
Or
There's a $40 million
How is that done?
10
A.
Well, the example that I was going to use was if
11
you have $500 million of capital that you have to spend,
12
some portion of that is transmissions.
13
less than of $500 million in cash flow to the company.
14
If you take some of the spend out and put it in a
15
different company, you then have a better match for
16
spending your capital that's left of that Appalachian
17
Power.
18
spending at Appalachian Power helps Appalachian Power
19
from that viewpoint.
You would have
So I was just talking about reducing transmission
20
CHAIRMAN:
21
We talked about that earlier.
22
A.
Yes.
23
CHAIRMAN:
24
Basically the argument, they don’t have
25
to spend it transmission.
They could spend it on
(814) 536-8908
35
1
something else.
2
A.
3
referred to is specifically identified project.
4
believe that Witness Barton and/or Witness Potter will
5
speak to that.
Yes, sir.
The $40 million, I believe, that you
And I
6
CHAIRMAN:
7
You never want to be the last witness.
8
ATTORNEY PORTH:
9
Well, this is true.
10
CHAIRMAN:
11
Ms. Barton, raise your hand.
12
13
Let me jump in, Mike.
I'm still trying
14
to follow your line of logic and I am troubled.
If you
15
remove one of your cash --- not only remove the capital
16
requirements, but you earn --- remove the earnings from
17
the Transco as well; is that correct?
18
A.
19
when the asset is built and placed into service.
20
not removing any current assets or current earnings or
21
current cash flow from the company.
Well, these would be future earnings, of course,
You're
22
23
I understand that, but the future
24
earnings are what you're talking about.
Therefore,
25
you're also removing the capital that goes with it, but
(814) 536-8908
36
1
those future earnings are what funds the capital that
2
goes into APCo as well as West Virginia Transmission
3
Company; is that correct?
4
A.
Can you repeat that, sir?
5
6
Okay.
It looks like to me --- I hate
7
to give any examples, but if you have a lot of businesses
8
and you take out your most attractive business, what's
9
left in my mind is not as attractive.
Yet you say that
10
it is.
You can talk about grocery stores.
11
about chemical companies, but any time you lift out a
12
more attractive business, what's left is not as
13
attractive.
14
say what you say?
15
A.
16
a little mistaken.
17
future transmissions.
18
built projects that meet a very clear specification of
19
rules.
20
point a little more carefully.
21
earning assets, transmission, distribution as well as
22
some of the existing transmission and certain types of
23
future transmission built in Transco.
24
removing all future transmissions, we're just taking
25
easily identifiable projects that are new built
Yes.
You can talk
Can you kind of get me to understand why you
I think you may be thinking --- you may be
We're talking about taking on all
We're talking about certain new
Again, I believe, Witness Barton will go to that
We're still leaving the
So we're not
(814) 536-8908
37
1
transmission projects, replacing them.
2
And I will say that we have seen some empirical
3
evidence in our Texas Transmission subsidiary where we
4
only build transmissions --- we also have G --- excuse me
5
a T and D, Transmission Distribution Company in Texas as
6
well as this independent transmission company.
7
done two financings at that company last year and just
8
recently.
9
significant investor demand in addition to their existing
Actually last week.
We have
And we have seen
10
investments in those companies and other AEP companies,
11
so new investment coming in transmission.
12
debt spreads ---that debt off came in significantly from
13
last year, so it's not all ---.
14
little ---.
This year our
All spreads are a
15
CHAIRMAN:
16
This is on Texas Transco?
17
A.
This is Texas Transmission Company.
ETT we call
18
it.
19
over this year.
20
demand, new investors coming into that offer.
21
expect that to continue.
22
small for its ultimate size, but it still owns a half a
23
billion dollars.
24
a bit larger than what ---.
25
CHAIRMAN:
The debt spreads went from 200 over last year to 145
And we have seen continued strong
And we do
Now, that company is relatively
So it's not a small entity.
It's quite
(814) 536-8908
38
1
2
What happens on the flip side?
A.
We've seen no impact on the other side.
3
CHAIRMAN:
4
Texas Transmission and Distribution.
5
A.
Yeah.
The Texas companies are AB Texas which is
6
Texas, central company in Texas to work out of.
7
not seen that impact, but they do not issue a lot of debt
8
to be honest with you.
9
comparison.
We have
We haven't had a direct
10
CHAIRMAN:
11
Have they had an issue since Texas
12
Transco was set up?
13
A.
No, they have not.
14
CHAIRMAN:
15
So we don't know the answer?
16
A.
That's correct.
17
CHAIRMAN:
18
All right.
What's the current rating
19
for APCo?
Do you know?
20
A.
21
triple B flat from S&P and Fitch on stable rating for
22
each.
Yes, sir.
It's B double 2 from Moody's and
23
CHAIRMAN:
24
And would you expect a change in those
25
ratings if West Virginia Transco takes over the building
(814) 536-8908
39
1
of the transmission facilities?
2
A.
3
Virginia Transco.
No, sir, we do not.
Not from the effect of West
I think that the ---.
4
CHAIRMAN:
5
What about this benefit they'll be able
6
to allocate their investment capital better, will that
7
have any affect on them?
8
A.
9
only impact that will affect APCo's ratings.
I don't think you'd be able to say that's the
It's much
10
more likely that the --- I think the widely anticipated
11
increase in environmental spending for Appalachian Power
12
generation will have a much more significant impact on
13
Appalachian Power than removing this transmission.
14
pointed out before, the Cannell, White Paper goes into a
15
discussion of that and on balance concluded that there is
16
a neutral to possibly slightly positive impact to the
17
existing operating company.
18
Positive benefit from the Transco side to credit quality,
19
but it also notes that removing that helps.
20
concern for Appalachian Power's future in environmental
21
spending, which we have the new rules out, we've been
22
seeing them out, that AEP and the EPA that are going to
23
impact environmental spending that undoubtedly at this
24
point will increase its total numbers.
25
I
So it's fairly neutral.
It's a big
CHAIRMAN:
(814) 536-8908
40
1
You said that you witnessed ---
2
reviewed the money pool agreement and were sponsoring the
3
money pool agreement; is that correct?
4
A.
Yes, sir.
5
CHAIRMAN:
6
And the testimony as I understand it is
7
that the money pool agreement is --- I think it variously
8
referred to as it's actually similar and in accordance
9
with and performs closely to and all that sort of thing.
10
To what extent does it differ from the existing money
11
pool in any material respect at all other than the
12
addition of a party?
13
A.
No, sir.
14
CHAIRMAN:
15
Okay.
All right.
That's all I have.
16
Do you have any questions based on our questions?
17
ATTORNEY SADE:
18
Yes.
I do, Your Honor.
19
CROSS EXAMINATION
20
BY ATTORNEY SADE:
21
Q.
22
investment in AEP's Texas affiliate.
23
A.
Yes, sir.
24
Q.
Is it true that Texas utilities have gone
25
through a restructuring?
Mr. Boteler, you gave an example going with
(814) 536-8908
41
1
A.
I'm not sure what you mean by restructuring.
2
Q.
Well, a number of states including West Virginia
3
made an attempt to restructure their utilities by, for
4
example, separating generation from transmission.
5
that's what I mean by restructuring.
6
A.
7
transmission and distribution, but most of the companies
8
in Texas retain transmission and distribution together.
Yes.
They did separate generation from
ATTORNEY SADE:
9
10
That's all I have.
11
CHAIRMAN:
12
Ms. Riggs, anything?
13
And
Thank you.
Anything based on
our questions?
14
ATTORNEY RIGGS:
15
No.
16
CHAIRMAN:
17
Staff?
18
ATTORNEY ANDERSON:
19
Staff has no questions, Your Honor.
20
CHAIRMAN:
21
All right.
22
Mr. Boteler, thank you.
You are excused.
23
ATTORNEY PORTH:
24
Just one Redirect.
25
CHAIRMAN:
(814) 536-8908
42
1
Oh, I'm sorry.
2
ATTORNEY PORTH:
3
That's fine.
4
5
BY ATTORNEY PORTH:
6
Q.
7
Commission, you were explaining the types of assets and
8
capital investments that would remain in the operating
9
company even after Transco were in operation, but I think
Mr. Boteler, in response to questioning by the
10
the record was a little bit gargled because I believe at
11
the end of your explanation you referred to those things
12
remaining in a transmission company.
13
you again.
14
would remain in an operating company such as APCo even
15
after Transco began operating?
16
A.
17
will still have whatever generation assets they have now,
18
whatever distribution assets they have now as well as the
19
existing transmission assets ---.
What types of assets and capital investments
In Appalachian Power and Wheeling Power, they
20
CHAIRMAN:
21
I'm sorry.
22
said?
23
A.
So let me just ask
What was the last thing you
As well as the existing transmission assets.
24
CHAIRMAN:
25
Okay.
(814) 536-8908
43
1
A.
So those aren't being moved.
And in the future
2
it would build generation, distribution and some
3
transmission assets at Appalachian Power.
4
CHAIRMAN:
5
If we want to ask about that, we would
6
choose the guide I guess on Ms. Barton.
7
A.
Ms. Barton.
8
CHAIRMAN:
9
I'm having trouble keeping track of
10
everything you're going to testify about.
11
sir.
Thank you,
12
ATTORNEY PORTH:
13
That's all I have, Your Honor.
14
CHAIRMAN:
15
Well, since you mentioned it, you
16
mentioned that schedule or something that shows who will
17
construct and I think that is Ms. Barton's testimony as
18
well, but there's some --- there's a reference to a ---.
19
It sounds almost like a schematic or a test or some sort
20
of standard that you all will apply as to when and under
21
what circumstances APCo will build transmissions versus
22
Transco building them.
23
A.
24
Ms. Barton's testimony.
25
I believe that is correct.
It is, I believe, in
CHAIRMAN:
(814) 536-8908
44
1
At this point, so is everything else.
2
ATTORNEY PORTH:
3
If that helps Your Honor, that's in
4
Exhibit B, I believe, the application which is being
5
sponsored by Ms. Barton.
6
CHAIRMAN:
7
That's all I have.
8
Thank you.
Do you
have any further Redirect?
ATTORNEY PORTH:
9
10
No.
11
CHAIRMAN:
12
All right.
13
ATTORNEY PORTH:
14
The Company calls its next witness,
Thank you, sir.
15
Chris Potter.
16
---------------------------------------------------------
17
CHRIS POTTER, HAVING FIRST BEEN DULY SWORN, TESTIFIED AS
18
FOLLOWS:
19
---------------------------------------------------------
20
DIRECT EXAMINATION
21
BY ATTORNEY PORTH:
22
Q.
Good morning, Mr. Potter.
23
A.
Good morning.
24
Q.
Would you please state for the record your name,
25
your position and business address, please?
(814) 536-8908
45
1
A.
My name is Chris Potter.
My business address is
2
707 Virginia Street East here in Charleston.
3
the Vice President of Regulatory and Finance for
4
Appalachian Power.
5
Q.
6
in this proceeding?
7
A.
Yes, I did.
8
Q.
Do you have it in front of you?
9
A.
I do.
10
Q.
Does it consist in part of 13 pages of questions
11
and answers captioned on the first page, CP Exhibit
12
Number One?
13
A.
It does.
14
Q.
Do you have any corrections ---?
And I am
Mr. Potter, did you submit the Direct testimony
15
ATTORNEY PORTH:
16
May that exhibit be so marked for the
17
record?
18
CHAIRMAN:
19
The Direct testimony is marked as CP
20
Exhibit One.
21
(CP Exhibit Number One marked for
22
identification.)
23
BY ATTORNEY PORTH:
24
Q.
25
Exhibit Number One?
Do you have any corrections to make in CP
(814) 536-8908
46
1
A.
I do not other than to point out that the
2
calculations that are contained or shown in there do not
3
reflect the recent Commission Order in the base rate
4
case.
5
Q.
6
set forth in CP Exhibit Number One would your answers be
7
as indicated?
8
A.
Yes.
9
Q.
And do you adopt CP Exhibit Number One as part
Thank you.
If I were to ask you the questions
10
of your evidence in this proceeding?
11
A.
Yes, sir.
12
Q.
Attached to CP Exhibit Number One did you submit
13
a document, which is the additional information filed in
14
this matter on October 22nd of 2010?
15
A.
I did.
16
Q.
And that's captioned CP Exhibit Number Two?
17
A.
Yes, sir.
18
ATTORNEY PORTH:
19
May that be so identified for the
20
record, Your Honor?
21
CHAIRMAN:
22
It may.
CP Exhibit Number Two is the
23
additional information submitted by the Petitioner.
24
(CP Exhibit Number Two marked for
25
identification.)
(814) 536-8908
47
1
ATTORNEY PORTH:
2
Correct.
3
BY ATTORNEY PORTH:
4
Q.
5
compilation of the information contained in the CP
6
Exhibit Number Two?
7
A.
Yes., I was.
8
Q.
9
Exhibit Number Two?
Were you involved in the preparation or
10
A.
No, I do not.
11
Q.
Is the information set forth in CP Exhibit
12
Number Two accurate to the best of your information and
13
ability?
14
A.
15
recent base case.
16
Q.
17
18
A.
I do.
19
Q.
And did you also submit rebuttal testimony, Mr.
20
Potter?
21
A.
I did.
22
Q.
Does that consist of three pages of questions
23
and answers?
24
A.
25
Again, given that it does not reflect the most
And do you adopt CP Exhibit Number Two as part
It does.
ATTORNEY PORTH:
(814) 536-8908
48
1
Your Honor, as was the case with Mr.
2
Boteler, the typewritten designation is incorrect.
It,
3
again, says CP Exhibit Number One.
4
that Mr. Potter's Rebuttal be marked CP Rebuttal Exhibit
5
Number One.
I would like to ask
6
CHAIRMAN:
7
8
(CP Rebuttal Exhibit Number One marked
9
10
BY ATTORNEY PORTH:
11
Q.
12
13
A.
I do not.
14
Q.
And if I were to ask you the questions set forth
15
in CP Rebuttal Exhibit Number One would your answers be
16
the same as shown?
17
A.
They would.
18
Q.
And do you adopt CP Rebuttal Exhibit Number One
19
20
A.
I do.
21
Q.
And, Mr. Potter, you did not sponsor any
22
particular portions of the application filed in this
23
case; is that correct?
24
A.
25
That's correct.
ATTORNEY PORTH:
(814) 536-8908
49
1
Your Honor, I would move the admission
2
of CP Exhibits One and Two and CP Rebuttal Exhibit Number
3
One subject to Cross Examination.
4
CHAIRMAN:
5
Without objection, it will be admitted.
6
ATTORNEY PORTH:
7
And Mr. Potter is available for Cross.
8
CHAIRMAN:
9
All right.
10
ATTORNEY SADE:
11
12
CROSS EXAMINATION
13
BY ATTORNEY SADE:
14
Q.
Good morning, Mr. Potter.
15
A.
Good morning.
16
Q.
Beginning on page nine of your testimony, you
17
present two comparisons --- excuse me, of your direct
18
testimony you present two comparisons of the revenue
19
requirement impact of the hypothetical $40 million
20
investment.
21
A.
22
page?
23
Q.
24
on page nine.
25
A.
Just a second.
Let me get there.
Page nine of your Direct testimony.
And
Beginning
Okay.
(814) 536-8908
50
1
Q.
All right.
2
A.
The verbiage ---.
3
Q.
Right.
4
comparison is done on table 2 on page 11 and table 3 on
5
page 13?
6
A.
That's correct.
7
Q.
And table 2 on page 11 has two different
8
scenarios.
9
for the --- or the revenue requirement under the Transco
That's where you start.
The actual
One is for APCo Retail Rates and the other is
10
scenario?
11
A.
That's correct.
12
Q.
And on table 3 on page 13 the comparison is
13
between the APCo wholesale rates and the --- or revenue
14
requirement and the revenue requirement under the Transco
15
scenario; correct?
16
A.
17
comparison of the APCo OATT rate treatment and the West
18
Virginia Transco OATT treatment.
19
Q.
20
in both table 2 and table 3 is identical, the $6.65
21
million?
22
A.
That's correct.
23
Q.
So what changes in the scenario is the APCo
24
Retail, APCo OATT or wholesale?
25
A.
I think we're seeing the same thing.
It's the
For Transco, the revenue requirement identified
Yes.
(814) 536-8908
51
1
Q.
And the calculations for these comparisons are
2
found on your CP Exhibit Number Two at the back of your
3
testimony?
4
A.
That's correct.
5
Q.
And page one is entitled at the top of the table
6
AEP Transco Build Case?
7
A.
Yes.
8
Q.
And the second page is entitled operating
9
company build case.
It's this thing with two pages.
10
A.
That's correct.
11
Q.
The AEP existing arrangement; right?
12
A.
That's correct.
13
Q.
All right.
14
in transmission plants for retail customers is recovered
15
through retail liens; correct?
16
A.
17
investment for retail customers.
18
system and that total system has a revenue requirement
19
that is determined under the PJM OATT.
20
a base case then we do --- you guys are very familiar
21
with that --- we do include rate base, do a
22
jurisdictional application and then allocate to the
23
classes.
24
Q.
25
or class and there's allocation to other classes, but in
In West Virginia, APCo's investment
I'm not sure exactly what you mean by APCo's
APCo invests as a total
Now, when we have
So there's an allocation to the retail classes
(814) 536-8908
52
1
recovery, the revenue requirements generated from the
2
retail class is for the expense of transmission among
3
other things for the retail class.
4
A.
Can you tell me what you mean by among other
5
things?
I don't want to get misleading here ---.
6
Q.
I understand.
7
testimony beginning on line 15.
8
transmission cost to retail customers; correct?
9
A.
I'm sorry.
10
Q.
Page 11 of your Direct testimony beginning on
11
line 15.
12
A.
Yes.
13
Q.
You indicate that table 2 reflects the annual
14
transmission costs to retail customers; right?
15
A.
It would be slightly higher.
16
Q.
But there is a transmission cost to retail
17
customers according to the language used in your Direct
18
testimony?
19
A.
Without a doubt.
20
Q.
And that cost is recovered from retail
21
customers; am I correct?
22
A.
23
recovered from retail customers.
24
Q.
25
identified on table 2, page 11 of your testimony amounts
Look at page 11 of your Direct
You discuss the annual
Could you reference the line again?
Yes, sir.
The cost of providing transmission services are
Now, the difference in the two scenarios
(814) 536-8908
53
1
to roughly $480,000?
2
A.
Roughly, yes.
3
Q.
And that is for Transco.
4
cost of the impact or investment on APCo's retail
5
customers is higher on the Transco scenario than under
6
the APCo retail, current APCo retail?
7
A.
8
in the information that we presented.
9
and make adjustments.
Yes.
In other words, the
I think we tried to make that very clear
We didn't go in
We said given what Transco formula
10
rate is, given to the retail rate that we have.
It
11
appears the impact of the difference.
12
and factor a lower cost of debt.
13
factor reduced maintenance.
14
things that we could have put into the analysis that we
15
didn't.
We wanted to be very transparent.
16
Q.
Table 2's calculation of the retail revenue
17
requirement uses the 10.5 ROE?
18
A.
That's correct.
19
Q.
And that was authorized in APCo's 2010 rate case
20
--- I’m sorry, 2005?
21
A.
That's correct.
22
Q.
And the calculation of the retail rate in table
23
2 was also based, was it not, on the statutory federal
24
income tax rate of 35 percent?
25
A.
We didn't go in
We didn't go in and
There are a multitude of
If you look on page ten, I believe it does show.
(814) 536-8908
54
1
I'm going to assume that it does.
2
Q.
3
income tax rate?
4
A.
5
income tax rate.
6
Q.
Blended?
7
A.
That's correct.
8
Q.
And I gather from your responses to questions by
9
Mr. Porth that you're familiar with the outcome of APCo's
And it was also based on the statutory state
I would think it would be the blended state
Okay.
That's Virginia, West Virginia?
10
2010 rate case?
11
A.
Yes, I am.
12
Q.
And in that case, APCo was awarded a ten percent
13
ROE?
14
A.
That's correct.
15
Q.
And the Commission held at the proper tax rate,
16
the effective federal income tax rate was 25 percent?
17
A.
18
case and there was some judgments made by the Commission,
19
so that sounds right.
20
Q.
21
Commission issued an extensive order reflecting its
22
modifications and its settlement; correct?
23
A.
That's correct.
24
Q.
And are you aware that in that case that the
25
Commission granted a state income tax rate of zero
I think that's correct.
I mean, we had a settle
So a portion of the case was settled, but the
(814) 536-8908
55
1
percent?
2
A.
Yes, I'm aware of that.
3
Q.
So if table Two were to be updated to reflect
4
all of the items mentioned in the Commission's 2011,
5
March 2011, order in the 2010 case, the 10 percent ROE,
6
the effective federal tax rate of 25 percent, the
7
effective state income tax rate of zero percent, the gap
8
reflected in table 2 would be considerably larger; would
9
it not?
10
A.
It would be larger.
11
CHAIRMAN:
12
Have you made that calculation since
13
the order?
14
A.
I have not, sir.
15
CHAIRMAN:
16
Would you make that calculation if it's
17
submitted as Commission Request Exhibit after the
18
hearing?
19
A.
Sure would.
I'd be happy to.
20
ATTORNEY SADE:
21
Subject to the right to recall Mr.
22
Potter depending on what the last witness, Ms. Barton ---
23
I assume the last witness, Ms. Barton, is going to
24
testify about, that's all the questions that I have.
25
CHAIRMAN:
(814) 536-8908
56
1
2
Or any other witnesses, she will then
be the last witness.
3
ATTORNEY SADE:
4
There you go.
5
CHAIRMAN:
6
Historically.
7
ATTORNEY RIGGS:
8
9
CHAIRMAN:
All right.
10
Staff?
11
ATTORNEY ANDERSON:
12
Yes, Your Honor.
Ms. Riggs?
The Staff has a few
13
questions.
14
CROSS EXAMINATION
15
BY ATTORNEY ANDERSON:
16
Q.
17
same things that Mr. Sade did because we're trying to
18
make sure we understand this fully.
19
Direct, lines 10 and 11, right before table 2, you
20
essentially state that currently if APCo or Wheeling
21
Power Company makes a $40 million investment in
22
transmission facilities, the cost would be recovered
23
through the base rates; correct?
24
A.
That's correct.
25
Q.
Now, if any return, as Mr. Sade was talking
Mr. Potter, we're going to be dancing around the
On page 11 of your
(814) 536-8908
57
1
about, that APCo or Wheeling Power Company would have the
2
opportunity to earn on that $40 million investment
3
transmission facility would be set by this Commission in
4
a base rate case; correct?
5
A.
That's correct.
6
Q.
If West Virginia Transco made $40 million
7
investment in transmission facilities that would have
8
been in the past earned by APCo or Wheeling Power
9
Company, the cost of that investment would not be
10
recovered through base rates; correct?
11
A.
12
rate.
13
Appalachian recovers any cost it built from Transco West
14
Virginia.
15
Q.
16
appear in the rate base of APCo and Wheeling Power if the
17
West Virginia Transco made it; is that correct?
18
A.
That's correct.
19
Q.
Okay.
20
$40 million investment instead of APCo or Wheeling Power,
21
then APCo's retail customers were more over.
22
Virginia Transco made the $40 million transmission
23
investment instead of APCo or Wheeling Power, then APCo's
24
retail customers would not receive the benefit of the net
25
OATT revenue that you're showing on table 2.
That I'm aware of, FERC has never set a retail
And ultimately, this Commission will determine how
So it could be ENC.
It could be base rates.
But the factors of that investment would not
So if the West Virginia Transco made the
If West
That's what
(814) 536-8908
58
1
happens right now; correct?
2
A.
3
net receiver under TA and because APCo does not make that
4
investment, there is not a share of the revenue to come
5
back to Appalachian Power Company.
6
important to note that the TA, the reason we're a net
7
receiver is not this $40 million worth of investment.
8
It's the other $300 million worth of investments that
9
we've made compared to our ratio share to our allocation
Yeah.
I think what you're saying is APCo's a
I think that it's
10
of costs.
11
Q.
12
Power Company once West Virginia Transco is formed;
13
correct?
14
A.
But it would be gone from APCo and Wheeling
Yes.
It's solely a requirement to invest.
15
ATTORNEY ANDERSON:
16
I think that's all the Staff has.
17
18
Good morning.
19
A.
Good morning.
20
21
As we were just discussing the data in
22
this proceeding, we were discussing points for higher
23
customer cost when using Transco as opposed to the
24
current set up.
25
and concludes that the rate difference is going to
Your Exhibit Number Two goes into detail
(814) 536-8908
59
1
diminish over time and perhaps even reverse.
And we've
2
been sitting here and discussing the stronger credit
3
rating and how that could play into the whole scenario,
4
but what other factors do you believe are driving or
5
could drive or will drive in your opinion this reversal
6
of the cost difference that we're seeing clearly in the
7
evidence here today?
8
A.
9
finance not as an engineer.
I'm going to respond to you as a regulatory or
10
11
I appreciate it.
12
A.
If I think about when you replace assets and I
13
don't want to give examples since the Chairman didn't
14
like that a while ago.
So I was going to say ---.
15
CHAIRMAN:
16
Oh, I like everything.
17
A.
18
financial, your credit maintenance, how you can invest.
19
Sometimes it makes more sense to go ahead and curve
20
maintenance cost.
21
gets to be too high that it just makes sense to do the
22
investment.
23
When you replace that it is dependant upon your
And sometimes your maintenance cost
If Transco focusing solely on transmission can
24
do that investment at the most opportune time then I
25
would see a reduction in maintenance costs, which is
(814) 536-8908
60
1
going to displace the difference.
2
The other thing that occurs, and you talked
3
about it with Mr. Boteler a little bit, is --- you know,
4
is it just that APCo can finance somewhere else or could
5
use that money to spend on generation or distribution and
6
know it may be we can't fund that level of investment
7
that our credit matrix won't support that.
8
9
And so if some of that transmission investment
goes over to Transco, it may not be just a matter of
10
Transco having a lower rate.
It may keep APCo from
11
having a higher interest rate, so that's another saving
12
that I've said.
13
engineering study.
14
C is going to get there, but it needs to be intuitively
15
that when you start looking at these reductions they can
16
offset that difference.
And like I said, I can't do an
I just want to tell you A plus B plus
17
CHAIRMAN:
18
If you can't do an engineering study,
19
did you do a financial analysis where you concluded that
20
or is this --- I don't mean to be jumping in, but I mean,
21
you say you can't do it as an engineering matter.
22
you, in fact, make assumptions and make that calculation
23
so that we can look at it and test the assumptions or see
24
how you got there?
25
A.
Did
What I can get you is the assumptions of the
(814) 536-8908
61
1
transmission investments on APCo and the transmission
2
investment on Transco and the effect it has on credit
3
matrix.
4
as we don't have the final transmission investment.
That you can see if the credit matrix improved
5
CHAIRMAN:
6
I'm sorry.
7
8
Oh, no, I appreciate that.
9
Go ahead.
want to make sure I understand.
So I just
What we're going to look
10
at to reverse this gap and what the ratepayers are going
11
to have to take on is a stronger credit rating and more
12
capital available for transmission only investments.
13
heard the discussion on that earlier.
14
things will be replaced earlier.
15
we'll have less maintenance costs because we're not going
16
to be putting a band aid on things.
17
And they'll have less long term cost of operation.
18
A.
We
And therefore,
So in the long run
They'll be fixed.
Yes.
19
20
Right now those are the main factors
21
that you look for that could reverse the gap that we see.
22
A.
That's correct.
23
24
Okay.
25
I appreciate it.
Thank you very
much.
(814) 536-8908
62
1
A.
Okay.
2
CHAIRMAN:
3
Well, let me pursue the discussion we
4
were having there about --- in your testimony on page 12,
5
that's what Mr. Sade was talking about I think at one
6
point.
7
on the top of the page, you could see that there would
8
likely be an increase.
9
in summary, but that you believe the rate difference will
At the top of the page --- the paragraph ending
I think that's what it's saying
10
diminish and possibly reverse over time.
So you're not
11
absolutely sure.
12
the cost of debt will be lower over time.
13
to say that Transco should produce a credit rating.
14
I assume that you had a basis for possibly reverse,
15
reasonable to expect and should produce.
16
trying to get at is to what extent do we have a financial
17
analysis where you have gone out and either asked
18
somebody to do a comparison or had done one in house with
19
the assumptions in there that support those statements.
Then he says it's reasonable to expect
Then you go on
And
And what I was
20
CHAIRMAN:
21
That's not exactly ironclad language is
22
our concern.
23
A.
24
I'm trying to find it ---.
25
at Exhibit Two at the bottom of page seven and the top of
No, but there's a section in the testimony --Just a second.
If you look
(814) 536-8908
63
1
page eight, I think it's probably the closest we have in
2
here for what you're asking for.
3
CHAIRMAN:
4
The bottom of page ---.
5
A.
Seven.
6
ATTORNEY PORTH:
7
In your Direct testimony?
8
A.
In the Direct, yes.
CHAIRMAN:
9
10
I believe the reference is to CP
11
Exhibit Number Two.
12
A.
Right.
13
CHAIRMAN:
14
It would be Exhibit Two that you're
15
referencing.
16
A.
17
of .26 for Transco, which would eliminate the difference.
If you see it says, a long term debt cost saving
18
CHAIRMAN:
19
Where are you?
20
A.
At the top of page eight.
21
CHAIRMAN:
22
Okay.
I see that.
23
A.
I mean, I think that's the closest that we have
24
in the exhibit just saying what would mitigate this
25
impact.
And I want to be clear.
This is the mitigate
(814) 536-8908
64
1
the difference in the additional ---.
2
CHAIRMAN:
3
The increase ---.
4
A.
I'm sorry.
5
CHAIRMAN:
6
The increase in rates that will flow
7
from Transco that are going to reverse over time.
8
A.
Right.
CHAIRMAN:
9
10
Okay.
Now I guess my question goes
11
back to, again, did you get --- did you assume credit
12
ratings?
13
outside of APCo to make that analysis?
14
house?
15
point that you were able to say --- I mean, obviously you
16
want the cost to be lower over time or there's no --- you
17
know, there's not much chance we're going to approve it
18
if it's going to stay up there, but ---.
19
trying to figure out is how did you get and what did you
20
base your conclusions on where you made these statements
21
in your Direct testimony?
22
A.
23
been done, but Mr. Boteler is our financial expert.
24
he's the one that's provided to me that Transco would
25
have a lower cost of debt.
Did you ask people to, you know --- did you go
Did you do it in
I'm just trying to figure out how you got to the
So what I'm
And I'd hate to go to a witness that's already
(814) 536-8908
And
65
1
CHAIRMAN:
2
Okay.
All right.
3
anything else.
4
restriction at AEP at the moment?
5
A.
6
apply a cap.
Sure.
Let's see if I have
Is APCo under any sort of capital
I think we have --- I'm just going to
7
CHAIRMAN:
8
I understand that, but I mean, if you
9
were to state the test for us or the limit, what is it?
10
A.
It's roughly $354 million a year and of that
11
amount about 25 percent is transmission if you assume no
12
Transco.
So roughly $100 million a year.
13
CHAIRMAN:
14
The Culloden Substation that was
15
contemplated in the original formula, are you a witness
16
for that or is that for Mrs. Barton, Ms. Barton?
17
A.
18
your questions that you have just so everything doesn't
19
get punted to Ms. Barton.
I'm aware of it.
I mean, I could try to answer
20
CHAIRMAN:
21
Did APCo seek or did Transco seek a
22
certificate for the flow to the substation during the
23
intentions --- well, first of all, has the project that
24
was included been completed?
25
A.
I do not believe it has.
I know it's been
(814) 536-8908
66
1
removed from APCo, West Virginia Transco formula rate.
2
CHAIRMAN:
3
Okay.
What's in APCo's base that
4
generates a rate now?
Because that wasn't --- was that
5
the only thing that was in there?
6
A.
Are you talking about Transco?
7
CHAIRMAN:
8
Yeah.
9
A.
It's amortization and formation costs.
10
CHAIRMAN:
11
That's the sum total of the rate base
12
that's in there right now?
13
A.
There's audit, deity oddities ---.
14
CHAIRMAN:
15
No hardware?
16
A.
I'm sorry?
17
CHAIRMAN:
18
No hardware?
19
A.
No, sir.
20
CHAIRMAN:
21
Does the company --- or to your
22
knowledge, does Transco propose to seek a certificate for
23
the construction of the Culloden Utility Plant, whatever
24
it is?
25
A.
I don't know.
Maybe I will have to punt to Ms.
(814) 536-8908
67
1
Barton about whether that's been done or not.
If it's
2
already done and it's on the outlook books then, no, it
3
would be a past.
4
CHAIRMAN:
5
Well, as we sit here today West
6
Virginia Transco doesn't have much of a track record,
7
little in the way of assets and no earnings records; is
8
that correct?
9
A.
It is a start up company.
10
CHAIRMAN:
11
Well, with that as the underpinning,
12
what is the basis for not seeking a certificate for
13
anything when you're starting out?
14
A.
15
the application, but I believe there was a request to be
16
granted the normal continuation or normal extension of
17
service that APCo and Wheeling Power Company has.
They do the application.
And I'm not sponsoring
18
CHAIRMAN:
19
It's like me saying can I buy $100
20
million because I know my good friend John's good for it
21
or something.
22
A.
23
what he's trying to do is not lose the efficiency that we
24
have today.
25
wouldn't come in and take up everyone's time.
Is that the analysis?
I don’t know that it's an analysis, but I think
That it is just a normal extension that we
(814) 536-8908
68
1
CHAIRMAN:
2
The question is, is it a normal
3
extension for a company with no earning history, no rate
4
base other than the costs you've described which are all
5
soft costs.
6
requesting that we look through Transco to APCo in order
7
to decide whether or not the provision of 24.2.11 that
8
says if it's any ordinary course of business, we don't
9
need a certificate?
10
A.
And under our rules, is what you're
Is that what you're saying?
I believe that's correct.
11
CHAIRMAN:
12
Is that Ms. Barton, too?
13
A.
Actually, it sounds legal, but it could be.
14
CHAIRMAN:
15
She's a lawyer.
Aren't you a lawyer?
16
Didn't I see that?
You can do them all then, the
17
transmission, the legal.
18
the outcome of this case in order to determine whether or
19
not to file the certificate?
20
A.
All right.
Were you awaiting
I don't know the answer to that.
21
CHAIRMAN:
22
You almost said yeah.
It came close.
23
All right.
One of our staff pointed out something and
24
I'm not as suspicious as they are, but they said that
25
there is a slightly different prayer for relief in the
(814) 536-8908
69
1
joint petition versus what you state in your testimony.
2
And let me quote.
3
request that APCo, WPCo and Transco request the
4
Commission, A, approve all the proposed service
5
agreements, B, approve the participation of Transco and
6
the AEP Utility Money Pool and C, grant all other
7
approvals that may be necessary.
8
that you want us to authorize Transco to own and operate
9
transmission investments in the company's service areas.
In the joint petition, the Petitioners
Your testimony says
10
Are there are significance in the difference?
11
A.
12
application.
No, sir.
I think one trumps the other to be the
13
CHAIRMAN:
14
All right.
15
Thank you, sir.
Any
further questions?
16
ATTORNEY SADE:
17
Yes.
I just have a couple actually.
18
Maybe one.
19
RECROSS EXAMINATION
20
BY ATTORNEY SADE:
21
Q.
22
Number Two to your Direct testimony?
23
you're there.
24
between the revenue requirements in the top table for
25
Transco versus APCo is the far right column; correct?
Would you turn to page eight of CP Exhibit
You have it there.
Let me know when
Okay.
The comparison
(814) 536-8908
70
1
A.
That's correct.
2
Q.
And we have essentially a difference of roughly
3
$200,000.
4
$200,000 more expensive that the APCo scenario; right?
5
A.
That's correct.
6
Q.
And I assume based on your earlier testimony
7
that the revenue requirement figure for APCo West
8
Virginia reflected in this table is based on a 10.5
9
percent ROE, a statutory 35 percent effective tax rate
In other words, the Transco scenario is
10
for --- and a statutory state income tax rate?
11
A.
Yes.
12
Q.
So, again, the gap reflected in this comparison
13
would be greater based on those figures the Commission
14
ordered in the 2010 rate case.
15
A.
16
difference will be larger.
Yes.
The calculation would be consistent.
If you make those adjustments, the
17
CHAIRMAN:
18
Well, let me ask you something and just
19
to make sure for the request exhibit.
20
was a blended state rate, but I didn't get the impression
21
that you knew that it was a blended state rate.
22
you make the calculation in a manner in which it actually
23
exists?
24
A.
25
to the NEC, it's a 5.81 blended state rate.
I know I didn't.
You stated that it
Would
In the construction surcharge
(814) 536-8908
71
1
CHAIRMAN:
2
Okay.
3
A.
But what I wasn't sure about was what the exact
4
number is, so that number is either 5.81 or 5.86.
5
CHAIRMAN:
6
Close enough.
7
ATTORNEY SADE:
8
Nothing else.
9
CHAIRMAN:
10
Okay.
11
ATTORNEY RIGGS:
12
No.
13
CHAIRMAN:
14
Staff, anything further?
15
ATTORNEY ANDERSON:
16
No further questions, Your Honor.
17
CHAIRMAN:
18
Okay.
19
ATTORNEY PORTH:
20
I have one on Redirect.
21
CHAIRMAN:
22
Sure.
23
reminding me.
24
25
BY ATTORNEY PORTH:
Ms. Riggs, anything?
Thank you.
Mr. Potter, thank you.
It's quite all right.
Keep
(814) 536-8908
72
1
Q.
Mr. Potter, you made references to the TA.
2
the sake of the record, can you just explain what the TA
3
is?
4
A.
5
It's a sharing of revenues that are collected by PJM.
6
They consist of transmission service.
7
that revenue back out across the various AEP operating
8
companies based on each operating company's contribution
9
to the revenue requirements.
Sure.
For
The TA is the Transmission Agreement.
And the TA spreads
That's netted against each
10
operating company's allocated share of costs.
So when
11
you net the revenues and the allocated share of costs,
12
you are either a net payer or a net receiver.
13
what the TA does.
And that's
14
ATTORNEY PORTH:
15
That's all I have, Your Honor.
16
CHAIRMAN:
17
All right.
Thank you, Mr. Potter.
18
right.
We're going to take --- it's 14 minutes until
19
11:00.
We'll take a break until 11 o'clock.
20
SHORT BREAK TAKEN
All
21
CHAIRMAN:
22
After the hearing in the next day or so
23
we will issue a very short order setting out what we want
24
in that Commission Request Exhibit.
25
very clear.
We have not been
And we'll just tell you exactly how we want
(814) 536-8908
73
1
it calculated, what to assume in it.
2
we're doing this under protest, that's fine.
3
we'll understand.
4
Ms. Barton?
All right.
You want to say
But I mean,
Gee, who's next?
Is it
5
ATTORNEY PORTH:
6
The company calls its final witness,
7
Lisa M. Barton.
8
---------------------------------------------------------
9
LISA M. BARTON, HAVING FIRST BEEN DULY SWORN, TESTIFIED
10
AS FOLLOWS:
11
---------------------------------------------------------
12
DIRECT EXAMINATION
13
BY ATTORNEY PORTH:
14
Q.
Good morning, Ms. Barton.
15
A.
Good morning.
16
Q.
Would you please state for the record your name,
17
your position and your business address?
18
A.
19
Transmission, Strategy and Business Development.
20
address is 700 Morrison Road, Gahanna, Ohio.
21
Q.
22
proceeding?
23
A.
Yes, I did.
24
Q.
And do you have it with you at the stand?
25
A.
Yes, I do.
Lisa M. Barton.
I'm senior vice president of
Did you submit Direct testimony in this
(814) 536-8908
And my
74
1
Q.
Does it consist of 12 pages of questions and
2
answers captioned on the first page, LMB Exhibit Number
3
One?
4
A.
It does.
5
Q.
Do you have any corrections ---?
6
ATTORNEY PORTH:
7
And may it be so marked for the record,
8
Your Honor?
9
(LMB Exhibit Number One marked for
10
identification.)
11
CHAIRMAN:
12
All right.
13
BY ATTORNEY PORTH:
14
Q.
15
Exhibit Number One?
16
A.
I do not.
17
Q.
If I were to ask you questions set forth in LMB
18
Exhibit Number One, would your answers be as indicated?
19
A.
Yes, they would.
20
Q.
And do you adopt LMB Exhibit Number One as part
21
22
A.
I do.
23
Q.
Did you also submit rebuttal testimony?
24
A.
Yes, I did.
25
Q.
Did that consist of three pages of questions and
Do you have any corrections to make in LMB
(814) 536-8908
75
1
answers?
2
A.
Yes.
3
ATTORNEY PORTH:
4
Your Honor, as with all of the
5
Company's rebuttal witnesses, the type designation is
6
incorrect.
7
identified for the record as LMB Rebuttal Exhibit Number
8
One.
We would like Ms. Barton's rebuttal to be
CHAIRMAN:
9
10
And it will be so marked.
11
(LMB Rebuttal Exhibit Number One marked
12
13
BY ATTORNEY PORTH:
14
Q.
15
16
A.
I do not.
17
Q.
If I were to ask you questions set forth therein
18
would your answers be the same as indicated?
19
A.
Yes, they would.
20
Q.
And do you adopt LMB Rebuttal Exhibit Number One
21
22
A.
I do.
23
Q.
Now, Ms. Barton, you are sponsoring the
24
Application itself followed by the three companies; is
25
that correct?
Do you have any corrections to make in LMB
(814) 536-8908
76
1
A.
Yes.
2
Q.
And you are also sponsoring some of the exhibits
3
of the application?
4
A.
Yes, specifically Exhibit A and Exhibit B.
5
Q.
And can you just briefly explain what Exhibits A
6
and B are?
7
A.
8
the --- the corporate structure in terms of how they are
9
owned in relation to AEP and the other Transcos.
Yes.
Exhibit A is basically the structure of
And
10
Exhibit B is the guideline that we use to determine if a
11
facility would be ruled by Transco or by the operating
12
company.
13
Q.
14
the application and Exhibits A and B to the application?
15
A.
Yes.
16
Q.
Are there any matters in there that you wish to
17
bring to the Commission's attention that needs to be
18
corrected or clarified?
19
A.
No, there are not.
20
Q.
And do you believe to the best of your
21
information and belief that the information contained in
22
the application and Exhibits A and B to the application
23
are accurate?
24
A.
Yes.
25
Q.
And you're prepared to sponsor the application
And have you thoroughly reviewed the content of
(814) 536-8908
77
1
in Exhibits A and B and to take Cross Examination of
2
them?
3
A.
Yes.
4
ATTORNEY PORTH:
5
Your Honor, may I move the admission,
6
subject to Cross, of LMB Exhibit Number One and LMB
7
Rebuttal Exhibit Number One and also the Application at
8
this point and all of its exhibits in that all of the
9
pieces have now been sponsored?
10
CHAIRMAN:
11
Without objection, it will be admitted.
12
ATTORNEY PORTH:
13
Thank you.
14
And Ms. Barton is available
for Cross.
15
ATTORNEY SADE:
16
Thank you.
17
CROSS EXAMINATION
18
BY ATTORNEY SADE:
19
Q.
Good morning.
20
A.
Good morning.
21
Q.
Would you turn to page four of your Direct
22
testimony beginning on the last line of page four over to
23
page five to line three?
24
application for approval of transportation --- oh, I'm
25
sorry --- transmission company similar to the application
You indicate that the
(814) 536-8908
78
1
before the Commission has been made in Virginia?
Excuse
2
me.
3
A.
4
asked for it to be removed.
5
Q.
6
settlement in the FERC case?
7
A.
8
to the settlement and therefore it was difficult at that
9
time for us to answer some of those questions.
It was made in Virginia and then we basically
It was withdrawn pending FERC approval of the
Exactly.
The State of Virginia was not a party
It's our
10
intention to re-file.
11
Q.
And that's in case ER10-355?
12
A.
I believe that's correct.
13
Q.
Do you know when FERC approved the settlement of
14
the case?
15
A.
16
past spring.
17
Q.
18
April 21st of this year?
19
A.
Yes, I would.
20
Q.
And you say it's the company's intent to re-file
21
its application in Virginia?
22
A.
Correct.
23
Q.
On page ten of your Direct testimony, line one,
24
starting on line one, you indicate that it's proposed
25
that the West Virginia Transco will develop and own only
FERC approved the settlement of the case this
Would you accept, subject to check, that it was
(814) 536-8908
79
1
new transmission assets within the State of West
2
Virginia.
3
A.
Yes, you did.
4
Q.
And next sentence reflects the company's
5
position that it will retain ownership of all
6
transmission assets currently in service; right?
7
A.
Correct.
8
Q.
Would you look at the guideline that is included
9
in the application filed by the companies on April 23rd
Did I read that correctly?
10
which exhibit is identified as Exhibit B?
11
A.
Yes.
12
Q.
And I think you indicated that Exhibit B was one
13
of the two Exhibits that you are sponsoring.
14
A.
It is.
15
Q.
And the title of the document which you referred
16
to and which is Exhibit B is entitled AEP Transmission
17
LLC, AEP Transmission Company Project Selection
18
Guideline.
19
A.
Yes, it is.
20
Q.
And I think you indicated that the purpose of
21
this document was to provide guidance in determining
22
which transmission project would be --- come under the
23
rubric of the interests of the transmission company as
24
opposed to APCo?
25
A.
Yes.
(814) 536-8908
80
1
Q.
Now, the Project Selection Guideline doesn't
2
limit ownership of Transco facilities only to new assets;
3
does it?
4
A.
5
to is replace assets.
6
transmission assets, for example, they may be retired.
7
substation, for example, may be retired, old or apart.
8
And as such, what replaces that retired station or piece
9
of equipment is ---.
It is new assets.
I think what you're alluding
The way that we go about certain
A
10
Q.
Well, let's go through some of those at a lower
11
level if you don't mind.
12
A.
Certainly.
13
Q.
3.2.2, Section 3.2.2 on page seven of nine of
14
the guideline, for example, under this guideline or this
15
portion of the guideline, West Virginia Transco could add
16
new transmission components to existing APCo facilities;
17
right?
18
A.
19
considerations noted in particular those outlined in 3.3.
20
Q.
21
Virginia Transco could also replace individual components
22
of an existing APCo facility?
23
A.
24
assets that would be retired and off of APCo's books
25
again meeting the threshold in 3.3 in terms of its
Correct.
Okay.
Yes.
If they also meet all of the
Under section or subsection 3.2.3, West
Again, those are basically reflective of
(814) 536-8908
81
1
monetary value and also being able to create a
2
discernable asset from the APCo system.
3
Q.
4
3.2.2, but indicates that Transco could also replace
5
individual components of existing APCo facilities.
6
A.
7
example.
8
They're about $3 million a piece, and so given the fact
9
that Transco was in essence formed with the intent to
And 3.2.4 seems to be slightly duplicative of
That would be things like a 765 breaker for
Those are very expensive pieces of equipment.
10
help off load the capital requirements of APCo large
11
pieces of it --- and not just APCo, basically all of the
12
Transco companies.
13
included in that.
14
Q.
15
facilities under 3.2.4 and less expensive, smaller
16
components under 3.2.2.
17
A.
18
It's just more being very specific with respect to the
19
EHD in a piece of equipment.
20
Q.
21
referenced this criteria based on costs, indicates that
22
under this guideline a project should be greater than
23
$500,000 to be considered for development by the Transco.
24
A.
25
And I can explain what discernable means if that helps.
765 breakers and so forth are
So we're talking about bigger, more expensive
No.
Is that a viable distinction?
I wouldn't say it's the dollar amount.
All right.
Correct.
Section 3.3, and I think you
And it should be fairly discernable.
(814) 536-8908
82
1
Q.
No, that's fine.
I was interested in the
2
financial threshold that you mentioned before.
3
accept, subject to check, that in 2009 almost 95 percent
4
of APCo's transmission projects were cost greater than
5
$500,000?
6
A.
7
that this is an and.
8
therefore go to a conclusion of 95 percent of the
9
investments that we make in the future would necessarily
Would you
Well, subject to check, yes, but it's important
This is not an or.
So I would not
10
be made by Transco.
11
Q.
12
I just wanted to confirm my understanding that 95 percent
13
of the projects in 2009 were above the $500,000
14
threshold.
15
A.
Yeah.
Does that make sense?
I didn't ask you to make that assumption.
And you indicated that that was correct?
Subject to check.
I don't know.
16
ATTORNEY SADE:
17
That's all I have.
18
Thank you very
much.
19
CHAIRMAN:
20
Ms. Riggs?
21
ATTORNEY RIGGS:
22
23
CHAIRMAN:
24
Staff?
25
ATTORNEY ANDERSON:
Thank you.
(814) 536-8908
83
1
Your Honor, I just want to follow up
2
with some of Mr. Sade's questions because it kind of
3
follows in line.
4
CROSS EXAMINATION
5
6
Q
7
going to work, so I'm looking at the same Exhibit B.
8
I particularly want to look at Section 3.2.3, Facility
9
Replacement.
So I want to make sure I understand how this is
And
And under that first bullet point it states
10
complete replacement of an AEP operating company owned
11
transmission line facility or transmission station
12
facility with a new AEPT Company owned station or line
13
facility; correct?
14
A.
Correct.
15
Q.
And so what that mean is that should --- I guess
16
the West Virginia Transco and others make the decision to
17
decide that currently APCo owned, but Wheeling Power
18
Company owned transmission line needed to be totally
19
replaced and it was one big project, that West Virginia
20
Transco would replace it with the facilities of West
21
Virginia Transco then owns; correct?
22
A.
23
can look at it --- if a line was say built at 23 KV
24
standard, then it was going to be rebuilt at 115 or 130
25
KV.
If it needed to be replaced.
In essence, you
That would be an excellent example of the type of
(814) 536-8908
84
1
facility that would be put in there.
It's fairly rare to
2
replace at the same voltage level.
3
would do is the conductor will replace certain bolts on a
4
line.
5
ownership in a line, that's why it needs to be visibly
6
discernable.
7
or even old replacements where you're not reconductoring,
8
those would not fall under these guidelines.
9
be done by APCo.
Typically all's you
And since you did not want to have fragmented
And so both projects such as reconductoring
Those would
10
Q.
If that part fell under that guideline would any
11
of the Petitioners or Applicants that you all call
12
yourselves here, be seeking the Commission's consent and
13
approval to essentially acquiring facilities that the
14
APCo or Wheeling Power Company customers have paid for,
15
would you all seek the prior approval before doing it?
16
Or is this one of those projects that just falls in the
17
guidelines?
18
the Commission being informed of it?
19
A.
20
Commission would be for approval because the part of the
21
application basically asks for the Transco to be able to
22
step in the shoes of APCo with respect to the services,
23
the agreement and with respect to its ability to
24
construct.
25
sure that we can remain a low cost provider within the
It would be automatically replaced without
The only time that we would go actually to the
And that is very much starting with making
(814) 536-8908
85
1
State of West Virginia.
2
Q.
3
understand this, that if a project fell within the
4
requirements or the --- I guess the particular
5
requirements of 3.2.3 and an APCo owned facility is only
6
replaced, you wouldn't come to the Commission prior to
7
doing it seeking approval.
8
APCo facility once you replace it; correct?
9
A.
So you're saying, and I want to make sure I
Correct.
You would just take over that
And the only caveat that I would say
10
is 3.2.3 is also in conjunction with 3.3, so unless it
11
--- it doesn't meet that visibly discernable criteria,
12
then we would not.
13
Q.
14
great deal of APCo's owned transmission facilities by
15
doing these replacements; correct?
16
A.
No.
17
Q.
Over a long period of time.
18
A.
No.
19
really look at the history of most transmission lines,
20
most transmission lines are not, in fact, rebuilt for a
21
higher voltage.
22
limited circumstances, but for the most part new
23
transmissions are built from the existing transmission.
24
And it usually has to do with right of way.
25
have enough right of way to complete.
So conceivably over time Transco could acquire a
I really don't think so because if you
That is certainly the case in some
You don’t
You got a 23 KV
(814) 536-8908
86
1
line.
It's got a much more narrow footprint than what
2
would be required by higher voltage line.
3
to the operational challenges and taken a given
4
transmission line out of service, it is more of the
5
exception than it is the rule.
6
Q.
7
approval on that replacement.
8
A.
9
we're asking to step in APCo's shoes.
But you wouldn't come in and seek Commission's
No, because it's asked for in the application,
10
ATTORNEY ANDERSON:
11
Nothing else.
12
CHAIRMAN:
13
Commissioner?
14
15
Good morning.
16
A.
And also due
Good morning.
17
18
In looking at all the testimony and
19
listening to everything in this case, one thing I'm
20
trying to understand is --- are all the potential
21
different scenarios that could happen here.
22
I'm particularly concerned about now is I'm trying to
23
perceive what would happen if the Commission were to deny
24
approval of the agreements.
25
further, especially in relation to future AEP
And one that
And to take that a step
(814) 536-8908
87
1
transmission cases if the agreements were denied, would
2
AEP contemplate using one of the other state's Transcos
3
to build projects or would they potentially contemplate
4
using West Virginia Transco to build a project even
5
without the agreements being approved?
6
other option out there that you all have discussed at
7
least in looking at the potential outcome?
8
A.
9
Virginia Transco --- because it is, in essence, a public
Certainly.
Or is there some
It's our understanding that West
10
utility and it is operating under a FERC approved rate
11
that it could in essence hire ---.
12
personnel and so forth.
13
that's contemplated from the standpoint of new
14
transmissions.
15
Commission approval is needed with respect to AEP lines
16
citing approval and so forth.
17
come to Commission for that approval.
18
have asked for approval is really to get them to cost.
19
And AEP is a very low cost provider.
20
benchmark ourselves against our industry peers.
21
latest review that we have which compared ourselves
22
against about 18 other companies, we are really among the
23
lowest in terms of our investment per line mile and so
24
forth with respect to capital.
25
agreement allows us to do is to continue to use our
It could hire
And it could do all of the work
And, of course, to the extent that the
That entity would need to
The reason why we
We continually
In the
What approval of the
(814) 536-8908
88
1
personnel located in the State of West Virginia as well
2
as in the service board to provide that service to
3
Transco.
4
Transco to make sure we really had the customer interests
5
in hand.
6
spoke with FERC, the Intervenors in that case as part of
7
our objectives.
We're very cognizant when we're considering
That was something that was part of when we
8
9
Well, we already understand that at
10
least for the short term if these agreements are approved
11
and new lines are built, costs are going to go up at
12
least in the short term to a certain extent over the
13
current situation, somewhere around eight percent.
14
then, of course, we've had testimony that that will go
15
down for different reasons over time.
16
to costs, if anything at all, to ratepayers if the
17
agreements are denied?
18
project comes up, under a likely scenario, how do ---
19
would you see that playing out?
20
detrimental effect on or potential positive impact on
21
ratepayers and the bottom line?
22
A.
23
question, we certainly --- we believe that the lowest
24
cost can be provided by using our existing employees.
25
Certainly West Virginia Transco could go and hire its
And
What would happen
And then when the next major
And would that have a
Well, the risk of answering your hypothetical
(814) 536-8908
89
1
own.
It would be somewhat potentially duplicative of the
2
fact that we already have.
3
cost.
That could come at a higher
4
We are seeing across all of our companies the
5
need for capital in almost every line of our business.
6
What we have seen from the transmissions perspective, and
7
has been particularly noted in the State of Texas, is
8
incredible need of transmissions that was largely due to
9
line connections and so forth.
So what we needed to do
10
there and the decision that we ended up making as a
11
corporation was form electric transmission in Texas,
12
which was a 50/50 joint venture with Mid American company
13
in which that company is now providing new transmission
14
service in that state.
15
done pursuant to service agreements that are in place and
16
were approved by the Texas Commission.
17
hypothetically be another way of doing it where it's not
18
AEP, in essence, in securing the benefit and making all
19
of the decisions.
20
the owners of that entity.
21
That is one that is also being
So that could
Those decisions are being shared by
We do believe that there is a risk over time
22
that we will not be able to deploy the capital as we see
23
needed in the State of West Virginia.
24
in that case is not West Virginia Transco, it may need to
25
be another entity.
And what happens
We feel and our benchmarking has
(814) 536-8908
90
1
established that we are very much a low cost provider.
2
And therefore, the total cost would be lower to all of
3
our customers, not just the ones in West Virginia.
4
that continues I should say AEP continues to be able to
5
provide that service.
6
7
Okay.
I appreciate that.
If
Along the
8
line that follows with your previous answer, the petition
9
doesn't ask West Virginia Transco be declared a public
10
utility.
But is that what you're seeking?
Are we trying
11
to declare them to be a public utility as the outcome of
12
this proceeding?
13
become a project specific basis when you're seeking a
14
certificate like they done on Transco in the past to seek
15
status as a public utility?
16
A.
17
could act as a public utility in the state.
18
required pursuant just like Path would or any other
19
company to come in and get CCN approval on a project
20
basis.
21
subject to legal verification here, but we don't need
22
necessarily designation of the facility with more
23
approval of the service agreements.
And if not, is it your intent that they
My understanding is that West Virginia Transco
It would be
We do not believe that we need to necessarily ---
24
25
For instance in Ohio, the PUC recently
(814) 536-8908
91
1
approved an application by the Ohio Transco to become an
2
electric utility.
3
different hoops to jump through, that sort of different
4
requirements in each state?
5
A.
6
forth, and so we basically customize our applications to
7
meet individual state requirements.
8
did approve the Transco as you noted.
9
things that the Commission also felt was very helpful in
That's just a different state,
Each state has different requirements and so
The State of Ohio
And one of the
10
that policy was the White Paper that Mr. Boteler had
11
referenced, the Julie Cannell Paper which basically
12
consisted of a series of interviews with a number of
13
investors.
14
draft is what is the investment community thinking about,
15
what AEP or any other company is, in essence, doing.
16
rather than us going out and asking, we wanted somebody
17
who is reputable and someone who in the investment
18
community would feel comfortable speaking with.
19
she basically wrote up a summary of that which we
20
provided in our response to CAD 1-10, which provided a
21
little bit more information on that subject.
One of the things that's always difficult to
22
23
Thank you.
24
25
A.
That was very helpful to them.
(814) 536-8908
So
And so
92
1
That's all the questions I have.
2
CHAIRMAN:
3
I see why they deferred everything to
4
you because you're good.
5
about this case and when I get these reorganizations I
6
always wonder what's going on, why is it being done.
7
just as a general proposition, there's nothing that
8
Transco is going to do that can't be done by one of the
9
other AEP entities; is that correct?
10
A.
11
more capital.
I was talking with somebody
Other than it would have the ability to access
12
CHAIRMAN:
13
I understand that.
14
saying ---.
15
A.
CHAIRMAN:
17
Okay.
A.
I'm just
Right.
16
18
And
There's nothing improper ---
There's nothing.
19
CHAIRMAN:
20
--- and every one of the other entities
21
do it, other than as you say you may access capital.
You
22
may change scenarios with respect to funding and that
23
sort of thing.
24
regulatorially, if there is such a word, inappropriate in
25
having other AEP entities or APCo doing some of the
But there's nothing legally or
(814) 536-8908
93
1
things that you have in mind for Transco?
2
A.
Correct.
3
CHAIRMAN:
4
All right.
I was also interested in
5
--- and I don’t know that I've seen it before, maybe I
6
have but just didn't focus on it.
7
entities that come before us as public utilities.
8
the term Public Service Corporation was used here, and
9
I've always argued that there's a distinction between the
Typically we refer to
And
10
two.
Did you use the term Public Service Corporation
11
advisedly or was it just that that was words you chose?
12
Or were you trying to distinguish Transco from a public
13
utility in some way?
14
A.
No.
15
CHAIRMAN:
16
Okay.
Well, so much for my theory.
17
And the set of conditions that currently exist within the
18
AEP system that makes the existence and use of Transco
19
necessary is what in summary?
20
A.
21
tremendous amount of capital given the fact that we are a
22
very old public utilities and the KV requirements and so
23
forth.
24
organization, I've been here about four and a half years,
25
that I've seen is a continued pressure on the ability to
It is the fact that we needed to flow a
One of the things within the transmission
(814) 536-8908
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1
collect capital because of in essence the competing
2
resources.
3
great example of that.
4
companies, that were just put to the point where they
5
would be at risk for the downgrade, if they were to
6
continue to make those investments.
7
look at the coal system in all 11 states and all the
8
operating companies, we saw that that was a common theme.
9
And one of the things we had thought of and what we had
10
talked about internally was maybe it is time to do what
11
some other companies have elected to do ---.
12
CHAIRMAN:
13
The Texas model?
And as I've mentioned earlier, Texas was a
When we started to
14
A.
15
transport --- transfer of existing transmissions.
16
thinking about that and getting that, we decided that
17
what we're trying to do here is create a relief value.
18
And we know that this demand for capital is going to
19
continue.
20
seeing this.
21
economy was doing much better, the pressure from the EPA
22
and others was even more significant on the company.
23
No.
When you have two operating
Actually to physically move and seek to
After
Right now even in an economic downturn we're
Certainly a couple years ago when the
And so, what we decided to do was to create the
24
Transco as a targeted solution and to basically employ
25
this in all of our states because we do have sufficient
(814) 536-8908
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1
sales we think in all of the states that we are in.
2
having the AEP Transmission Company being able to access
3
the debt market and so forth and to secure that lower
4
cost of debt.
5
essence designed on a forward looking basis before we had
6
gotten in a potentially difficult decisions in terms of
7
finding the capital to be as proactive as possible.
8
that's some of the background.
So it was a targeted solution.
And
It was in
And
CHAIRMAN:
9
10
You talked about the lower cost of
11
debt.
Did you have an assumed bond rating for the
12
Transcos?
13
into the transaction or as a result of your discussions
14
did you have an assumed bond rating for Transco?
15
A.
16
Boteler, but one of the things that we have seen is just
17
the bond rating of companies that are transmission only.
18
And that they have traditionally been higher than what
19
we've seen for vertically integrated.
Let's look at West Virginia Transco.
Going
Well, this is probably a question better for Mr.
20
CHAIRMAN:
21
Okay.
You say at the bottom of page
22
five of your testimony that the company's inability to
23
make improvements when capital is constrained can result
24
in projects being deferred.
25
you could point to that have been deferred because of
Were there any projects that
(814) 536-8908
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1
capital constraints in West Virginia?
2
A.
3
votes, but it is something that we have seen across our
4
system.
5
help to talk about the nature of some of our projects,
6
but we're seeing more and more projects coming to the
7
RTO.
I would have to consult my notes and some of my
8
9
There are some projects --- and maybe it will
The PJM, for example, was determining what the
need is.
What they will do is dictate, here's the need.
10
You need to build it.
You need to have it in service by
11
a certain date.
12
that also need to be met and those are the most
13
significant investments these days in terms of larger
14
projects.
15
like legal reliability projects and the like.
16
from time to time, if there is not the available capital
17
in place, the decision is made basically to delay some of
18
those projects.
19
inherently or not reliable.
20
upgrade is going to be deferred a year, two years, that
21
kind of thing.
There are no reliability requirements
What it is also needed are projects such as
And so,
It does not mean the system is
It just means that that
22
CHAIRMAN:
23
But as to West Virginia Transco, APCo
24
specifically, you can't think of any projects at the
25
moment?
(814) 536-8908
97
1
A.
I'd have to check my books to know that one.
2
CHAIRMAN:
3
The discussion that you had with Mr.
4
Sade about the standards, I take it --- I don’t have that
5
in front of me, but I take it and I took it from your
6
testimony that the standards are reasonably objective.
7
mean, they're not wholly subjective on each one.
8
time, we'll do it this way.
9
when you will consider it to be a Transco project and
This
There are standards set for
10
when it would be somebody else's undertaking.
11
A.
12
that from the line of sight.
Correct.
I
And that was the intent to provide
13
CHAIRMAN:
14
APCo holds some transmission facilities
15
and your testimony seems to indicate that there are no
16
plans to transfer existing transmission facilities held
17
by APCo.
18
that end that existing transmission facilities would not
19
be transferred?
20
A.
21
extent --- the discussion certainly has been raised in
22
other jurisdictions ---.
Would APCo be willing to make a commitment to
I can't speak for APCo, but certainly to the
23
CHAIRMAN:
24
Has or has not?
25
A.
Has.
And whether it be informally or
(814) 536-8908
98
1
formally ---.
2
CHAIRMAN:
3
And your answer in every jurisdiction
4
was what?
5
A.
6
is to the extent that we were --- if 10, 20 years from
7
now we were to seek removal of those assets from APCo or
8
any other operating company to Transco, we would leave it
9
before the Commission and subject it to the Commission's
10
The same answer that I'm giving you today, which
determination as to whether that's appropriate.
11
CHAIRMAN:
12
Okay.
That wouldn't be the 24.2.11
13
exception I don’t believe.
14
you get further down the road, Transco becomes a larger
15
and larger entity or APCo decides to transfer, I think it
16
would be an affiliated transaction.
17
require some approval.
18
A.
As
It probably would
We believe that approval would be necessary.
19
CHAIRMAN:
20
All right.
21
Mr. Harris' testimony.
22
A.
You had a chance to review
Yes.
23
CHAIRMAN:
24
CAD.
25
I'm just trying to think.
his testimony.
He listed some FERC incentives in
And I assume that those incentives would
(814) 536-8908
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1
be available to Transco.
2
A.
3
specific incentives.
4
with construction work or progress or use of new
5
technology.
6
in his testimony.
The incentives that were referenced are project
So ones, for example, associated
All of those incentives that were referenced
7
CHAIRMAN:
8
It's page eight, line two.
9
A.
Yeah.
All of those are project specific.
So,
10
in other words, West Virginia Transco or Allegheny or
11
APCo, any company really would have that ability on an
12
individual project basis to seek that.
13
standing --- West Virginia Transco is not standing in
14
different shoes than APCo would.
15
that quite frankly I think you see falling into that are
16
very large projects.
17
the reasons they are a bit more risky.
So we're not
The types of projects
Projects like that in essence were
18
CHAIRMAN:
19
And APCo would be free to seek those
20
incentives in transmission facilities that fall within
21
unreferred domain.
22
A.
Is that what you're saying?
Yes, it would.
23
CHAIRMAN:
24
Are you familiar with our rather
25
precarious treatment of rate making and are you aware of
(814) 536-8908
100
1
whether or not those would be available here, the
2
CWIP ---?
3
A.
4
how that would work here.
I think Mr. Potter could answer the specifics on
5
CHAIRMAN:
6
Well, let's just leave it alone.
We
7
probably won't help either one of us.
8
on the transmission as they say.
9
36 month period of time there where --- I think it's in
10
your testimony, where the incentives are not available;
11
is that correct?
12
mentioned earlier, 355.
13
A.
14
the FERC settlement.
Oh.
So you're the guy
There's reference to a
This is out of the FERC docket that you
I think that's referring to the terms of
15
CHAIRMAN:
16
Uh-huh (yes).
FERC settlement with
17
FERC order and FERC docket, 10-355.
18
A.
19
the provision that we would not seek a change in the
20
rate.
21
the same as APCo's or other operating companies base
22
rate.
23
rates the same by creating an inherent disparity of the
24
intervention by the investors, the wholesale investors.
25
And certainly that was something they felt was very
I believe, subject to check, that that refers to
So in the base rate which is 11.49 in PJM which is
We were very cognitive trying to keep those base
(814) 536-8908
101
1
strong about.
2
CHAIRMAN:
3
As I understood the settlement, and
4
maybe I don’t understand the settlement, there was a
5
commitment that Transco would not seek the 125 basis
6
points at 36 months; is that correct?
7
A.
I don't recall.
I would have to check.
8
CHAIRMAN:
9
All right.
10
A.
I apologize.
11
CHAIRMAN:
12
Do you know of any instances under the
13
FERC rate incentives where it would be available to
14
Transco, but not to the operating company?
15
A.
16
standpoint, we have only sought the project specific in
17
past.
18
some very large projects.
19
projects.
No.
One thing I can say at least from the AEP
So if the future indicative of past, there are
They predominately been 765
20
CHAIRMAN:
21
And I think I touched on this with Mr.
22
Boteler or Mr. ---
23
A.
Potter.
24
CHAIRMAN:
25
--- Potter maybe.
In the FERC filing,
(814) 536-8908
102
1
AEP assumed an investment by the Transco in the West
2
Virginia Transco in December of 2010 of $5.6 million.
3
That's been taken out now?
4
A.
5
for approval of all of the utility agreement, we're not
6
comfortable releasing our people in the engineering,
7
construction and so forth.
8
back and they have sent their underdevelopment by APCo.
That has been taken out because we were trying
So we pulled both projects
CHAIRMAN:
9
10
Okay.
If that investment hadn't taken
11
place what's the purpose and use of a FERC approved
12
transmission based on a projected test year if the test
13
year ---?
14
A.
15
looks at what you think will be invested.
16
say in the early years it's always good because it's
17
difficult to understand or determine when the filings
18
will be before the Commission, when the hearings will
19
take place and when the decisions will be made.
20
nice thing about FERC, there is an automatic true-up, so
21
the cost will basically will be returned with interest.
22
So there's never any over earning or under earning under
23
that FERC approved rate.
Well, with a FERC approved rating it basically
And I would
But the
24
CHAIRMAN:
25
Is Transco charging a FERC approved
(814) 536-8908
103
1
rate right now?
And if so, to who and for what amount?
2
A.
And it is consistent with what was filed
3
in that settlement.
4
projects to be in service at any given point in time that
5
is charged through the PJM OATT, just like it would be
6
for APCo.
7
if we're assuming that that asset is being billed by
8
Transco and is not in APCo's FERC rate.
9
charged, too?
It is.
And that was based on projected
But if you think about it from the standpoint,
Now, who gets
The Transmission Agreement that was
10
referred to earlier by Mr. Potter, how that works is that
11
there is a sharing in certain AEP states in terms of the
12
transmission.
13
So actually for a dollar of transmission that
14
was built and serviced in the State of West Virginia, my
15
understanding is that only 15 percent is really directly
16
reflected here.
17
AEP states, their companies.
18
depends on the scale of the project, but some projects
19
are subject to a regional rate.
20
example, and 500 projects are shared more regionally.
21
is complicated.
The vast majority is paid by the other
And then sometimes it
So 765 projects, for
It
22
CHAIRMAN:
23
Does APCo pay PJM for its share of AEP
24
West Virginia transmission rates?
25
A.
Yes, it would.
I believe it would.
(814) 536-8908
104
1
CHAIRMAN:
2
In how many states is the AEP system
3
seeking --- and I use that as ---.
4
apparent, but in how many states is the AEP system
5
seeking to implement a Transco type system?
6
A.
7
have is Texas, but that's because we have electric
8
Transmission in Texas which is a joint venture but it is
9
a fully owned transmission company.
10
All of them really.
And I think that's
The only one that we don't
So it's just a
different variety.
11
CHAIRMAN:
12
And that would be nine, ten states?
13
A.
That would be ten.
14
CHAIRMAN:
15
Ten?
16
A.
We have 11 states in total, so 10 if you want to
17
count Texas.
18
CHAIRMAN:
19
In how many states do you have
20
approval?
21
A.
22
Those states basically did not have approval processes.
23
We needed to basically become a public utility.
24
we have received our order there.
25
West Virginia, Arkansas, Indiana, let me see, Louisiana
We are operating in Michigan and Oklahoma.
In Ohio,
Then we have filed in
(814) 536-8908
105
1
and Virginia are the two that basically remain to be
2
filed.
3
CHAIRMAN:
4
What kind of regulatory inquiry are you
5
getting in those states?
Sort of the same things that
6
we're asking about or much easier?
7
A.
8
basically talk to --- as we did here probably about a
9
year or so ago, talk to the Commission, talk to
I don't know.
What we've done in a number of other states is
10
Intervenors and so forth.
11
forget Kentucky by the way.
12
the first hearing.
13
of paper filing.
We have not gone --- I did
Kentucky.
This is actually
Ohio basically dealt with it in terms
14
CHAIRMAN:
15
Have you met opposition by the Staff,
16
or the Consumer Advocate Division, or the AG's office or
17
any other jurisdiction where this matter is pending?
18
A.
19
addressed as a long process.
20
everybody to ---.
I would say that it's been probably fairly
I'm getting
21
CHAIRMAN:
22
Not opposition, just a long process.
23
A.
Not directly.
Certainly we didn't in Ohio and
24
I'm not really seeing much in the other states at this
25
point in time.
(814) 536-8908
106
1
CHAIRMAN:
2
All right.
Could you provide me as
3
Commission Request Exhibit Two, a list of dockets that
4
are pending in other cases?
5
A.
Certainly.
6
CHAIRMAN:
7
Thank you.
8
That's all I have.
Further
questions?
ATTORNEY SADE:
9
10
Yeah.
I have a few, Your Honor.
11
RECROSS EXAMINATION
12
BY ATTORNEY SADE:
13
Q.
14
questions about the moratorium on incentives that was
15
established in the settlement.
16
questions?
17
A.
Yes, I do.
18
Q.
And I believe he asked you whether there was ---
19
something to the effect of whether there was 36 month
20
moratorium on obtaining new incentives?
21
A.
Yes, he asked that.
22
Q.
Have you reviewed the settlement or the order
23
approving the settlement in the FERC case?
24
A.
Yes.
25
Q.
Okay.
Ms. Barton, the Chairman asked you some
Do you recall those
It's been a while since I looked at it.
Do you know what the effective date of
(814) 536-8908
107
1
the settlement agreement is or was?
2
A.
No, I don't.
3
Q.
Would you accept, subject to check, that the
4
effective date of that settlement is July 1, 2010?
5
A.
Yes.
6
Q.
So if that's the case and there's a 36 month
7
moratorium in reality from today's date, we're much
8
closer, in fact, within a couple weeks, of a two year
9
moratorium; are we not?
10
A.
That would be correct.
11
Q.
And I think you indicated in response to
12
question by the Chairman that it was your impression that
13
that moratorium only addressed any kind of base rate
14
determination.
15
using the term base rate in response to ---.
16
A.
17
refresh myself on the terms of that, but I would
18
certainly respond to any of those questions pursuant to a
19
data request.
20
Q.
21
accept, subject to check, that within that moratorium or
22
during the moratorium that the AEP Transmission Companies
23
may only request ROE adders for transmission rate
24
incentives of up to 125 basis points.
25
A.
Do I have that right?
I remember you
I think it's safe to say I would just need to
Well, it's a little late for those.
I'm sorry.
Would you
Could you just repeat the question
(814) 536-8908
108
1
again?
2
Q.
3
the language of the settlement agreement incorporated
4
into or referenced in the FERC April 21 order states that
5
the moratorium limits AEP to seeking --- strike that.
6
Yes.
Would you agree, subject to check, that
It limits AEP's ability to seek rate incentives
7
except for adders of up 25 basis points for the
8
transmission rate ROE adders.
9
the first one.
That was less clear than
10
A.
I think I understand what you're saying.
When
11
you say AEP you were referring to the Transco.
12
Q.
I'm sorry.
13
A.
I'm assuming that when you're referring to AEP
14
you're referring to Transco?
15
A.
I didn't hear your answer.
Yes.
16
ATTORNEY SADE:
17
Just a second.
I'm going to have an
18
exhibit distributed that I would like to have marked as
19
CAD Cross One?
20
CHAIRMAN:
21
22
(CAD Cross Exhibit Number One marked
23
24
BY ATTORNEY SADE:
25
Q.
I have handed her --- do you have a copy of CAD
(814) 536-8908
109
1
Cross One before you now?
2
A.
Yes, I do.
3
Q.
Would you accept that in order to save some
4
trees that this only includes pages one through five of
5
the order approving the settlement?
6
A.
I believe it's one through six, but yes.
7
Q.
I'm sorry?
8
CHAIRMAN:
9
One through Six.
10
BY ATTORNEY SADE:
11
Q.
12
a send over on six.
13
turn to page 5 and paragraph number 12?
14
A.
Yes.
15
Q.
And go down to the sixth line to the sentence
16
beginning Section I.D. of Attachment A-1.
17
A.
Yes.
18
Q.
Does that sentence indicate that the moratorium
19
--- during the moratorium of 36 months from the effective
20
date of the settlement, AEP Transmission Companies in PJM
21
may only request ROE adders for transmission rate
22
incentives of up to 125 basis points that is 12.74
23
percent?
24
A.
Yes, it does.
25
Q.
And do you read that to mean that AEP may seek
One through six.
Okay.
I'm sorry.
That's right.
All right.
There's
Would you
(814) 536-8908
110
1
these specific adders during the 36 month moratorium?
2
A.
3
when you say AEP, it's a little confusing to me.
4
you say AEP I'm assuming you mean AEP Transmissions.
5
Q.
I do.
6
A.
So we would not be bound by that.
7
it would be AEP operating companies.
No.
My understanding of the moratorium --- and
8
ATTORNEY SADE:
9
All right.
10
So when
For example,
That's all I have.
Thank
you very much.
11
CHAIRMAN:
12
Mr. Porth?
13
ATTORNEY ANDERSON:
14
Your Honor?
15
CHAIRMAN:
16
I'm sorry.
17
ATTORNEY ANDERSON:
18
Can I go first?
19
CHAIRMAN:
20
I was all set to have Mr. Porth.
21
RECROSS EXAMINATION
22
23
Q.
24
Commissioners.
25
Albert that the Petitioners could agree that they will
Some follow up questioning from the
In particular, you were telling Chairman
(814) 536-8908
111
1
not transfer any existing APCo or Wheeling Power Company
2
transmission facilities without the Commission's prior
3
approval.
4
A.
5
that we would have come to the Commission to do that.
6
Q.
7
but if the law changes you wouldn't come?
8
A.
9
questions.
Do you remember that, you saying that?
What I said is that we feel under current law
And as long as the law stays the same you would,
I probably wouldn't be the one to answer your
10
Q.
While the petition is not seeking to transfer
11
existing facilities, the fact is the project guidelines
12
that are set out in Exhibit B that's been attached to the
13
application that you're sponsoring does allow for
14
existing Appalachian Power Company and Wheeling Power
15
Company transmission facilities to be replaced under
16
certain circumstances; correct?
17
A.
Yes, under certain circumstances.
18
Q.
And when those facilities are replaced by the
19
West Virginia Transco, those facilities would no longer
20
--- the new facilities would not be owned by Appalachian
21
Power Company or Wheeling Power Company; correct?
22
A.
Correct.
23
Q.
They would be owned by the West Virginia
24
Transco?
25
A.
They would.
(814) 536-8908
112
1
Q.
And related to that, you answered a question
2
from Commissioner Palmer stating that West Virginia
3
Transco is not seeking public utility status at this
4
time; correct?
5
A.
6
in the essence of APCo and Wheeling Power.
7
Q.
8
a public utility, a West Virginia public utility?
9
A.
We believe it is.
10
Q.
A West Virginia public utility, but you would
11
not necessarily seek even at the cost of $500 million a
12
certificate to be a necessity to replace certain
13
facilities; correct?
14
A.
15
the state.
16
extension or something that would clearly affect the
17
designation of approval, we would, but we would not for
18
these other projects.
19
Q.
20
question from Chairman Albert about the fact that
21
Appalachian Power Company --- I think you indicated that
22
Appalachian Power Company paid its share of transmission
23
costs.
24
question?
25
A.
We're seeking approval of service agreements and
Do you consider the West Virginia Transco to be
We would seek it just like any other utility in
So if it was, for example, a five mile line
I just want to be clear on that.
And you said that they did.
There was a
Do you remember that
Yes.
(814) 536-8908
113
1
Q.
I guess summarizes your response correctly.
2
A.
Yes.
3
OATT, the owner of the transmission facility, PJM and
4
then PJM then in turns bills those certain entities in
5
those cases.
6
Q.
7
Company and Wheeling Power Company together pay their
8
fair share of the PJM OATT transmission costs, I guess
9
the transmission costs that’s determined by the PJM OATT,
In essence how it works is through the PJM
And are you aware that while Appalachian Power
10
that they also receive revenues under the PJM OATT?
11
A.
12
I'm very familiar with.
13
witness on how that works.
14
Q.
15
on his Direct testimony right now it shows that
16
Appalachian Power Company and Wheeling Power Company have
17
a net revenue benefit from that transaction where they
18
pay their costs and they receive revenues by them under
19
the PJM OATT?
20
A.
21
benefit --- I guess what I'm not quite sure about is when
22
you say benefit, but ---.
23
Q.
They receive net revenue back.
24
A.
They receive net revenue.
25
Yes.
Exactly how that works is not something
I think Mr. Potter is a better
Did you hear Mr. Potter testify today that based
I believe what I heard is that in terms of
Thank you.
ATTORNEY ANDERSON:
(814) 536-8908
114
1
I stand corrected.
I think that's all.
2
CHAIRMAN:
3
All right.
4
ATTORNEY PORTH:
5
Thank you very much, Mr. Chairman.
Mr. Porth.
6
7
BY ATTORNEY PORTH:
8
Q.
9
two separate occasions by the Staff some questions about
Just one thing, Ms. Barton.
You were asked on
10
when Transco would come before this Commission to seek
11
approval for given projects.
12
you in this fashion.
13
project which if it were to be undertaken by APCo would
14
require APCo to come to the Commission for prior approval
15
before undertaking it.
16
that same project, would it come to the Commission for
17
prior approval?
18
A.
Let me put the question to
Suppose there's a transmission
Now, if Transco were to undertake
Yes, it would.
19
ATTORNEY PORTH:
20
That's all I have.
21
CHAIRMAN:
22
All right.
23
A.
Thank you.
Thank you, Ms. Barton.
You're welcome.
24
ATTORNEY PORTH:
25
Your Honor, subject to the right to
(814) 536-8908
115
1
recall for rebuttal purposes if needed, that completes
2
the presentation of the Company's case.
3
CHAIRMAN:
4
All right.
5
ATTORNEY SADE:
6
Your Honor, I believe I would like to
7
move for the admission for CAD Cross One.
8
CHAIRMAN:
9
CAD Cross One will be admitted.
10
afternoon.
11
We have Mr. Harris and Mr. Sprinkle.
We can either break for lunch or keep going.
12
ATTORNEY SADE:
13
We'd be happy to keep going, Your
14
Honor.
15
CHAIRMAN:
16
All right.
17
It's
Go ahead and call your
witness.
18
ATTORNEY SADE:
19
CAD calls Byron Harris.
20
---------------------------------------------------------
21
BYRON L. HARRIS, HAVING FIRST BEEN DULY SWORN, TESTIFIED
22
AS FOLLOWS:
23
---------------------------------------------------------
24
DIRECT EXAMINATION
25
BY ATTORNEY SADE:
(814) 536-8908
116
1
Q.
Good morning, Mr. Harris.
Or I guess we're in
2
afternoon now.
3
business address for the record, please?
4
A.
5
Kanawha Boulevard, Charleston, West Virginia 25301.
6
Q.
7
your Direct testimony and attached schedules?
8
A.
Would you state your full name and
Byron L. Harris, Room 700 Union Building, 723
Mr. Harris, do you have before you a copy of
Yes.
ATTORNEY SADE:
9
10
Your Honor, I had given a copy of this
11
document to the court reporter and I would ask that it be
12
marked as CAD Exhibit BLH-D for direct.
13
CHAIRMAN:
14
All right.
15
(CAD Exhibit BLH-D marked for
16
identification.)
It be so marked.
17
BY ATTORNEY SADE:
18
Q.
19
make to your testimony, Mr. Harris?
20
A.
21
line 15.
22
repeats.
23
Q.
Page 7, line ---?
24
A.
Fifteen (15).
25
Q.
Fifteen (15).
Do you have any corrections or modifications to
Yes.
I have two minor corrections on page 7,
Strike the words of 7.36 percent.
It kind of
Okay.
(814) 536-8908
117
1
A.
And then on page 9, line 21 there's a reference
2
to an exhibit number on that line that's incorrect.
3
should be BLH-4.
4
Q.
Do you have any other modifications to make?
5
A.
I don't believe so.
6
Q.
Subject to those modifications, if you were
7
asked the same questions today as you were asked while
8
preparing this testimony would your answers be the same?
9
A.
Yes.
10
Q.
And do you adopt this as your testimony in this
11
matter?
12
A.
It
I do.
13
ATTORNEY SADE:
14
Subject to Cross Examination, CAD would
15
move the admission of this exhibit and the witness is
16
available for Cross.
17
CHAIRMAN:
18
This will be admitted as CAD One.
19
You're up.
20
ATTORNEY PORTH:
21
Thank you.
22
CROSS EXAMINATION
23
BY ATTORNEY PORTH:
24
Q.
Good afternoon, Mr. Harris.
25
A.
Good afternoon.
(814) 536-8908
118
1
Q.
Could you turn to page ten of your testimony?
2
A.
Page ten?
3
Q.
Page ten.
4
A.
I'm there.
5
Q.
And the question and answer would start
6
somewhere on 17.
7
service agreement between APCo and AEP Appalachian
8
Transmission Company.
9
attached to the Application?
You're referring to a particular
Is that Exhibit G that was
10
A.
I will accept that.
I don't recall the exhibit.
11
Q.
But it was the Virginia ---
12
A.
Yes.
13
Q.
--- service agreement?
14
A.
Yes.
15
Q.
Now, starting at line 25 there on page 10.
16
Let me just read that sentence.
17
not approve this agreement until the Virginia Commission
18
has reviewed a filing by APCo to implement the agreements
19
necessary for the operation of AEP Appalachian in
20
Virginia.
21
A.
Yes.
22
Q.
AEP Appalachian is the Virginia Transco?
23
A.
That's correct.
24
Q.
Now, following that sentence, you have this
25
sentence on page 11.
The Commission should
Did I read that correctly?
I recommend that the Commission
(814) 536-8908
119
1
deny the Applicant's request in this proceeding and wait
2
until the issue has been resolved in Virginia?
3
A.
Yes.
4
Q.
Now, is that any broader a statement than the
5
preceding sentence which I read?
6
A.
No.
7
Q.
Okay.
8
A.
I was saying the same thing twice.
9
Q.
And I just want to make sure of that because
I don't know ---.
10
when you spoke in terms of the Applicant's request I
11
wanted to make sure that wasn't broader.
12
talking about that one Virginia service agreement?
13
A.
14
deny the other specific requests, but specifically
15
this ---.
16
Q.
17
Virginia service agreement.
18
A.
You're just
Well, obviously, the bulk of my testimony is to
Sure.
But in that sentence, it's only the
Yes.
19
ATTORNEY PORTH:
20
That's all the questions I have.
21
CHAIRMAN:
22
All right.
23
ATTORNEY RIGGS:
24
No questions.
25
CHAIRMAN:
Ms. Riggs?
Thank you.
(814) 536-8908
120
1
Staff?
2
ATTORNEY ANDERSON:
3
4
CHAIRMAN:
5
Commissioner?
6
7
Good afternoon.
8
testimony you discuss --- you say the only evidence
9
presented by the Applicants shows that the rates for
On page six of your
10
APCo's and Wheeling Power Company's customers will be
11
higher if transmission facilities are constructed by West
12
Virginia Transco.
13
testimony all morning, this morning, that the rate
14
difference will diminish if not reverse over time due to
15
stronger credit ratings, increased availability of
16
capital to build these transmission projects and then
17
some corresponding reduction to maintenance cost because
18
they have a more timely replacement of plant.
19
However, we've heard a lot of
These are arguments that have been
20
somewhat discussed before, but they were flushed out a
21
little more here today.
22
on reversal or diminishing rate difference over time?
23
Are you still arguing that there's no concrete evidence?
24
I don't want to put words in your mouth.
25
A.
Well, it's both.
Has it influenced your opinion
Part of it is I'm often
(814) 536-8908
121
1
accused of acting like an attorney and I guess in this
2
sense I am, in that the company cannot present evidence
3
today to show that that would reverse.
4
speculation.
I don't agree with a lot of that
5
speculation.
I have a notion that transmission only
6
companies will necessarily cheat the debt.
7
seen anything that convinces me of that.
8
9
It's all
I haven't
I don't think if you look at the ratings report,
in particular the Moody's one, attached to my testimony,
10
they seem quite happy with the fact that APCo is a
11
vertically integrated utility.
12
don't think there's --- I don't think there's any
13
evidence.
14
five years down the road they'll have some experience in
15
other states and they can show the bond rating of
16
Indiana, Michigan went up and et cetera, et cetera.
17
Well, then we're talking about something different, but
18
today we can't make that case.
You know, in that sense I
They can't provide that evidence today.
Maybe
19
20
So then I guess on the flip side of
21
that, you're not necessarily --- or are you, I should
22
say, concerned over the potential negative impact a
23
reduction of transmission investments by APCo would have
24
on their financial rating or bond ratings or financial
25
--- whether they have a favorable review from the
(814) 536-8908
122
1
financial community in the future.
That sounds like an
2
issue you're not convinced of at this time?
3
A.
4
in my testimony, we just come to a rather dramatic
5
construction program by APCo.
6
Fitch and Moody reports, base their ratings on the fact
7
that they don't expect APCo to have significant
8
construction in the foreseeable future --- in the near
9
future I should say.
Well, I think right now, no, because, as I say
And, again, with both the
So right now the concept of being
10
able to relieve APCo of some transmission capital
11
requirements doesn't seem from my reading of those
12
reports to be important.
13
14
Okay.
15
CHAIRMAN:
16
Commissioner?
17
18
No.
19
CHAIRMAN:
20
I have the same question that the
Thank you.
I appreciate that.
21
counselor for APCo had.
And that was about your question
22
--- it seems to me that on the one hand you were saying
23
don't approve until Virginia acts.
24
you were saying deny it and maybe they're not exactly the
25
same.
And on the other hand
I was trying to figure out if you were saying
(814) 536-8908
123
1
something different in those two sentences as well.
2
A.
3
I meant it as ---.
Well, maybe this is where I fail as an attorney.
4
CHAIRMAN:
5
Are you saying we ought to hold this
6
until we get some ruling in Virginia or should we just
7
deny it now because we don't have a ruling in Virginia?
8
A.
9
I think you should deny the whole application because
10
Well, I think this is a minor point.
Obviously,
they can't meet the standard.
11
CHAIRMAN:
12
For your other reasons.
13
A.
Yeah, for all the other reasons.
14
addressing that one specific exhibit because it is
15
different than the others.
That's all.
16
CHAIRMAN:
17
All right.
18
ATTORNEY PORTH:
19
Nothing further.
20
CHAIRMAN:
21
All right.
22
A.
I was just
Thank you.
Is that it?
I'm sorry.
Nothing.
Thank you, sir.
Thank you.
23
CHAIRMAN:
24
Staff, do you want to call your
25
witness, please?
(814) 536-8908
124
1
ATTORNEY ANDERSON:
2
Yes, sir.
Staff calls Thomas Sprinkle
3
to the stand.
4
---------------------------------------------------------
5
THOMAS D. SPRINKLE, HAVING FIRST BEEN DULY SWORN,
6
7
---------------------------------------------------------
8
DIRECT EXAMINATION
9
10
Q.
Would you please state your full name for the
11
record?
12
A.
It's Thomas D. Sprinkle.
13
Q.
Where are you employed, Mr. Sprinkle?
14
A.
I'm employed by the West Virginia Public Service
15
Commission and I work in the Utilities Division.
16
Q.
17
Commission?
18
A.
19
continuously for the Commission except for approximately
20
a four year period when I had an appointment with the
21
West Virginia DMV.
22
Q.
23
the Commission?
24
A.
25
Commission, various types of applications from petition
How long have you been employed by the
I was employed in August of 1978 and then worked
What is the scope of the work that you do for
Primarily I review applications before the
(814) 536-8908
125
1
cases to rate increases.
I perform desk reviews.
I
2
perform various types of audits from minor audits to full
3
blown audits on the major Rule 42s on major energy cases.
4
I perform testimony, I provide testimony and I provide
5
Rule 42s exhibits and make recommendations on accounting
6
issues also before the Commission.
7
Q.
8
direction Direct testimony that is seven pages long on
9
April 6th, 2011 in this case?
Did you prepare or have prepared under your
10
A.
Yes.
11
Q.
Do you have a copy of it in front of you?
12
A.
Yes, I do.
13
ATTORNEY ANDERSON:
14
Your Honor, I've already given a copy
15
to the court reporter.
Now I would request that the
16
Staff be allowed to mark the Direct testimony of Thomas
17
D. Sprinkle as Staff Exhibit TDS-D.
18
CHAIRMAN:
19
20
(Staff Exhibit TDS-D marked for
21
identification.)
22
23
Q.
24
corrections to your testimony?
25
A.
Mr. Sprinkle, do you have any changes or
No, I don’t.
(814) 536-8908
126
1
Q.
If I were to ask you the same questions today
2
would your responses be the same?
3
A.
Yes.
4
ATTORNEY ANDERSON:
5
Your Honor, subject to Cross
6
Examination, I move the admission of Staff Exhibit TDS-D.
7
CHAIRMAN:
8
All right.
9
ATTORNEY ANDERSON:
10
11
It will be admitted.
This witness is available for Cross
Examination.
12
ATTORNEY PORTH:
13
I have no questions, Your Honor.
14
CHAIRMAN:
15
All right.
16
CAD?
Any questions for Mr.
Sprinkle?
17
ATTORNEY SADE:
18
19
CHAIRMAN:
20
Ms. Riggs?
21
ATTORNEY RIGGS:
22
23
CHAIRMAN:
24
Commissioners?
25
Thank you.
(814) 536-8908
127
1
No questions.
2
3
No questions.
4
CHAIRMAN:
5
It's easy today, Mr. Sprinkle.
6
A.
I didn't expect that.
7
CHAIRMAN:
8
You're excused, sir.
9
A.
Thank you.
Thank you.
10
CHAIRMAN:
11
Are there any other witnesses?
12
other things to come before us?
13
know.
All right.
Any
I don't
Do we have a briefing schedule or ---?
14
15
I assume the standard one should be one
16
attached to the brief.
17
CHAIRMAN:
18
Well, then we'll abide by the briefing
19
schedule that's apparently attached.
20
21
The parties don't have it.
22
transcript would be two weeks, June 28th.
23
initial briefs July 18th.
24
28th.
25
The
Simultaneous
Simultaneous reply briefs July
CHAIRMAN:
(814) 536-8908
128
1
Okay.
Does everybody have that?
All
2
right.
Subject to transcript, receipt of transcript and
3
receipt of briefs we'll consider this matter submitted.
4
Thank you for your effort.
5
make sure.
6
Exhibits.
7
think it was schedule 2.
8
indicating exactly what that should contain.
9
scream and holler and do anything else but submit the
I appreciate it.
Just to
Now we have two request, Commission Request
One was a recalculation if you will of --- I
And we will get an order out
You can protest it.
And you may
10
schedule.
The other one was a list
11
of the jurisdictions in which the Transco cases are
12
pending and the related cases or docket numbers.
13
thank you.
14
* * * * * * * *
15
HEARING CONCLUDED AT 12:20 P.M.
16
* * * * * * * *
17
18
19
20
21
22
23
24
25
(814) 536-8908
So
129
1
2
CERTIFICATE
3
4
I hereby certify, as the stenographic reporter,
5
that the foregoing proceedings were taken
6
stenographically by me, and thereafter reduced to
7
typewriting by me or under my direction; and that this
8
transcript is a true and accurate record to the best of
9
my ability.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
(814) 536-8908
Ccr*g^r^7
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\ilILLTAMC.PORTE
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CHARLESTON,WV 25326
ROBINSON
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Aþpticationfot Approval of Arrangewents Among
Affiliates Related to the Operation of a New
Public Service Corporatíon that Wilt Own
Transmission Facílíties and Provide Transmission
Services
Dear tv{rs.
I
Sçire:
enclose herevi'ith oa beh¿lf
' i b"*p*v,"ääeef
of
Appala¡;htan Power Company, Wheeling PoÏver
"V:{
Transãlssion compan¡ to", ('YvTCo" or
of
Virginia fmrnsco'), the ori.ginJ anì twelve (12) copies of an Ap'plication fo¡ Approval
corporation
service
newpublic
of
árrangements *oág umfãt"r relaæd to the operation
Oet wi1 o*m ttuor-irsion facilities and provide transnission servíces.
w"rt virginia
ffiäÌilVerytruly yot¡rs,
WílliæC. Porth
(W.Va- StzteBæ#2943)
Counsei for Appalachian Power Compann
Wheeling Power ComPann and
AEP West Virginia Transmission Company, Inc.
WCP:dlm
Enclosr.¡res
400
(304) 347-8340
¿'f) É
Mrs. Sandra
Executive
TVestVirginiaPublic Service
2ol Brooks
Charleston, WV
Re:
DIAL:
E-MAIL: wcp@ra¡daw.com
BY HANp pELTVERY
'i
Èd^. ì\b,
FIFIE TI$RÐ CEt{fER. r 200 VIRGINIA STREET, EAST r CSARLESToN, Wf zsSOt c (3ß) 344-5800
t4û WEST DÁAIN STREET r SUIIE 300. CÍ.ARKSBURG, YF¡I 2ft3V2 o (3041 622-5V22
..
e"..i
PTJBLIC SERVICE COMMISSION
OF \YEST VIRGINIA
CHARLESTON
cASE
No. , D- o 57 7 - Ê:Q C
APPALACHTAN POWER COMPAN-Y,
WIIEELING POWER COMPAIIY, and
AEP WEST VIRGINIA TRANSMISSION
COMPAI\¡-Y,INC.,
public utilities
Application for Approval of Arangements Among
Affrliates Related to the Operation of aNew
Public Service Corporationthat V/ill Own
Transmission Facilities and Provide Transmission Services
APPLTCATION
APPALACHTAN POWER 'COIæANY ç'ApCo"), WTTEELING POWER
COMPAI.IY fWPCo'), and AEP WEST VIRGIMA TRANSMISSION COMPAI{Y, INC.
f'Tfl/TCo"
or "West Virginia Transco'), public servic¿ corporations duly organized and existing
wder the laws of the CommonwealtL of Virginiq in the case of APCo, and the State of West
Ykgdrdrqin the case of WPCo and WVTCo, reprcsent as follows:
parfiæ
l.
APCo ís a Virginia public service corporation authorized to do business in TVest
Vírginia and WPCo is a West Virginia public service corporation, both with principal business
addresses
.
ín West Virginia of
707
Virginia Steet, EasÇ Cha¡leston, West Virginia" 25301.
APCo and WPCo provide electric serryice in West Virginia and (in the case of APCo) in Virgínía
and are zubject to regulafion as to rates and service by this Commission.
WPCo's
stock is owned
AII of APCo's and
þ American Electic Power Compan¡ Inc., ('AEP:) a New
York corporation and a holdíng company under úe Pubtic Utility Holding Company Act of
[R04755fs-f]
2005.
2,
address
of
West Virginia Transco is a West Virginia public service corporation having an
1 Riverside Plaza" Columbus,
Ohio 43215.
West Virginia Transco witl plan,
construct, own, operate, ÍTraîage, and control facilities within the State
of West Virginia for the
transmission of elecüicity at wholesale to its customors, including APCo and WPCo. West
Viiginia Transco is a member of PJM lnterconnection, LLC ('PJVf), a regional ftansmission
organization ("RTO"), and West Virginia Transco's tansmission service
regulatory oversight
will be subject to
by this Commission as well as by the Federal Energy
Commission ('.FERC").
All of V/rest Virginia
Regulatory
Transcols coûrmon stock is owned by AEP
Transmission Compæry, LLC ("AEPTCo"), a wholly-owned subsidiary of AEP Transmission
Holding Company, LLC, which in n¡m is a wholly-ouned subsídiary of AEP. Accordingly,
'V/est
Virginia Transco and APCo and WPCo are affiliates of each other within the meaning of
WJ/a. Code 524-2-12. Attached as Exhibit A is a diagram that depicts the ultimate ownership
by AEP of West Virginia Transco and six other new hansmission subsidiaries on the AEP
System (such other transmission subsidia¡ies and West Virginia Transco hereinafter referred to
a^q*AEP Transcos'),
3.
American Elecfric Powet Service Corporation ('AEPSC,')
corporatíon havíng an address
of I
Ríverqide Plaz4 Columbus,
is a New York
Ohio 43215,
AEPSC is a
wholly-owned subsidiary of AEP. Accordingly, AEPSC is an affiliate of APCo, WPCo, aad
WéstVirgínia Transco wÍthín the meaning of W.Va. Code ç24-2-12.
4.
AEP Utilitíes, Inc., AEP Utility Funding LLC, AEP Generating Compan¡ AEP
Texas Cenfrai company
('Tcc'),
AEP Texas North company
(TNc'),
Powes Company f'CSP'), Indiana Michigan Power Company
lF.&1s7w,rÍ
columbus Southern
('I&M'), Kentucþ
Power
Company ("KPCo'), Kingsport Power Company ('KgPCo"), Ohio Power Company ('OPCo"),
Public Service Company
of
Oklatroma ('PSO'), Southwestern Electic Power Company
("S'WEPCo"), Blacklawk Coal Company, Cedar Coal Compan¡ Central Appalachian Coal
Company, Cental Coal Company, Conesvüle Coal Preparation Company, Dolet Hills Lignite
Compan¡ LLC, Franklin Real Estate Company, Indiana Franklin Realty, [nc.,
Southern
Appalachian Coal Company, AEP Appalachian Transmission Company, AEP Indiana Michigan
Transmission Company, Inc., AEP Kentucþ Transmission Company,
hc., AEP Ohio
Transmission Company, Ioc., AEP Southwestem Transmission Company, Inc., and AEP
Oklahoma Transmission Company, Inc. (collectivel¡ along with APCo, WPCo. AEPSC, and
West Virginia Transco, the "Utility Money Pool Parties") are direct or indirect subsidiaries of
AEP. Accordingly, each of the Utility Money Pool Parties, other than W'est Virginia Transco, is
an
affIiate of West Virginia Transco nithín fþs ssaning of V/.Va Code ç2+2-12.
5.
Transc,os,
C,otumbus,
AEP Appalachian Transmissiou Company (Yirginia Transco'),.one of the AEP
is a Virginia public service corporation havÍng an address of
Ahto 43215. It is designed
I
Riverside Plaza,
to perform in Virginia and Tennesseg the same firnctions
which West Virginia Trarsco is designed to perform
in
West Virginia. The organization,
ownership, purpose, and operation of Virginia Transco and W'est Virginia Transco parallel one
another and the basic representations and arguments contained in this Application about West
VírgíníaTransco
tre
abor¡t, and applicable to, Virginia Transco, as
well.
Since APCo's
relationship wíth Virgisia Transco (although it does not involve transmission facilities in West
Vírginía), constÍtr¡tes an arrangement with an affiliate $'itþin the meaning of W.Va- Codè 924-2-
12, APCI and WPCo also present to this Commission, as Exhibit G, the proposed Service
Agreemelrt between APCo and Virgiuia Trans'co and seek this Commission's approval of the
{R047fJf5.r}
afiangement embodied in that Service Agreement on the same basis and for the same reasons
that they seek Commission approval of the West Vírginia Transso arrangements and Service
Agreements discussed in detail below.
Backeround
6.
Today, AEP System transmission facilities are primarily owned by AEP's
o.nerating companies, such as APCo and WPCo, which provide retail electric service within
AEP's eleven-state territory. Atthough the hansmission facilities are currently owned by the
individual AEP operating companies, the AEP transmission system is planned and operated on
an integrated basis through the coordinated
efiForts
of the AEP
Transmission Deparbnent
('AEPTransmission'), a business unit of AEP's centalized service aompany, AEPSC. AEPTransmission is ultimately responsible for managing the entire AEP tansmission system. To
accomptish its responsibilities, AEPTransmission utilizes a combination of services provided by
AEP operating compaûy employees, AEPSC employees, and conhactors.
\Mest Virginia Transco transmission assets
will be physically
existing tansmission facilities owned by APCo, WPCo, other AEP electic
connected to
utitþ
opøating
companies, other AEP Transcos, and unaffiliated thírd parties. West Virginia Transco's assets
will be planned, constructed,
and managed
in the
same \¡vay thaf APCo's and WPCo's
transmission assets are planned, constructed, and managed as part
of a unified,
tansmission system. The AEP Trznscos, including West Virginia Transco,
integrated
will
provide
wholesale tuansmission service to AEP companies, including APCo and WPCo, and other
wholesale customers. West Virginia Transco l¡/ill not províde ret¿it transmission services directly
to eonsumers in West Vìrginia.
(Ro4753rs.l)
8.
On December 7,2009, AEPSC, on behalf of V/est Virginia Transco and the other
AEP Transcos, filed with FERC, under FERC DocketNo. ERl0-355-000, to establish a revenue
requirement
to be included in PJM's
("OATT'). PJM \4'ill bill
FERC-approved Open Access Transmission Ta¡iff
wholesale load serving entities
('LSEs') (including AEP companies,
municipalities, electric cooperatives and other LSEs) for ftansmission service. Cunently, the
PJM OATT contains rates for an "AEP Zoîe" designed to recover the collective cost of service
of the AEP operating companies in that zone.
9.
Certain new transmission assets (regardless of voltage class) in V/est Virginia
will
be developed and owned by West Virginia Transco. In order to ensure, for example, that the
assets magaged
by West Virginia Transco a¡e of sufFrcient scope and are sufficientþ physicaily
discernable from transmission assets owned by APCo or WPCo, AEPSC has developed an
AEPTCo Project Selectíon Guidetine ('PSG") for use in determining which facilities will be
devetoped by tfte AEP Tra¡rscos aud uihich
will
be developed by the AEP operating companies.
In general, the PSG will be used to provide guídance to AEPÏransmissionpersonnel to designate
projecfs that include a clear physicat dema¡cation betweea potential assets of the AEP Transcos
a¡rd assets
Tra¡scos
of the AEP operating companies. Projecls that qualify to be included in the AEP
will b€ subject to case-by-case evaluation
and approval by AEPTransmission
mæagerne,nt In addition, the PSG may be reviewed and amended from time to time. Attached
as
ElûibÍt B ís a copy of the PSG.
10-
WesÉ
Virginia Transco wilt deveþ, constucÇ own, and operate gertain new
transnrissioa facil.íties tfraf æe physically connected to existing APCo or WPCo facilitíes within
the PJM terrítory The creation of West Virginía Transco
will simply allow certain
new
fransmÍssion facilities wÍthín the State of Wes Virginia to be owned by West Virginia Transco
tìR047ÍJI5.tF
instead of by APCo or WPCo. There
maintenance
will be no ohange in the overall planning, operation
of the transmission system, since the
services provided
and
to 'V/est Virginia Transco
will be through the same service providers and will be administered in the same manner that
these services are being provided
today. As APCo and WPCo do today, West Virginia Transco
will be able to rely on the necessary and appropriate
managerial, technical, engineering,
financial, and transmission system expertise of APCo, WPCo, and AEPTransmission to ensure
seamless operatíon
of transmission services across the ûansmission facilities of APCo, WPCo,
and West Virginia Transco. West Virginia Transco
requirements
approval
of
of its
will comply with all of the applicable
West Virginia laws, regulations, and admiqistative orders regarding the
fransmission projects
an{ with
respect to the statutory exception from the
requirements in S/.Va. Code $$24-2-11 and 24-2-l1a to obtain certificates of convenience and
necessity that exempts "ordinary extensions of existing systems in the usual course of business,"
West Virginia Transco intends tó use the same standards and analyses of projects that would be
used by APCo and'WPCo, treating the tansmission systems in West Virginia of APCO, WPCo,
and other owners as the applicable existing syste,ms.
11.
The servíces required by ÏVest Virginia Transco will be provided primarily by
AEP's centralized service company, AEPSC, and by APCo and WPCo. APCo and \MPCo will
perform services including, but not limited to: consultation, analysis, advice, and performance of
serr¡ices
in connectíon with the operatior¡ inspection, maintenance, and emergency restoration of
\Mest Virginia Transco's
electic transmission
assets in the St¿te
of V/est Virginia AEPSC \4'ill
perform servíces including, but not limited to: transmission services; regulafory services;
finance, accountíng, and strategic planning services; and shared s.ervices, such as human
resources, infonnatíon technology, and business logiJtics.
lRt4753tt.tt
\2.
will
The services provided to West Virginia Transco by AEPSC, APCo, and WPCo
be provided on an at-cost basis, in the same manner in which afFrliate seryices are provided
to othcr AEP operating companies today. Because the various services provided by and through
'West
Virginia Transco will be provided at cost, and because services will be
AEP affitiates to
allocated on
a
cost-responsibility basis,
'West
Virginia Transco will receive cost-effective
services under these arangements.
13.
Services provided
addresses the types
of AEPSC
by AEPSC will be prusuant to an affiliate agreement tbat
services that
will be provided, the allocation methodology for
services provided to muttiple affiliates, the AEPSC bilting procedures, and terms of payment
services provided. Services provided by APCo or WPCo
that.address the tansmission-related services that
will
will
for
be pursuant to aff.liate agreements
be perfonned by APCo or WPCo. The
form of each service agreement was modeled on the long-standing agreements that cunently
exíst inthe AEP System.
14. In the same manoer that West Virginia Transco witl reþ on AEPSC and
AEPTransmission for operationaVtechnical and managerial resources, West Virginia Transco
wilt also be able to rely
o¿ the financial resources of its ultimate parent, AEP, and its ability to
suppÍy, or cause to be supplied, capital. As evidenced in its 2008 annual reporú, AEP had
rwerues, assets, and common shareholders' equity of approximately $14 billion, $45 bíllion, and
$11 bíllion, respectively, at the end of 2008.
" 15.
V/est Virginia Transco joined PJM as
transmissíon sysúem
will
of
January 12,
2010.
The AEP
continue to be planned byAEPTransmission and PJM in amanner that
is aorsistent with the approved regiãnat plenning process, and representation and interaction
wÍthPJM will contírue ínthe same way, and by the same personnel, as they are handled today.
tR04753111Ì
16.
There are several key drivers that support formation of
'West
Virginia Transco to
make certain incremental additions to the existing transmission system, including the following:
a.
Vertically-inüegrated investor-owned utilities are facing a challenging and
uncertain environment. APCo and WPCo are facing significant pressure to maintain their credit
ratings while, on the other hand, capital spending needs are significant across all areas of the
utility business and are projected to extend over the next decade. In particular, APCo's
and
WPCo's transmission systems wilt require a sustained level of invesünent to meet customers'
needs and significant additional ftansmission invesûnent is mandated by North American
Elecfic
Retiabilíty Corporatíon ("S{ERC') reliability requirements and projects mandated by PJM;
furancing this needed invesftnent would increase pressure on APCo's and WPCo's credit ratings.
b.
Any debt incurred for West Vírginia Transco to finaace its tansmission
investments
wilt not affect the financial cond.ition and credit rating metics of APCo or WPCo.
Conversely,
íf
issued
these transmissíon sysbm additions were constructed and financed through debt
by APCo or \MPCo, that increased debt burden would adversely affect their financial
condítíon and credit profiles.
c.
In a
related fashion, the long-term reliability and stability
transmissíon'system for West Vírghia customers
of
witl be inoreased by the actions of
the
West
VírgÍnia Transco. Invesûnents in new tansmission upgrades and projects will continue to be
ne.edeó
to sup'port local and regional reliability needs and NERC compliance requirements. In
addítíon to these new transmission projects, as the existing transmission grrd ages, a host
ímprovements to existing facilities
will be needed.
The decisions to undertake the majority
of
of
new fra¡rmícsion ÍÍvãstuents are no longer within the contol of APCo or WPCo, as they are
r.eçireó by PJM aeeded to serve new wholesale customers, or needed to meet growing retiabilíty
w4753í5.11
requirements imposed by
NERC. Consequently, the decisions as to whether to invest in these
types of projects are not under APCo's or WPCo's control. Without West Virginia Transco, the
capital demands of these projects would limit the amount of available capital for other needed
invesûnents by APCo or WPCo, including generation (in the case of APCo alone), transmission,
and distibution projects. Through West Virginia Transco, a company focused only on making
transmission investments, AEPTransmission
will be able to pursue certain uansmission-only
projects without being limited by the funding lçvel available within APCo or WPCo. This
will
provide long-term benefits to West Virginia customers by relieving APCo or WPCo of the burden
of incr:rring debt for those projects, and preserving their debt issuance capacity for other system
needs.
d.
advantages.
West Virgínia Transoo
will also provide several
important financing
This transmission-only structure provides the transparency desired by
certain
investors. West Virginia Transco, and the other subsidiaries of AEPTCo, would be soleþ in the
busiaess
of planning, constructing, owning, operating, and maintaining new fuansmission
assets.
This fransmission-only business will be a straightforward" transparent business, meaning that
i"-r'"stors should be able
to easily
trnderstand and assess
it for investment
purposes. The
tansparency comes from managing one t¡pe of etectrical asset as opposed to operating three
t¡pes of major elecfrical assets regulated by multiple state and federal agencies.
e.
Access
to capital is
also relatively greater
for
businesses
with sftonger
creóit profiIes aod ratings. AEPTCo, representing the combined frnancial shength of its seven
subsidíary Transcos, including West Virginia Transco,
will
need to establísh itself as a stand-
aloaebusiness with the necessary credit ratios and stong, stable cash flows. Over a period of
time as a single-lne business, AEPTCo should develop a strong credit profile.
(Rfr+75315.t|
f.
Simil¿¡ly, by freeing APCo and WPCo of the debt burden needed to
support new transmission facilities, West Virginia Transôo
gteater control of their annual expenditures, which in tum
will provide APCo
will
and WPCo with
enable them to better manage their
credít ratíos.
g.
These characteristics
will provide APCo and ÌVPCo with improved
and
broader access to debt and equity capital, in both weak and strong capital markets. Any longterm financing benefits, in the form of lower cost of deb! witl ultimately benefit customers.
17
.
At this time, it.is proposed, that West Virgíni¿ J¡ansco will develop and own only
new üansmission assets within the State of West Virginia that are not currently in service or
under development. The West Vìrginia Transco
will
also not be involved in the PATH Project.
APCo or WPCo, as the case may be, will retaia ownership of all transmission assets currently in
service md all üansmissian assets rmder development as to u¡hich either has incurred costs.
If
a
decision is made in the future to fransfer any APCo or WPCo transmission assets to West
Virginia Transco, appropriate prior approvats will be sougþt from both this Commission and
FERC.
New Serice Asreements
18.
West Virginia Transco proposes to enter into Service Agreements with APCo and
WPCo'and AEPSC.
A copy of the proposed
Virginia Transco iS affached as Enûibit
Service Agreement between APCo and West
Cll; acopy of the proposed
Se-rvice Agreemen! between
WPCo and West Virgínía Transco is õüached as Bxhitit C-2; anda copy of the proposed Service
Apeement
b
SC and West Vireinia Transco is attached as Exhibit
D.
The provisions
of the Servíce Agreements are modeled after those in the Service Agreement in effeot between
tnoaissls.rl
10
AEPSC and APCo, which was most recentþ approved by this Commission by Order of March 4,
2008, in CaseNo. 07-1544-E-PC.
19.
Paragraph
I of the Service Agreements
describes the services that
will
attached as Exhibits
C-l
and C-2
be performed by APCo and WPCo for'West Virginia Ttansco,
while Appendix I to the Service Agreement attached
as
Exhibit D desoribes the services that $,ill
be performed by AEPSC for West Virginia Transco. As compensation for the services to be
rendered under the Service Agreements, West Virgínia Transco
will pay APCo, WPCo, or
AEPSC, as the case may be, all costs that can be reasonably identified related to the particular
services performed for or on behalf of \Mest Virginia Transco. In the case of the AEPSC
- West
Virginia Transco Service Agreement, where more than one affiliated company of AEP
is
ínvolved in or has received benefits from a tansaction or service performed by AEPSC, costs
will be allocated
and billed to W'est Virginia Tlansco and such other affiliated company or
companies in accordance withthe allocationfactors attached as Exhibit E.
.
20.
The APCo-West Vírginia Transoo Service Agreement and the liVPCo-West
Virgínia Transco Service Agreement contain provisions appointing APCo and
WPCo,
respectíveþ as W'est Virginia Transco's agent for purposes of licensing space on lVest Vìrginia
Transco's facilities for third party joint r¡se attachments, as well as a mutual facilities and
proprty license granL Under the latter provisior¡ APCo and WPCo, respectiveþ, grant West
Virginiæ Transco, and West Virginia Transco grants APCO and'WPCo, respectivel¡ a license to
úÂÊhfo
oE
occupy the granting party's facilities, equipment or land for puryose of constucting,
optrdírg, maintaíning;
andre,naovÍng the attaching parly's facilities and equípment.
necessary
to provide
reçríred serr¡ices and to enable lfest Virginia Transco . to maintain fair and
reasonable
1,J1. As mentíoned above, each of the Service Agreements is
ß,04?53r5.rI
11
contuactual relationships with other AEP affiliates. Because the various services provided by
APCo and WPCo and AEPSC to West Virginia Transco will be provided at cost and allocated on
a cost-responsibitþ basis, West
Virginia Transco will receive timely and cost-effective services
r¡nder these arrangements. The Service Agreements include reasonable terms and conditions; do
not give any party an undue advantage over any other party, and do not adversely affect the
public in the State of 'West Virginia.
AEP Utilifv Monev Pool
22.
By Order of January 18, 2001, in
authorized APCo and WPCo to participate
Case
No. 00-0753-E-PC, the Commission
in the AEP Money Pool (now known
as the AEP
Utilíty Money Pool) with other affiliafed companies on the AEP System. The operation of the
to mafch, on a daily basis, the available cash and bonowing
Money Pool
is
designed
requirements
of
each participant thereby minimizing the need
for borrowings from extemal
sources.
21.
On August 3, 2004, APCo and WPCo filed a joint petition seeking
the
Commission's apiproval of changes in the AEP Utility Money Pool, including the formation by
AEP of a financing subsidiary, AEP Utility Funding, LLC, as an additional fr¡nding source for
the ÂEP Utitity Money Pool. By Order ofNovembei 11, 2004,inCase No. 04-1234-E-PC, tlie
CommíssÍon ar¡horized APCo and WPCo to continue to participate in the AEP Utility Money
Pool r¡nder the revísed terms and conditions detailed ín the petition
'.r.jt''
.
24.
In order to obtaín the benefits enjoyed by APCo, WPCo, and theír affiliates on the
AEP Sysfem, Sfesú VirgÍnia Tra¡sco seeks the Commission's atrthority to participate in the AEP
Utilíty Mouey Poot along wiú the exísting partícipants and the other AEP Transcos.
[R047ejf5.f]
t2
25.
Except for the addition of West Virginia Transco and the other new participants,
the terms and conditions applicable to the operation of the AEP Utility Money Pool witl be
unchanged. A copy of the AEP Utilíty Money Pool Agreement is attached as Exhibit F-1. The
existing parties to the AEP Utility Money Pool, along with West Virginia Transco and the other
AEP Transcos, propose to execute an amendment to ttre AEP Utility Money Pool Agreement, a
copy of which is attached as ExhibitF-2.
ACCORDINGLY, APCo and WPCo and West Virginia Transco request that the
Commission (a) approve all
of the proposed
Service Agreements attached, as exhibits; 1b)
approve the participation by West Virginia Transco in the AEP
Utility Money Pool; and (c) grant
all other approvals as may be necessary under West Virginia laws and regulations.
Respectfrrlly submitted,
APPALACHIAN POWER COMPAITY
\ilHEELING PO\ilER COMPAI\TY
AEP WEST VIRGINIA TRANSMISSION
COMPAI\TY,INC.
By Counsel
Ø{,;t^c P,"L
Willíæ
C. Porth (wr state Bør # 294i)
A¡rne C. Blankenshíp (tlT
State Bør #9044
)
Robiuso¡ &M¡cF;lwæPLLC
'P.
O. Box 1791
€hælesgorç West Virginia 25326
{ß0475315.1}
13
James R. Bacha
American Electric Power Services Cotp.
1 Riverside Plaza
Post Office Box 16631
Columbus, Ohio 43215
Chades E. Bayless
W
State Bor #10023)
American Elecfric Power Service Corp.
Suite 1100, Chase Tower, 707 Virginia St. E.
Cha¡leston, WV 25301
Counsel for Appalachian Power Compan¡
Wheeling Power ComPanY, and
AEP West Virginia Transmission Compan¡ Inc.,
Dated: April23, 2010
(R0475$f5.1¡
t4
VERIFICATION
STATE OF WEST VIRGINIA,
couNTY oF KANArfi4{A, TO-WTI:
,
Terry R. Eads, Director of Regulatory Services for Appalachian Power Company
and Wheeling Power Compan¡ the petitioners, being duly sworr¡ says that the
inforrration conúained
in the foregoing Transco filìng is true, to the best of
info¡mation and belief.
Taken, zubscribed and swom to before me on the
My commission exptues,
_
day of
April, z01rû.
&tfu(¡r^ a, 3 a n
furfifrry¿.Prf,/'ja',
t
(sEAr)
OFFICIALSEAL
STATEOFWg¡TV¡FGINI.A
r{oTAEìlPtIAltc
DOROTHY E. PH¡LYAW
APPAI.ACHIAN P1OWEB
PO BOX1986
wv 2*t27-1SE
É¡ftoö€rz,2019
{EMT¿ßLL$
his
Exhibit A
AEPTCo CORPORATE STRUCTURE
AEP Kentucky
Transmission
Company, lnc.
fl(YfCo')
*Highlighted companies representAEPTCo and the AEPTCo subsidiary companies,
Exhibit B
CAUIION: Printed
copies of this document a¡e unconÍolled and may be obsolete.
Always cìeck for the l¡test revision pr¡oÌ to use
AEP Transmission LLC (AEPTCo)
Project Selection Guideline
November I.9,2O09
REYISIONHISTORY
Rev.
Prepared or Revised By
DescrÍi¡tÍon of Chaneels)
Dete
Approved
I
''
ñoic* TÊi¡ doctlÍerú hæ bccn
preparcd by, a¡d is thc p¡opc¡iy oe, enc*ican Elcctric Powcr Compary, Irrc.
AEPTCo
Prqtît
this docurnc¡t
may bc modÍfrcd þy AEP.
Selection Guideline
Reqponsible Engineers:
Copyright 2009
KauranAIi
Americaq Electic
Richãrd Refuaker
Power Company, Inc
)oqaoo(
Rev.0
Page
I of9
ExhibitB
copies of this dosument are uncontrolledand may be obsolete.
Always check for the lstest r€vlslon pr¡or to use.
CAUTION: Prinæd
DOCIIMENT CONTROL
Preparation
TITLE
NAME(Ð
ACTION
Kamran
Ali
Engineer
tI
Prepared by:
RichædReinaker
Sr. Eneineer
Reviewed by:
MohammedAhmd
Manager, ETP
Reviewed by:
Teresa
A. Gallup
Manager, SWTP
Reviewed by:
Ali Al-Fayez
Manager, TAP
Approved by:
Bernie Pasternack
It{anaging Director, TASP
Review Cycle
Semi-annual
Quarterly
Annual
As Needed
x
Release
YERSIO
N
DATERELEASEI)
FILENAME
CHANGE
NrlTT(itr,
AEPTCo Proíect Selection Guideline
REMARKS
Rev.0
Page2of 9
Exhibil B
CAUTIoN: Printed copies of this document a¡c uncontolled and may
Alçays check for the lât€st rev¡s¡on prlor to use.
be
obsqlete.
Distributlon List
NAME(S)
DEPARTMENT
AEPTCo Proiect Selecüon Guideline
TITLE
Rev.0
Page 3
of9
Exh¡bitB
CAUTION: Printed
copies of this docüment are ucontrotled and may be obsolete.
Âlwavs check for the latest revlslotr orlor to use.
TABLE OF'CONTENTS
\
2.3 Transmission Asset Performance (TAP)
3.0 Project selection process
3.2,4
3.2.5
ComponentReplacement.
Spare/lvÍobile Equipment.......
................
Documenta1ion.........................,.............-
35
Financial Autborization &
3.6
RelatedProcedures & Guidelines.
AEPTCo Proiecú Seleetion GuÍdeline
I
.-...............9
Rev.0
Pa4e4
of9
CAUTION: Printed copies ofúis documenta¡e.unconEolled and may bg obsolete.
check for the
1.0
PURPOSE
This document provides guidance to AEP Transmission personnel in determining how capÍtal will be
allocated between the AEP operating oompanies (*OPCO") and AEP Transmission Company
subsídíaries ("AEPTCo subsidiaries') regarding the construction of new transmission assets. These
guidelines are to be used by employees wíthin the AEP Transmission business unit in determining
what Projects or Project Components should be developed by the AEPTCo subsidiaries. All personnel
partioipating in the planning, identification and approvals of new AEP Transmission assets must be
familiar with and utilize these guidelines.
2.0
ROLES & RESPONSIBTLITTES
There are several groups involved with identiffing AEP Transmission system nçeds' The following
hightights the roles and responsibilities of the Transmission departments responsible for evaluating
system needs:
2.1 Transmission
Planning
(fP)
r Identit transmission system.needs.
. Propose projects and system upgrades.
r Provide recommendations to TAP with respect to development of project or system upgrade.
¡ Provide detailed information with respect to the need for the given project or system upgrade
including Regional Transmissíon Organization identified projects.
2.2 Transmission Asset
Engineering C[AE)
replacement / rehab needs for transmission assets.
'. fdentífy asset
Propose projects and system upgr-ades.
¡ ProvÍde recommendatÍons to TAP \ryith respect to deveþment of project or system upgrade.
r Provide detailed information with respect to the need for the given projeot or qystem upgrade.
2:3 TransmÍssÍon .Asset
r
Performânce C[AP)
Collect lists ofproject and system upgrade ínformation from TP and TAE groups.
ú RevÍew the detail provided by TP and TAE, and deterrrines whether the project or upgrade
meets the requírements of this guideline.
r Preparc documentatíon necessary for financial approvals and prepare budget projections
requested by Transmission Budgefing Planníng &Analysis
(IBP&A) goup.
AEPTCo Proiect Selection Guideline
Rev.0
Page 5
of9
as
ExhibitB
CAUTION: Printed copiæ of this documcnt arc u:nconhotled and rhay be obsolete.
Älways check for the latest ¡.evlslon pr¡or to q!
3.0
PROJECT SELECTION PROCESS
For the purposes of this document the following definitions apply:
,.Assets,' are defìned as electric equipment, lines, stations that are designated as Transmission pursuant
to FERC Form I general ledger account.
"[Jpgrades" are defined as modifications to existing Transmission Assets.
.?acility" is defined
as an entire substation or line between two stations
..Component" refers to a section or sections of line between two stations and ne\4, equipment within a
station.
.,Project" is defined as a combination of Facilities and Components needed to meet a given system
need and inoluded together for financial approval. A Project may include both OPCO and/or AEPTCo
assets.
This document has been developed to assist AEP Transmission personnel in detennining what
Faoílities and/or Components should be developed by au AEPTCo subsidÌary. Any Facilities or
Components tÍrat do not meet these guidelines would be developed to the re5pective AEP Qperating
Comppny.
This process rccognizes that there may be a need for variances between states, due to state statutory
requúements or regulatory precedents. Accordingly, discretion must be exercised by TAP in making
such determinations..Known state specific consíderations are identifïed in Appendix A.
3.1
AEPTCo OwnershiP Etigibility
The foltowing general principles would apply foreligibility as AEPTCo assets:
c
Assets thaf provide a Tmnsmission fi¡nction (assigned to a Transmission FERC Form 1
general ledger account number) may be eligible for inclusion in an AEPTCo subsidiary if
zuch assets meet fhe criteria specified in these PSG. No faoilities that are classified as
Disfribution or GeneratÍon oan be developed þy AEPTCo.
o
Transmissíon Assets designed and operated at voltages of 23 kV or higher in the PJM
region and 69 kV or higher in the SPP region arç considered Transmission assets.
(Currentþ AEPTCo has no plan to own Texæ SPP transmission assgts).
ò
For a power fansfomrer to quatiff as an AEPTCo asset, both primary and secondary
transformer voltages must meet the above voltage oriteria and the tansformer must
AEPTCo Proiect Selection GuÍdeline
Rev.0
Page 6
of9
Exhibit B
CAUTIoN: Printed copies of this documeot are unconkolled and may
-{ls'a!s check for tåe leæst r€f islon Frior to u-c€.
be
obsolctc.
provide a Transmission frinction. This restrictíon does not apply to auxiliary or station
service transformers in a station
.
o
AEPTCo will build/own only those facilities (Tranmrission Facilities) that may be
recovered from Transmission Service Customers through the RTO's FERC-approved
OATT, either through a rate of general applicabilþ or by direct assignment to
transmission customers.
o
Tr¿nsmission assets within a Distribution station that are piirt of a network qualify as
AEPTCo assets.
.
3.2
AEPTCö Project Câtegories
Projects and components that may be developed by an AEPTCo compary are categorized as
follows:
3,2.1 Greenfleld
Greenfield facìtìtíes øle deJì.ned as new transmíssìon ¿ss¿ß that do
replacemenl or modìftcøtíon of æístÌngføciúitíes or conpo&enfs.
o
o
not tequíre
Development of newtransmissíon Facilities.
of
between
a
clear
dema¡catÌon
require
This
woùtd
the træsmission'network
Transmission assets within a ne\¡/ Dishibution or Generation station that is part
lransmission and Dishibution or Generation assets at the facility
o
3.22
New property or ríghts-of-way acquired for new tansmission faoilities.
B
acility Additions
Føctt4¡ øddÍftnns arc defined ø.s new transmÍssÍon componenß tnstøIled øt exßtíng AEP
Aperøtíng Conpeny-ovned Transmßslon or DistrûbdÍon facílÍlùx.
o
New Transmission equipme,lrt additions zuch as oircuit breakers, transformers, shunt
or series reaetors, capacitor banks, etc. and ancillary equipment directly related to
the new Transmissíon equipment additions.
o
o
'
May Ínctude fhe retirement of certain existing AEP Operating
Company
Transmission components, as necessary, to allow for the installation of the new
.aEPTCo åcilities.
The addÍtion ofnew AEPTCo line facilities on existing AEP Operating Company
towers/poles (e.g. conductors/insulators beíng installed on vacant tower position).
AEPTCo ProÍec{ Selection Guideline
Rev.0
Page7
of9
Ext¡ibit B
CAUflON: Printed
copies of this document are uncontroüed and may be obsolete.
Alwavs check for lhe lâtest revlsion prlor to use.
3.2.3 FacilityReplacement
Føcility (Ipgrades are dertned øs the replacement of an entfue exísting AEP Operatíng
Compøny-ow ned facíIitÌ.es wífh new AEPTCo-ow neìl facílítles.
o
Complete replacement of an AEP Operating Company-owned transmission line
faoility or transmission station facility with a new AEPTCo-o\ryned station or line
facility. Retirement of the AEP Operating Company facilïty is requíred.
o
AEPTCo at cost may lease or purchase the rights:of-way and property easements
from the affected AEP Operating Company (consistent with state legaUregulatory
requirements).
3.2.4 ComponentRePlacement
Component repløcement ß d.efined as an øpportioned replaeement of øn exísting AEP
Operatûng Company-owned Trønsmissionføcílíty or repløcement of component(s) wìthin
a Tr ansmis sío n føcílity.
o
Major Extua High Voltage (EHÐ equipment replacements may be included in
AEPTCo.
o
All component replacement projects must
be evaluated on a case-by-case basis.
3.2.5 Spare/Wlobile Equipment
Spareftwbile equípment is defined as purchases of tnajor TransmÍssíon equípment as
capitølized spares or mobiles.
o
Mobile transformers must have Transmission operating voltages at the hígh and low
side for this oategory.
'o
Major spare equipment such as transformers and circuit breakers may be purchased
to support existing AEPTCo assets.
33 Other Considerations
o All assets owned by AEPTCo subsídiaries
must be clearly distinguishable from assets
owned by AEP Operating Companies.
.o
Components developed by AEPTCo a¡e intended to be large projects that are readíly
ídentifiable and discemable to AEP Service employees and personnel.
'o A project shorrld b9 greater than $500,000 to be considered for development by an
AEPTCo subsidiary. Exceptions to this assumption must be approved by TAP.
AEPTCo Proiect Selection Guideline
Rev.0
Page
I of9
ExhibitB
tlris documcnt a¡e uncontrolled and may be obrsolcte.
Alwavs check for the l¡test revlsion prlor to use.
C.4.UfiON: Printed copies of
Reimbursable projects or projects involving conhibutions in aid of construction (CIAC)
should follow the guideline for determination of AEPTCo versus AEP Operating
Company o\ryn€rship.
Projects that have not yet been place in service but have been previously approved
through the AEP financial approval process may be considered for AEPTCo on a oase-by'
case basis. This provision is tansitional and shall self terminate after January 01, 2011.
components that require upgrades to AEPTCo facilities
interconnected to AEPTCo facilities shall be developed by AEPTCo.
Projects
3.4 Recilrds
or
or are direotþ
Management
o
Accounting procedures will comply wíth atl regulatory, GAAP, and FERC Uniform
System of Acoounts standards.
o
o
Internal contols wilt be designed to meet AEP st¿ndards.
o
FERC acoounting designations distinguishing Transmission and Disüibutìon equipment
must be adhered to in all situations.
Assets owned by applioable AEPTCo subsídiary or AEP Operating Company do not
change the applicable RTO definition of Transmission or Distribution.
35 Financial AuthorizatÍon & I)ocumentation
o
ArÍhorization for fundìng must utilize the sanie process for both AEPTCo and Operating
Company assets.
o
TAP shatl prepare and route all projeots for financial approval, clearly specifying which
assets will be owned and operated by AEPTCo. Indívidual project approvals may ínolude
approvals of both Operating Company and AEPTCo assets, as long as all work associated
wtth the project is clearþ discernable between the Operating Company and AEPTCo.
3.6 Related Procedures
o
& Guidelines
Notapplicable.
AEPTCo Proier{ Selection Guideline
Rev.0
Page 9
of9
SERVTCE AGREEMENT
of
day
. 2010 (the
THIS SERVICE AGREEMENT, made effective as of the
Power
a
is
Appalachian
Company,
Virginia
Date"),
between
corporation
"Ef[ective
("Compaúvu), ¿urd AEP West Virginia Transmission Company, Inc,, a'West Virginia
-
on("@").
WITNESSETH:
WHEREAS, both Company and Client are associate companies in the American Electric
Power System which is comprised of Arnerican Elecnic Power Company, Inc. and its subsidiary
companies
WHEREAS, Company is a public utilþ within the states of Virginia and V/est Virginia
and maíntains an organization of employees who are experienced in the operation and
maintenance of elecûic transmission facilities, together with appropriate facilities and
equipment, through which it is prepared to provide væious elechic transmission operation,
mdintenance and technical and other serviceso as hereinafter provided, to Client.
WHEREAS, such services will be rendered by Company at cost.
NOW, THEREFORE, inconsideration of the premises and of the mutual agreements
hereiu contained, Company and Clienthereby agree as follows:
t.
Agreement to Provide Eleotric Transnission Se,rvices. Company agrees to
provide to Clíent from time to time, upon the terms and conditions hereinafter set forth, such of
the followíng elecEic transntission services as may properly be rendered by Couípany to Client
at such times, foi such periods and in such manner as Client may ûom time to time require and
which Company is equipped to perform including, but not limited to: consultatior¡ analysis,
advíce andperformance of services in connection with matters relating to the operation,
inqpeotÍon, maíntenance, and emergency restoration of Client's electic tansmission assets ín
WestVírginia
hproviding suchservices, Companymay affange, where it deems appropriate, forthe
servíces of experÉs, consultants, advisers and other persons with necessary qualifications as are
required for or perÉÍnent to thç rendition of such sen¡ices.
2.
Agreementtq Take Services. Client agrees to take ûom Company such of the
servÍcesdescribedin Section I hereaf and zuch additional general and special services, whether
'not
ncrw contemptafd as¡ are requested &om time to tiine by Client and which Company is
eErippedto perforur.
,
3-
Third Pa¡lv Joínt Use. Client hereby appoints Company as its agent for purposes
of lícensíng spaæ onChentfacilitíes for third parfy joint use atüachments. Pursuant to such
agency, Company, at the direction of Client, ffiây license space on Client facilities pursuant to
terms and conditions Compány utilizes in its joint use agÍeements with such third parties.
4.
Compensation and Allocation. As compensation for the services to be rendered
hereunder, Client agrees to pay to Company all costs which reasonably can be identified and
related to particular transactions or services performed by Company on Client's behalf. As soon.
as practicable after the close of each month, Company shall render a monthly statement to Client
which shall reflçct thp billing information necessary to identiff the costs and allocations made
and charged for that month. Client agrees to remit to Company payment for all charges billed to
Client upon receipt of the monthly statement.
5.
Term and Termination. This Service Agreement shall become effective upon the
Effective Date ærd shall continue in fulI force and effect until terminated by either party hereto
upon not less than ninety (90) day's prior written notíce to the other party. This Service
Agreement also shall be subject to termination or modificatíon at any time if and to the extent its
performance may or shall conflict with any rule, regulation or order of any other governmental
body having j urisdiction.
6.
Facilities and Prope4v License. In addition to the services provided for herein,
each party hereby grants a license to the other party to attach to or occupy the granting party's
facilities, equipment and land both above ground and below ground for the purpose of
constructing, operating, maintaining and removing the attaching party's facilities and equipment,
The term of zuch license shall commence as of the Effective Date set forth above and shall
expire on the fiftieth aruriversary ofthe Effective Date. Thereafter the term shall automatically
renew for successive one year terms unless either party provides written notice of its intent to
terminate no less than six months príor to the expiration of the term or renewal terna. The license
'gønæåherenshall stuvive aÊy tarøinafron of this Service Agreemeat.
Sígnøturæ &ppeør of the followíng p age
(
IN WITNESS IVHEREOF, the parties hereto have causeil this Service Agreement to be
executed as of the date first above written.
APP ALACHIAN PO\ryER COMPATTTY
By: Nam
Its:
AEP WEST VIRGINA
TRÄNSNfi SSION COMPAI.TY, INC.
By:
Name:
Its:
(
i
i
EXIIIBIT C.2
SERYICE AGREEMENT
.,
of
THIS SERVICE AGREEMENT, made effective as of the _ day
, 2010
(the "Effective-De!9"), is between Wheeling Power Company, a'West Virginia corporation
("Company"), and AEP TVest Virginia Transmission Company, fnc., a West Virgínia
corporation (uClient").
MTNESSETH:
WHEREAS, both Company and Client are associate companies inthe American Electric
Power System which is comprised of American Electic Power Company, Inc. and its subsidiary
companies.
$¡tængnS, Company is apublic utitity in West Virginia and maintains an organization
of employees who are experienced in the operatiou and maintenance of elecfric tansmission
facilities, together with appropriate facilities and equipment, through which it is prepared to
provide various electic transmíssion operation, maintenance and technical and other services, as
hereinafter provided, to Client.
WHEREAS, such services will be rendered by Company at cost.
NOW, TIIEREFORE, in consideration of the premises and of the mutual agreements
herein contained, Company and Client hereby agree as follows:
1.
Agreement to Provide Electric Transmission Services. Company agrees to
províde to Clíent ftom time to time, upon the terms and conditions hereinafter set fortb, such of
the followÍng electric tansmission services ar¡ may properly be rendered by Company to Client
af suchtimes, for such periods and in such manner as Client may from time to time require and
rl¡hich Company is equípped to perfomr including but not limit€d to: consultation, analysis,
advíee and perfomance of services in connection with matters relating to the operatior¡
inspectioq maintenance, and emergency restorafion of Client's electric transmission assets in the
WheelÍng Tlest VirgÍnia geographíc area
In providing such services,.Company may arrange, where it deems appropriate, for the
services of orperts, consultants, advisers and other persons with necessary qualifications as are
required for or pertiuent to the rendition of such services.
'
2.
Agreementto Take Services. Client agrees to take from Company such of the
servipes dessribed in Sectíon t hereof and such additional general and special services, whether
"rot now contemplated as are requested from time to time by Client and which Company is
equíppedto perform.
3.
Thírd Party IoínÉ Use. Client hereby appoínts Company as its agent for purposes
of fíconsírg space on Client facílities for third parfyjoint use attachments. Pursr¡au'it to such
agency, Company, at the direction of Client, may license space on Client facilities pursuant to
tems and conditions Company utilizes in its joint use agreements with such third parties.
4.
Allocatioq. As compensation for the seryices to be rendered
hereundeç Client agrees to pay to Company all sosts which reasonably can be identified and
related to particulartransactions or services perfomred by Company on Clienfs behalf. As soon
as practicable after'the close of each month, Company shall render a monthly statement to Client
which shall reflect the billing informationnecessary to identiSthe costs and allocations made
and charged for that month. Client agrees to remit to Company payment for all charges billed to
Client upon receþ of the monthly statement.
Cpr-npensation and
5.
Term and Terminatio+. This Service Agreement shall become effective upon the
Effective Date and shall continue in full force and effect rmtil terminated by either party hereto
upon not less than ninety (90) day's prior written notice to the other party. This Service
Agreement also shall be subject to terrrination or modification at any time if and to the extent its
perforrrance may or shall conflict with any rule, regulation or order of any other governmental
body having jurisdiction.
Facilities and Propefy License. In additionto the services provided for
hereunder, each party hereby gmnts a license to the otfrer parfy to attach to or occupy the
grantiûg party's facilities, equipment and land both above ground andbelow ground for the
purpose of constructing, operating, maintaining and removing the afiaching party's facilities and
equipmenl The term of such license shall commence as of the Effective Date set forth above
and shall expire on tbe fiftieth anniversary ofthe Effestíve Date. Thereafter the term shall
âr¡tomaticaliy renew for successíve one yêar terms unless either party provides written notice of
its ínænt to terminaæ no less'than six months prior to the expiration of the term or renewal term.
The lícense granted herein shall s¡rr¡ive any termination of this Sen¡ice Agræment.
6,
Sígnatares øppear of thefollowíng page
IN WITNESS WHEREOF, the parties hereto have caused this Service Agreement to be
executed as of the date first above written.
WHEELING POWER COMPAI{Y
By:
Name:
Its:
AEP WEST VIRGINIA TRÄNSMISSION
coMPAt{Y,INC.
By:
Name:
Its:
(
-t
I
,EXHIBIT D
I
I
SERVICE AGREEMENT
-
day of
, 2010
THIS SERVICE AGREEMENT, made efflective as of the
(the "Effective Date"), is between American Electrie Power Service Corporation, aNew York
corporation ("Service Company') and AEP West Virginia Transmission Company, fnc., a
V/rest Virginia corporation ("Cli:n!").
.
-
-WITNESSETH:
-
WHEREAS, both Sen¡ice Company and Client areassociate companies inthe American
Electic Power System (the "AEP System"), which is comprised of American Electric Power
Company, Inc. ("AEP") and its subsidiary companies.
WHEREAS, Service Company is a wholly-owned subsidiary of AEP and is a service
companl'under the rules promulgated under the Public Utility Holding Company Act of 2005.
WHEREAS' Senriee Company maintains an organization of employees who æe
experienced in the operations of public utilities and related businesses, together with appropriate
facilities and equípmen! througb which itis prepared to provide various management,
adminisfative, fi:rancial, technical and other services, as hereinafter provided, to Client and to
other member companies in the AEP System (Client", together with zuch other member
compauies, are hereinafter referred to collectively as "Clienl6,").
WHER.EAS, zuch services wìll be rendered by Service Company at cost.
NOW, TI{EREFORE, in consideration of the premises and ofthe mutual agreements
herein coataine{ Service Company and Clienthereby agree as follows:
l.
Agreementto Provide Services. Service Company agre€s to provide to Clíent
fróm tíne to time, upon the terms aud sonditions hereinafter set fortll such of the following
servïces as luay properþ be rendered by Service Company to Client at such times, for zuch
períods æé in such manner as Client may from time to time require and which Service Company
is eqrripped to perform inctuding but not limited to: consultation, analysis, advice and
performance of servïces ín connection with matters relating to operations, management,
finaÉcing and finaucial planning, engineering system planning, lawo coqporate communicatíons,
corycÌaúe dwelo¡nnen! energy transmission and pricing, environmental requirements,
ma¿reting governmental and general business problems or questions. A firther descríption of
the servic€s thæ may be províde.d to Client by the Service Company is described in Appendix I
attachedhereto
In provídÍng such services, Service Company may arrange, where it deems appropriate,
sewÍces ofexperts, eonsultants, advisers and otherpersons withnecessary qualifications
as ¿ne rreçíred for or pertinent to the rendition of such services.
forúe
2,
.
Agreeinent tp Take Seryices. Ctient agrees to take from Service Company such
of the services described in Section t hereof and such additio'nal general and special sewices,
whether or'not now contemplatçd, as are requested from time to time by Clierrt and which
Servioe Compaoy is equþedto perform.
3.
.
Compenslrtion
andAllocation As compensation forthe services to be rendçred
''and related to particular transactions or services performed by Service Company on Client's
'Where
bêhalf.
more than one Clients is involved in or has received benefits from a transaction or
serviçe performed, costs will be allocated and billed among such Clients on the basis most
diroctly related to the hansaction or service performed. Alloeated costs will be billed using
appropriate allo cation factors.
As soon as practicable after tfie clbse of each month, Service Company shall render a
monthly statement to Client which shall reflect the billing information necessary to identiff the
costs and allocæions made and charged for tlrat month. Client agrees to remit to Service
Company payment for all charges billed to Client upon receipt of the montbly statement.
4,
Term and Termination This Service Agreement shall become effective upon the
Effecfive Date and shall continue in futl force and effect until terminated by either party hereto
upon not less than ninety (90) day's prior writæn notíee to the other party. This Service
A.greement also shall be subject to termination or modification at any time if and to the extent its
pøfo'uuaoce ¡nay or shall conflict with any rule, regulation or order of any other governmental
body høvíng jrnisdiction.
IN WITNESS WIIEREOF, the parties hereto have caused this Service Agreement to be
oftfte daæ first above written.
srcecIÉed as
SígnøÍares appeür on the føIlowíng page
(
.
AN{ERICAN ELECTRIC POWNN
SERYICE CORPORATION
Its:
Vice President
'
'
WNST YIRGINIA TRANS1VIISSION
AEP S
COMP AllY, rNC.
By:
Name:
Its:
Vice President
Appendix I to Service Agreement
Description of Services Perfor:ned by American Electic Power Service Corporation
A. TransmissÍon Onerations
Transmission Services 3
integrate the capital planning, system engineering, and maintenance management
processes to tnanage fuansmission assets;
partícipate in regíonal transmission organization (RTO) planning and sup-port;
ênsurathat future constaints can be mitigated and reliability criteria can þe
maintained in order to determine where the tansmission system could fail to meet
reliability criteria and to initiate system infrastucture upgrades;
aaalyznt¡" traosmission system performance on an as-needed basis, for example, in
situations where a customer requests a new delivery point, new disfribution stations
æe to be constnrcted, or customsrs that accept service at tansmission voltage levels
want to increase their load;
coordinate all ransmission line and station construction projects, including (i) input
on project timing fii) estimating eosts ofprojects, (iii) line routing and siting (iv)
¿*tign, material and equipment procurement, (v) rìght-of-way and propefy
acquisition, and (vi) consfruction;
perform transmíssion dispatching: coordinate transmission facility outages internally
ana exreraatty; marage moment-to-moment operation and sr¡rveillance of the
tar¡smissíon systems; enable repair and restoration of facilities in a safe and reliable
m¿¡nner; implement normal / emergency procedures per plans; and ensure proper
ftainíEg of dispatching personnel;
conrplíance wÍthNERC and other reliability standa¡ds;
perform operations, inspectioq maintenance, and emergeûcy restoration of the
fransmission system,. including T&D substations; and
establísh polícy and direction for safety, skills taining, work tools and equipment
procureta.eût, as well as work resource scheduling.
o
o
o
.- p
o
o
o
o
o
Regulatory Services
o provÍde services in the areas of RTO anl public policy, regulatory case management,
andregulated tariffs;
o coo,rdínate central activities and develop short and long-range regulatory plans in
.concert witb the Client management; and
o coordínate atl RTO activities and represent Client at the RTO management committee
leve[.
Finance. Accountine and Strateeic Planniäe
Accounting:
maínøin the books and records of the Client, preparing all monthly enfrieS to the
o
ledgers, and develop and maintain the accounting and business systems that support
o
o
the Client;
qreparg
fÉRC, st¿te and SEC financial reports, prepare and file the consolidated
financial statements;
en$re compliance with Generally Aocepted Apcounting Principles and coçorate
accounting policy, and monitor SEC and Financial Accounting Standards Board
(FASB) rulemaking activities; and
provide regulatory accounting seryices and reporting, customer accounting, accounts
receivable; accounts payable and properlry accounting.
Tax Services¡
prepare and file all income tær retums and administer Intemal Revenue Sewice, state
and lòcal exa$rinations, protests and appeals;
prepare and file all state and local tax returns, such as gross receþs, franchise,
propefy and sales ta:r; and
provide federal and state ta,x planning and pa¡ment forecasting and monitor federal
and state ta,r legíslation and rulemaking activities.
Plartning and Budgeting
provide long and short'range financial planning services (including services relæed to
forecasting), stategic planning and analyses, and budgeting services; and
maintain a computerized financial model used to develop long-term projections and
o
o
o
o
.o
o
other resource Plannin g.
RiskManagement
o dwelop and monitor systems that track the level of financial risk inherent in company
o
o
transactions, and evaluate financial options such as interest rate hedging;
oversee and manage property insurance, workersn compensation, third-party slaims,
dírector and officer inswance, and injuries and damages insurance; and
managÇ the investigations and processing ofworkers' compensation, third-party
injury and property loss claims.
Treasury, Finance dnd Investor Relations:
manage the Corporate Bonowing Program;
'o conduct all finaricing activity, including the iszuance of debt, equity or hybrid
securities, as well as coordinate project financings;
maintain relationships with financial institr¡tions and rating agencies; negotiate
financing agreements' business terms; provide documentation requiredty financial
instítutions and govenrmental agencies such as the SEC and state regulatory agencies;
monitor capitalmarkets; anølyze financing altematives; prepare and fi.le with the
SEC documents required by the Securities Act of 1933 and the Securities Exchange
o
o
o
Aclof L934;
manage the day-to-day cash needs of the Client to ensure that the use of or investment
of eash assets ís maximized &ily;
o
o
o
manage the investnents for the employee benefit plans, including the retirement
savings plan, cash balance retirement plan, employees' life insurance plan and the
dísability income plan;
througb the investor relations ñrnction, provide support fi¡ndamental to atfract and
maintain investor capital to provide present and potential equity and debt investors
with an accurate portrayal of the Client's perforrrance and prospects; and
ptovide disclosure and dissemination of Ìnformation about the Client tlroug.h formal
presentations, telephone conversations with investors and Wall Street analysts, and
face-to-face meetings with investors.
C. Shared Sqrvices
o
.
o
Human Resources¡
provide on-callHrxnan Resources profesiionals to assist employees, retirees and
covered dependents with questions and transactions inthe areas of compensation,
benefits and worlc/life activities;
' process all emptoyee benefit claims and receive all benefits related phone calls in a
system-wide benefits processing center located in Roanoke, Virginia;
provide services in the areas of leadership development organizational effectiveness,
intetperqonal skills, and safety managemenf,
m¿Ìnagç employment seryices (recnritnaent selection, relocation, and ouþlacemenQ
along with affirmative action, and worMife prograrns;
design and implement employee beuefit programs, including medical, dental, vísion,
prescriptíon dr,ug, 1¡'" insurance, savings and retirement plans; and
process ttre payroll and maintain the related payroll records for all employees.
o
o
o
o
o
o
lnforrnationTechnoloryl
o
a
.o
o
'
o
o
provide all ha¡dware aad software sqpport for corporate software systems;
provide desktop services, whichconsistof desktophardware configuration and
insallation, and phone zupport for hardware and software;
provide trainíngto employees to deveþ the skills neededto performtheir curent
and future jobs íncludíng custom leamíngprograms, taining delivery aud classroom
rental;
provide tansport engineering, which supports all channels, circuits or
telecommunication lines that cornect fæilíties such as substations, service centers,
offices andpowerplants;
pIæ, engÍneer and desígn microwave and fiber optics systems;
coordinate Federal Communicatíons Commission (FCC) licensing and license
renewals;
o
o
plan and engineer the two-way radio systems and the services utilizing two-way radio
communications; and
manage network (LAll, WAlrI, SCADA) architecture and engineering design.
Business LogistÌcs:
provide for the operation and maintenance of office and service center facilities;
mânage facility design, engïneering estimating, and contracting; andthe provisiol of
ftrniture, workspace layout planning remodeling; office relocation services, major
project design and construction services;
provide fleet support, encompasising (i) the provision and support of vehicles and
equipment including vehicle and equipment procurement and disposal and preventive
maintenance; (ii) make-ready work (i.e., preparing base vehicles received from the
manufacturer for Client service work by adding radios, safety kits, decals, load
testing, "dealef' preparation work and adding specialized equipment); (iii) cost
tracking, billing and lifecycle costing analysis; (iv) specifications for nçwvehicles
and equipment; (v) adminisfrative and goveúrmental compliance; (vi) inspections and
testing; (vii) emergency road service; (vüi) firel card adminisration; and (ix) fuel
management services;
provide real estafe servÌces including (i) management ofproperty acquisition and
disposat; (ii) leasing of office space or propefy from others; (üi) management of land
hetd for futureuse including the naoagement and maintenance of real estate records;
(iv) pa¡ment of fees; (v) mauagement of easement graots and licensee agreements;
(vl) lease or sale of zurplus space and associatedproperly; (vü) management of
income producÍng property; and (vüi) perform property ínspections;
negotiafe and provide necessary documents required for the removal, relocation or
closure of public roads, or other facilities as may be necessary for constructíon of
company facilítíes;
mãnage fore.stlands æd other þ¡d manage,ment initiatives;
provide printing and high speed copy services including plotting and reproduction of
engineering drawings;
provide raail and supply services inctuding the operation of the client's internal mail
delivery system between major office locations and outlying facilities;
adminisúcr national contrasts for office supplies, toner, paper and third party courier
services;
provide andmaintain office equipment such as copier equipmenÇ
províde records management and retention;
províde travel and eve.nt planning services;
provide maferials management, procurement and contractíng services;
expedíúe, receive, inspec! store, issue, tansfer, deliver, salvage, and scrap all
materíals reçired bythe transmission, disEibution and generation functions; and
mmage the acquísítíon of materials and outsíde services including evaluating
supplÍers, the bidding æd acquisition of materials and services, maintaining blanket
agreements, manãgitrg supplier diversity programs, administering the company credit
eæd pogram, and managing the asset recovery program.
o
, o
o
o
o
o
o
o
o
o
o
q
o
o
o
D. Office of the Chaitnan
o
'
o
r
¡
o
Leg4!seroices:
o perfomr activities related to corporate finance and compliance, environmental and
safety requirements, labor law and relations, litigation, real estate law, tan lary, and
federal and state regulatory sen'ices; ærd
o responsible for the hiring and oversight of external legal counsel.
Internal Audit:
o provide audit and review services to assist management and the board of directors in
the effective discharge of their responsibilities to establish, maintaìn, and oversee a
proper intemal control environment;
o coorc{inatç extemal audits from federal, state and other regulatory bodies;
o coordinate extenml audit from independent audít firm; and
o m¿inage and implement tJre Sa¡banes-Oxley Act.
Corporatecommunications:
o manage-and coordinate communications between AEP, the Client and intemal and
external customers;
o provide services in the areas of community relations, educational services, employee
communications, and customer communications;
o provide inforrrationto the general public such as information about customer service,
electícal safety, emergency situations or mandatedregulatory information; and
o en$ne that informatíon necessary for employees to properþ perform their jobs is
available from a singls, credible and reliable souree.
Environment and Safefy:
o' provide leadership in all a¡eas of safety arilareness and adminìster the safety and losscontrol programs related to employee and publio safety;
o perform planned inspections;
o ensure emergency preparedness;
o perforrr accident and incident analysis;
o develop, fuaín, and monitor personal protective
use and standards;
o recommend and select safety equipment for purchase;
o ensure legal compliance with Occupational Safety and Health Agency and U.S.
Ðepætuent of Transportation regulations; and
o work wíth power plant and operating company management to determine the
eivironmental risks søte-by-state and plant-by-plant and developing long-term
strategies to manâge those rislcs proactiveþ.
EeìleraWxternalAffairs
.
o
meeting and communicatíon with federal and state legislators and local elected
o
maintaíning close working relationships with legislators and legislative st¿ffs; and the
officials; and
management of legislative iszues.
i
WestMiginla Transmisslon Company, lnc.
.
Aimerlcan Electric Power Sewice Gorporation
(AEPSC)
Exhibtt E
Page I of 6
Allõcation Factor lnfo¡mation
1
Nr¡mber of Bank Accounts
2 Nwrber of Call Center Telephones
3
Nunber of€ell Phones / Pagers
4 Number of Checks Pr¡nted
rlumber of Bánk AccounlF Peir Companv
fotal Number of Bank Accounls
lnactlve
Number of Call Center Teþohones Per Gomoanv
Tohl Number of Call Genter Teþhones
lnactlve
{umber of Cell Phones / Paoels Per Comoanv
Iotal Number of Cell Phones, Pagers
{umber of Checks
Quarterly
PrTnted Per Companv Per Month
IoÞl Number of Checks Printed Per Month
lnactlve
5 ¡lumber of CIS Customer Mail¡ngs.
Number of Customer lûfoma$on S;ystern
lClS) Customer Malllnos Per Comparw
Total Number of CIS Customers Mailings
Monthly
6
Number of Comnerclal Ctstomers Per Comoanv
fotal Number of Commercial Custorners
Annually
llumber of Commerclal Customers
7 Number of Credit Cards
{uÍiber of Credlt Cards Per ComparN
lnaclive
lotal Number of Cred¡t Cards
Nurnber of Eleetrlc Retail G.s{onærs Per Comoanv
I
Nt¡rùer of Elecfic ReÞn Cusfomers
I
l\llmber of EÍployees
\tumber of Full-Time arìd Part-Tíme Emplovees Per ComÞanv
foþl Number of Full-'fime ard Part-TÎme Employees
lù¡r¡bEr of Generallng Pfant
{umber of Generdlo Plafit Emolovees Per Comoanv
Iotal Number of Genentl¡rg Plar¡t Employees
10
f1
útçlryees
i*¡mberof General Ledger (GL)
Iransacüons
12 ,lunber of Help Desk Catls
Totâl Nurnber of Elecüic Retail customers
Number of General Ledger fGL) Transadlons Per
Total Number of GL Transac{ior¡s
CoBEny
Irlumber of Helo Desk CaIs Per Comoanv
fotal Numbe¡ of Help Desk Calls
\¡umber of Industial ûrstomers P€r Companv
13
ll¡nber of lndustrial GuËtoíiers
l1
lr¡fi¡ber ofJob Cost Accountlng
t5
*¡mÈer of NorFunlted Mlne Workers rtumber of No¡TUMWA or All Non-Un¡on EmDlovees Per ComÞanv
fotal Number of Nor¡UMWA or All NorÈUnlon Employees
¡f Ámedca (UlvlL'tIA) Ertployees
IJCA)
Trarsacllons
lotal Number of lndustrial Customers
{rJmber of Llnes of Accol'rlürE
Annually
Quarterly
lnactlve
Monthly
Monlhly
Annualþ
Distltutlon on
Iob CostAccountnd (JCAì Sub'Sstem Pêrcomûanv
fotal Number of Unes of Accounling D'lstibuüon on JCA Sub-SYstem
lnaclive
Quarterly
16 $umber of Phone Center Calls
Vumber of Phone Calls Per Phone Cer¡ter Per Comoanv
fota¡ Number of Phone Genter Phone Calls
Monthly
17 lúrnberof Pwcfrese Orders Witten
\¡umber of Purchase Orders lMltlen Per Comoanv
fotãl Number of Purdrase merswi'ten
Monthty
NoÊ: hedfre allocafnon facfors are üpse fhat have been approved fur use but are not cunently being utillzed in the monthly AEPSC billing
præess-
WestMrginia Transmlssion Compaäy, lnc.
Exhlbit E
Amêrican Electric Power Servlce Corporation (AEPSC)
Allocation Factor lnfrlrmation
18
Nuinber of Radlos
(Base/Moblle/Handhel0
Per Comoanv
'lumber of Radios lBase/liloblle/Handheld)
fotal Number of Radlos (Base/Moblle/Handheld)
t9
Number of Rallcars
,lumber of Rallcars Per Comoanv
l-otal Number of Rallcars
Pag"e 2 of
Seml-Annually
Annually
rlumber of Electric Bill Payments Processed
20 Number of Remfüance ltems
>er Companv Per Month lnon-lock box)
l'otal Number of Electrlc Bill Payments
Monthly
trocessed Per Month (notulock box)
21
Numberof Remote Termlnal Unlts
22 Number of Rented Water Heaters
23 Number of Resldentlal Customers
24 NumberofRouteß
{umbet of Remote Termlnal Unlts Per Companv
Iotal Number of Remote Termlnal Un¡ts
Annually
lumber of Rented Water Heater Per Companv
lnâdlve
\lumber of Resldential Customers Per OomÞanv
lbtal Number of Resldentlal Customers
Annually
foH Number of Rented Water Healers
Number of Roders Per Comoanv
Iotal Number of Routers
25 {umber of Servers
{umber of Servers Per Comoanv
I'otal Number of Servers
lnacffue
26 ilumber of Sfores Transac'tions
Number of Stores Transac,tions Per Comûanv
fotal Nurnber of Slores Transadlons
Monthty
27 [umberofTdephores
{umber ofTeleohones PerCompanv l¡ncludes all ohone linesì
fotal Number ofTelephones (lnclutles all phone lines)
28 $umberof Iransmfsslon Pofe Mltes
'lumber of Transm¡sslon Pole Mlles Per Companv
lohl Nunberof Transmisslon Pole Mlles
æ
\¡wnber of Tra$sfext Cuslomers
q
V¡rnber of Trawl
31
lftrr¡berof Vehfdes
ïrarsac{ons
rlumber of Exoec-ted Transtexl Gustomers Per Companv
Fotd Number of Expe6ted Transte)d Customers
ruú¡e Chmed æ Leased
æ to¡wrrnícatfon
Channels
Annually
lnadtue
Monthly
{umber of Veh¡c.les Per Companv ûnc,ludes tleet and oool carsì
Fotal Nunber of Vehldes Per Comparry (irrcludes fleet and pool cars)
Annually
{uÍÉer ofvendor lnvolce Pavmenls Per Companv Per Monlh
s3 l&¡n@ofulorkstatfons
Seml-Annually
l'{ümber of Travel Transac't¡ons Per Companv Per Month
Íobl Number of Travel Transactlons Per Month
cz It¡müer dVe¡¡dor lnvoicE Payrnerds fotrl Number
fSffi
lnactlve
of Vendor lnvoicE Payments Per Month
vumber of Workstations (PCs) Per Comoanv
total Number of Workstat¡ons (PCs)
Mor¡thly
Quarterly
NumFer of Ac{ive O,¡¡r¡ed/Leased
gommunlcafion Channels Per Comoanv
Totál Number of Actlve Ownedileased Communlcation Channels
Annually
hadh,e afiocation facfors are those thøt have been approved for use but are not cunently being ulillzed ln the monthfy AEPSC bllling
trccsfs.
6
Americah Ëlectric Power Service Gorporation
Aliocatlon Factor lnformation
35 ryg Peak Load for Past Thiee Years
\rereqo Pèak Loed
F.or Past
Wþst Vr¡ginia Transmlsslon Company'. lnc.
Exhibit E
Page 3 o{ 6
(AEPSGI
TtiËe Yeais Pér Comþanv
foÞl ofAverage Peak Load For Past Three Years
Annually
Ihe Sùm of Eadr Coaf Compart's Gross Payroll, Orlglnal Cost
36
loal Company Cornbination
of Fhed Assets, Orig¡nal Cost of Leased Assets. and Gross
Revenues For Last Tr¡ælve Months
The Sum ofthe Same Fac{ors ForAll Coal Companies
37
\EPSC Pãst 3 Months Total B¡ll
)ollars
\EPSC PâstThree Months Total Elill Dollârs Per ComDanv
foialAEPSC PastThree Months Bill Dollars
Monthly
\EPSC Prior Month Total Bill Dollars Per Comoanv
Monthly
38 \EPSC Pr¡or Month Total BII Dollars
AEPSC Total Prior Month Bill Dollars
lnact¡ve
39 Dlred
100% to One Company
Monthly
40 Equa¡ S'hare Ratlo
One 11Ì
Iotal NumÞer of Companiæ
Monthly
ttre Sr¡m of (a) Tf¡e Percentage Derived by Dlvidlng the Total
lfegara{ Capabfr$ ofAll Fossll Generatng Plants Per Company
rythe Total Mega,vat Capabinty of All Fossil Generallng Plants'
*rd (blThe Perce¡¡Þæ Derived by Dividlng the Tota¡ Sct¡€duled
$aürþnance Or¡tææ of All Fossll Goeratin¡i Plants Per Company For
üE LastThree Years by lhe Total Scfreduled Maintenance of All
ttre l.æt Three Years by the Total SctFduled Malntenance of All
Foss¡l Generafno Plar*s Durino the Semê Three Years
lnactr've
41
iossil Plant CcrnbÌnaüon
fvlo(2)
42
swdlonal Depõtri€nts Past 3
btonths Total B¡lt t)olhrs
13 Mfi{Sales
=unqbEel DeÐarünerlts Past 3 Monfñs Total Blll Dollars Der ComDanv
Fotal Fund¡ond Departnerfi's Past 3 Months Tohl B¡ll Dollars
lnaclir¡e
lfl\rFl Sãbs PerC(xnDanv
Fotal l(/\Fl Sales
Annually
Constt¡dion Expendfrures fur All Distrlbutlon Plant Accounts É\cept
Lar¡d and Lard Rþhb, Serviees, Meters, and Leased Property on
&
Leìrd of CorËûudior¡ - Dåsûibutlon
gusbners'Premises, and E Glus¡ve of Construction ÞAendihres
for ìMrlch Charges by AEPSC are
Beinq Made Seoaratelv. Per Comoanv Durlno the LÉst Tv'ælve Monlhs
Tdal of ûE SaÍie for All Companies
Aø¡ndated on Direct Work Orders
Semi-Annually
torstr¡ctiøl Éeendûlæs ôr All Produc{lon Plant Accounts Hcept
Bclusiw of Construdion
Éçendfrures accurrndated on DiredWork Orders lMich Gharges by
AEPSC are Belrg Made SeparateÌY
Per Cor¡oanv Dtrino the Last Tt¡t¡dtæ Months
fotal dthe Sar¡e for All ComPanies
Larid and ¡-and Hghts, Nuclear Accomts, and
¡l{t Lercl of Corsüudíqn - Producüon
i{ob: kradir¡e
troce$e"
a$ocaüon ÉcÍors are füose
ÍEt
Semi-'Annually
have been appoved for use but are not cunently belng ut¡lized ¡n the monthly AEPSC billing
West Mrg¡nla Trànsmlssion Compaiìy, lnc.
Frhlblt E
Americeö Electrio Power Sewice Gorporation (AEPSC)
Page 4
of6
Allocation Factor lnformation
46 -evêl ôf Construcl¡on - Transmîss¡on
lonstruc{¡on Ëypend¡tures for All Transmlsslon Plant Accounts
*cept Land and Land Rlghts and Excluslve of Consfuctlon
*pendltures Accumulaled on D¡rect Wod( Orders for Whlch
Sharges by AEPSC are Belng Made Separately, Per Company
)ur¡nq the Last Twelve Months
total of the Same br All Companles
47 Lev6l of Construct¡on - Total
Const¡uction Ependitures forAll Plant Accounts Except Land
and Land Rlghts, Une Transtormer Services, Meters and Leased
Property on Customers'P¡em¡ses; and the Followlng General Plant
Accountsr Sbuctures and lmprov8ments, Shop Equlpment,
Laboratory Equlpment and Communlcation Equlpment And Exclusive
of Conslruclion Expenditures Aacumulaled on Dlrect Work Orders
for \lrJtrlch Charges by AEPSC are Belng Made Separatety.
Per Companv Dudnq lhe Last T\^relve Months
Tolal of the Same for All Companies
48
v[VV
Generatlng Capabllity
)¡rrent Year Budgeted Salary
follars
53
lunent Year Budoeted AEPSC Panroll Dollars Bl[ed Per tomÞan\ú
total Curent Year Budgeterl AEPSC Payroll Do[a¡s Billed
lnactive
Quarterly
tr'¡V)
Past Three Months MMBTU'S Bumed Per Companv (Coal Onlv)
Total PastThree Monlhs MMBTU'S Bumed (Coal Only)
Quarterly
Past3 Mo. MMBrus Burned (Gas
P€st
trce Mor¡ths MMBTU s Bunied Per Comparv lcas Tvpe Onlvl
fotal Past Three Months MMBTU's Bumed (Gas Type Only)
Quarterly
Bumed (All
lastS Mo. MMBTUS Bu¡ned (Coal
FypeOnfy)
Mo. MMBTLIS Burned (Oil
3
% ÍfipeOnV)
Past
55
Seml-Annually
?âst Three Months MMBTU'S Bumed Per ComÞanv ÍAll Fuel Tvoesl
foþl PastThree Months MMBTU'S Bumed (All Fuel Types)
Mo. MMBTU's
5l lastg
ldTypes)
52
lnactívÊ
AnnualÍy
total MW Generatb¡g Capability
tlumbei of lriMlll's Generaled Per Comoanv
lotal Numbe¡ of MWFIb Ger¡eratsd
49 tñWH's Generated
50
vllÂl Generaüno Caoabilitv Per Comoanv
Seml-Annually
Past 3
rio. MMBTUT Burned (Solid
Fr¡eleOdy)
Pest Three Months MMBTU's Bumed Per ComDanv
foþl PastThree
foil TvÞe Onlv)
i'lonths MMBTU's Bumed (OilTyæ Only)
tâsf Thrêe Months MMBTU's Bumed Per Comoanv lsolid Fuels Onlv)
lotal PastThree Months MMBTU's Bumed (Solkl Fuels Only)
Quarlerly
Quarter¡y
tverage of Peak Load, # of Retall GustbmErs, and
teak Load/Avg # CusUl(VW Sales
56
lomHnaüon
s7 Fons ofFuel Acqulred
58
Ftrotg
Folaú
Assetr
(WFl Sales to Retal¡ Customers Per Companv
[ota] ofAverage of Peak Load, # of Retall Customers,
rnd l(Whl Sales to Rebll Customers
{Ì.¡mber of Tons of Fuel Acoulred Per ComDanv
Fotal Tons ofFuel Acquired
foÞl Assets Amount Per Comoanv
fotialAssebAmow¡t
Annually
SemÞAnnually
Quarterly
fnacúc alfocaÍon fac,tors are t!¡ose that have been approved for use but are not cunently belng utlllzed in the monthly AEPSC bllling
process,
west Mrslnla rransmission
Aiherican Electric PoÛer Servicè Corporation
Allocatlon Factor lnformatlon
59 TotalAssets Less Nuclear Plant
IotaIAEPSC Bill Dollars Less
60 lnterest and/or lncome Taxes anÜor
other ¡nd¡rect costs
61
Iotal Flxed Assets
62 Total Gross Rewnue
63
IotalGross Utilþ Plant (lncludlng
ã
64 Totral Peak Load (PrlorYear)
65 l'l¡dro [¡Ml Ger¡erating Capabitity
t¡lt {unberof ForestAcres
6r
$umüer of Banking Transadions
6S FÍ$nber of
7t
7g
74
fotalAEPSC Bill Dollars Less lnterest and/or lncome Taxes
¡nd/or Other lndired Costs Per Comoanv
fotalAEPSC Bill Dollars Less lnlerest and/or lncome Taxes
¡nd/or Olher lndlrect Costs
Annually
Total Fixed Assets Amount Per Comoanv
Total Fked Æsets Amount
Quarterly
Iotal Gross Revenue Lqst Twelve Months Per Comoanv
fotãl Gross Revenue Lasl Trvelve Months
P.er Companv {lncludino CWP)
Tr¡velve Months (lnqludlng CWP)
fofal Gross Utilitv Plant Amount
fotal Peak Load for Prior Year Per Companv
Fotal Peak Load for PriorYear
fotal Flydro MWGenerathg Capability
l¡Iumber of Foæst Acres Per Comoanv
fotal Number of Forest Acres
Number of Bankino Transaclions Pe¡ Comoanv
toÞl Nwnber of Banking Transactions
lohl Numberqf
Ucenses Obtahed
Dams
ft¡mber of P¡ant Licenses Obhlned Per Companv
\¡¡Æ¡Ëer of Plant Ucenses Obhlned
W¡rúer of Nonelectuie OAR lnvolces Per Comoanv
&raÞer of Norelectfs O$er
Acad¡r¡ß Rece¡sabÞ (OAR) frwolces Fotal Nunber of Nonelecf¡c OAR lnvolces
l
-
77 s¡nåer of
72
Pf ar,ü
¡lwnb€r of Transfurmer Transac,lions Per Companv
Trønñnner TransactiorÌs fotd Nr¡nbe¡ of Trarsfonrer Transactlons
Foäs of FftF Gss
Desulfi¡lzathn
FoBs of FGD Malerial PerCompanv
FGD}Matertd
foÞl Tons of FGD Material
Tm
forlg ofUrnestone Recefued Per Comoanv
fotal Tons of Umestone Rece¡ved
of tlnæsfu rÊ Rece¡v¡ttl
foÉaf ÁssetE,
Fry¡þ8
Tota¡Revenues, Total foÞ¡Ass€{s. TotalRevenues. Total
IoHAssets, Total Revenues, Total Payroll
75 fo{4 LesseúAssets
fofal Leased Assets Per Comoanv
Íotal Leased Assetrs
ta
VA
ñüotuillzed
ñc¡e* fnacffre
troE*ft!
Pase 5 of 6
Quarterly
r&¡môer of Dams Per Comoarw
6& l*¡nberof Da¡ns
""toÊliliJll.¿
rótal Assets Amount Less Nucleei Assets Per Comoariv
foþl Assets Amount Less Nuclear Assetb
foÞl Gross Revenue Last
/¡P)
(AEPSG)
aüogún fddofs are those lÌøt hâve bee$ approved for use h¡t
lnactive
Quarterly
Annually
Annually
Annuafly
Quarterly
lnadive
lnacffve
Seml-Annually
QuaÉerry
Semi-Annually
Seml-Annualty
lriacflve
lnaetlve
N/A
aæ not clrrently belng utilized in the monthÌy AEPSC billing
WestMrglnh Transmlssion Company' lnc'
EôibitE
American Electric Power Servicê Goçoration (AEPSGÌ
Allocatíon Factor lnformatíon
77
78
ComDanv
umber of Dallv Po!ìrerlrânsadioß
-{foH
Dally Power Transactlons (All Markets)
Monthly
Markets)
)aily Power Transactions (ERCOT
vlaßetÐ
Number of Dallv Po\¡/er Transac,llons oer ComDanv
Total Dally Power Transac'tlons (ERCOT Markets)
Monthly
Number of Psllv Gas Transac,tlons oer Gomoanv
Monthly
Number of Dailv Gas Transact¡ons DerlÊomDanv
Total Daily Gas Transact¡ons (ERCOT Markets)
Monthly
Dally
Poæi Tnnsac'tlons (Al¡
79 )aily Gas Transact¡ons (AIl Markets)
80
)aily Gas Tiansadlons (ERCOT
Markeß)
ßIoüei: fr¡aclRæ
r'OCeSS,
Page 6 of 6
Dèr
fotat Dally Gas TranÊactions (All Markeb)
alfocation f¿dors are lhose that have
bø¡
approved
br
use but are not cr¡neûtly being ut¡llzed ¡n the monthty AEPSC billing
AEP SYSTEM AII{ETìDED Ai\{D RESTATED
UTILITY MONEY POOL AGREEMENT
This A¡üIENÐED ANÐ RESTATED UTILITY MONEY POOL AGREEMENT
("Agreement') is madc and entered ínto thls 9th day of December, 2004 by and among American
Etccnic Power Conpan¡ Inc., aNew York corporation ('AEP"), AEFUtHt¡es lnc.,ã Ðelaware
corpoidion ('{AEP UtilítÌe$-), bqth registÊred holding companies under the Fublic Utilìty
Holding Comperny Act of 1935, as ameuded (the "Act'!), American ElesEls Power Service
Corporøtion C'AEPSC"), a New York corporation and a nonutility subsidiary of AEP (in its rotc
as adrninistative ogent qnd as e particÍpant in the Utility Money Pool), AEP Utility Funding
LLC, a Delaware limÍtçd liability compa$y C'AEPUF'), and certain of tho direct o¡ indirect
suhsidíaries of åEP, each of which are signatories hereto and partìoÍpants in tbe AEP UtilÍty
Money Pool ('Participùrts'), or which subsequently become signatories hereto and agree to
abido by the terns herein, (All of the above are refcncd to âs a Party or Pa¡tìes to this
Agreengn$.
WHEREAS, the following entifies are each a direct or indirrct srbsídiary of AEP, and a
Paiticþærq in the AEP Utility Money Poot (collectivoly re.&ned to herein as "Operating
Companies']:
'
AEPGeneratingCompany
AEP Texas Cenual Compæry
AEP Texas No$h Cornpany
.
AppalachianPowerCompany
Columbus Southern Powsr Company
Indiana Michìgan Power Company
KentucþPorvcrCompany
Kingqport Po wer Conrpmy
Obio Power Company
Publis Service Cornpany Of Oklahoma
Southwustem Electric Pow€r Company
WbÊelingPower Cornpany
And'
.åEP Utiliry Money Pool:
.{merican Electric Power Service Corporation
Blackhaq¡k Coal Company
C€darCoal Company
C€rñal Appalachian Coa[ Company
Cental Coal Company
' '
Colooet,Inc.
Conesville Coal Preparation Company \
Dolet Hills Lignite Compan5 LLC
&
la8âE7,v'lt
Datet
prgiæa4 /¿43 PM
Franklin Real Esrate ComPanY
Indiana Fruinklih RealitY, Inc'
Simco,Inc,
Southern Appalachian Coal Company
'wlrEREAS, tlre Participants from time to time bave need to bonow fi¡nds on a slrctt'
tç¡rn baslsl and
WHgRE6S, some of the Parties from tÍme to tÍme are expected to harre ñmds available
to lgan ôn a short tem basi$ and
WHEREAS, AEP and ttte Parties have establi$ed a pool (the "IJtitity lvtoncy Pool') to
coordinate and provide for certain of the Particípants'short-term cash requirements;
\Ã|FIEREAS, AEPUF has been formed
o
firod the Utility Money Pooh and
NOTM THERBFORE, in consideration of ihepremises, and the mr¡tuat promises set forth
herein, the Parties hereto agree as ftllows:
coN"rRrBurrå$laff
SestÌon
l.I.
Conü¡butio¡S
b the.Utíli$
åooo****
Moiley Pool.
.¿muican Etectic Power Serr¡ice Corporation fAEPSg) shall act as adminisEatìve
agent of tbe Utilíty lvtoney Pool. Eaeh Partícipant, AEP_, ÁEI Utilitiç, and ÁEPUF win
dãærrrine on a daity basis, tbe amormt of fu¡ds it has ar¡ailable ftr eontribution to the Utility
Money Pool, The dete¡nination of whether a Party at any time has srnplw funds, or shal! tend
suc,h'å¡qds to the UtÍIity Money Pool, will be made by snrch Party's treaúner, any assistant
Êsa$6êf, ar by a designee thereo{, on the basis of wsh flow projeetions aud otber relevant
fuJo'rs, in such Pæf¡rs soto discretíon, Each Pæty may with&aw any of ìts ftuds at any tÍme
ryot
notice
ûo A,EPSC.
SccÉÍon 1.2 Rishfs to Bonoì{'*
.. (a)
Subjeet
to the provisíorrs of Section 1.4(b) .of 'his .4gtwent, all short-tenn
barrowing needs of thc Partieipants may be met by fr¡¡ds in thc Utilig Money Pool tq the extent
fi¡¡d; arc ær¡Eilable¡ faci frt¡c¡pslt shelt h¿vÊ the right tô bormw fmrn the utility ùfoney
*.e
Post ftom tímcto time, sr¡bjeot to the ar¡ailahility of ftmds and thç li¡nitatftns süd conditio¡i$ set
forth hcrcín aud iq thc apglicable orders of the Sc$nitíes æd Exchange Commission.('SËC')
æd otha regutatory æ¡tho¡ities F,ach Farticipæt may reçest loans ûom the Utility Money
Foot úom. tiue to tinre duíng ths petiod from the date hereof rlttil this Agreement ¡s t€rminated
by unífiec agrrmrørrt of tbe Pætíes; provided, hounver, thøt the aggrcgate amount of all loand
requestcd by anyPartíeþantherfl¡ader shall not exceed the applícablo bonowíng limiæ set forlh
iø-qglicable orde¡s of úe $EC and otkr rcgr:latory authorities, resolutions of such Bomd of
tu
*88æ7.vít
Mt l2ßrw4
17.13
Pl¡l
{
Directors, such Partls goveming corporãte documents, and agreements binding upon srrch Barty.
No Participant shall be obligatcd to bonow from the Utitity Money Pool if lowsi cost funds can
be obtained from its own external borrowing.
(b)
Neíúer ÁpF, eEp Utilities no¡ AEPUF wilt borrow fr¡nds fronr the UtilÍry
Money Pool or any Pa+icipant. . Partioipants in tho Utility Moncy Pool wìll not cngagc än lendiag
and borrowing transactiors with participants Ín thc Nonutility Money Pool. The Utility Money
Pool will not bonow Èom the Nonutìlìty Money Pooli
Seotion 1.3 Source offunds.
(s)
'
'
(b)
AEPSC'administers the Ut¡lity Money Pool by matching qpf to the. extent
possible, short-tern cash surpluses and loan iequireurents of the various
Prticipa¡ts. Partioipants' rêquests for short-térm loans are met first &om surplus .
frtnds of otber Parttcipants whicb arc available to $e Utility Money Pool. To the
extent the Particþant contributions of surplus fi¡nds to Ue Útitity Mouey Pool are
insuffisìsnt to mset Pa¡ticipaut requests for short-tenn loane, AEP or AEP
Utilities may contibute sorporate furds to the extent ayailable or bonowings may
be ma{e Êom exlernnl sources. tl¡¡tds vrill be nrade ¿vailable fmm such sources
in $tch other.order as AEPSC, æ adminlstator of the Utility Money Poot may
determlûe will rasult in a lowEt cost of bonowlng to companics bonowing from
the Utitity Money Pool, consisturt with the ìndividu¡l bonowÌng needs and
ftmncíal sbnding of the Parties providing firnds to the Utility Money Pool.
Exfr,mat bonowings may be mdde by AEP, AÞP Utilities, I¡c;, or AEPIIF, each
índivÍduattS a Lç¡díag Partg collec'tìvely Lending Pa¡tier, åom the sale of
. ç,om¡aercial paper noEs and/or othw insnume¡its euthoriacd by tlrc SEC, an<Vor
' bank bor¡owtngs fExternal F\rnds") üc proceeds of which would be added to the
'
(s)
&a øIAZgf.vTt
Utilíty Money Pool, in Each csse to te iädent permitted by applicable larrs and
regutatoty ordcm. All debt Issued in corneetion wittt the Utitity Money Pool will
bs unsefilrËd. Extenral bonowings by AEP, AEP Utilities, or AEFUF will not be
made unless there õe rro surpiw fi¡nds in the treasuriçs of the Particþants
s¡fficie'nt ta EEet bonowing needs. If it is determined that AEP can bonow
üoncy at a cheaper rate thari ÁËPUF can, then AEP wül fund tbe UtilÍty Money
P*ldÍrectf¡
Each bo$owing Participørt wìll bor¡ow pro rsta fro¡u each fund sou¡ce in tho
sane proportionthat tlte amount of firnds provided from that fiud source bcæs to
ths totel mount of short-ærn frnds available to tho Utilþ Money Pool. On any
day, when more than one t¡n¿ source (e.g, surplus toeasriry firnds of aEp, AEp
Ut'¡lities or ofber Utility Money noot parióipants f'Intemal-Funds') anil Exernät
Funds), wltb different ¡ates of i¡teresç is uie¿ to ñ¡nd loans throúgh *re Utility
lvfoney Pool" cach bonowing pa¡ty wifl bonow pro rata Êoun each frmd source in
the same proportion that the amount of ñ¡nds provided by thqt frurd sornce bears
to tbc üotat amor¡ut of shoft-t€,rf, fuads avoilable to the Utility Money Pool. .
Ð,É/d. t?JnEÙÐ1
t243
Fll
.
f_
.
:
Segtion 1.4 Authodzation.
(Ð .
-
Tþ determinatiou of whether a Partìcûpant or a Lendíng Pa¡ty has at any timc
surPlus ñrnd¡ to tend to the Utility Money Pool will be nrads by ite teasrrer, any usiistant
ûeasuet, or by a designee tlrereof.
{b) Any loan ftom the lJtility Money Pool to a Participant shall be authorizcd by the
bonowingPartici¡âttt's treøsurer, æry assìstanl tqasufer, or þ a dkignee thereof, No parry shall
be reçired to effect a bonowing tkougb the Utility Mooey Pool if such Farticîpant detennines
that it can (and is authorized to) effect such borrowing et lowÈr oost tbrough ths sale of its own
commercial paper or other instn¡ments, or bonowing dÍreetty û,'om banks.
_ SecËo,S 1.5 Invcstmentof t¡rJeshncnt Pgol Funds.
Fusds wfrich arc loaned ûom Particþants into the Utility *foo"y pooi wtrictr are not
required to satisfy bonowiag needs of other Participants flnvesùaent Pooi"¡ witt be ¡ûvesred on
the báalf of the t ending Parties Ín one pr more short Êer¡r insuunents (tsxternat lnvestmentgn)ç
including 0) fuûeresÈ-besrine accon&ts with ba¡ks; (ii) obþtions Íssued or n¡uaræed by the
U.S' govemmeuÊ and/o¡ its açncies and insft¡m€nhtiti'es, iucluding obligatiars under
æpincbase sgreercenE; (üi) oblíætions issud or guaruntecd by rny rtate oipalitiål subdivision
thercof' ptcvidedthat sr¡ch obligations arc rated Botlesû thâñ sAl by anàtÍonollyreoognized.
raryg êgçGcl¡; (iv) comuercicl pãper rated oot less fþÀ" 'Â.lo or ¡?rílr or tUcir eqú{oaldtita
(v) money maifd fi¡nd$ (vÐ bauk cøtificatäs o¡¿epolft,
nationaþreccgt¡zÉd.1øitg
(viÐ Eurodo¡lâr
!¡nds; (vìil) shE¡t-ærm debt securities rated AA or above by Shde¡d & påûr's;
Aa sr above by Moody's Isvestors Servic'e, or AÁ, or above by Fìtch Ralings; (ix] short-tenn
debt sefllritåss lsstred or guaranteedby an entity ratcd AA or abowby Stan*am lipoo,r's,,4a or
abovc by Moody's l¡vestore Service, or AA or above by Fiæh Ratinp; and (r) such other
inræmcøts as æe pcræitted by $ectiou 9(c) of the Act and RuIe 40 thererrnder.
gncr
Nq ft¡nds Êorr úe utílity Money pool wiü be invested in Eri$G's or FUCo,s.
Thc intcrest rate appticable on any day to then or¡Ftanding loans through tbe
. l¿o.o-*l
loot vttstþ1.or not evideoeed
qr€ighted
quFüaßditrg
Utilþ
by a promissory defiard note, wil¡ be úre compositu
daíly effcctíve cffit ÌEcured Ef ihe tcrding Parties for Extemal Èrmds
ou thæ daÊ. If tüere are no Brternat Fr¡nds ouæranCing on th¡t date, the¿ the rate
*onld be tbe certificate of dEposit yÍetd equivaleot of the 3$.day Fedeml Rescrve iA2fpzu NooFimæÍ¡I Csrnu¡ercïal Paper Couposiæ Rate (the oComposite), or if no Composiæ ìs
'€'sfâblished
forthat day_; then-fg æ¡licable rate witl be the Cornposite for the aext precøing Uay
for which a eoryosÍæ is estahlÍsh€d,
lf thc Couposiæ skatl c€ass to acist, then ths mte would be tbe composite ,,*1¡¡¡ rten
most closcty rcsemblæ thc Corrposite and/or most elosaly mirrors tne príicing the Lending
kties wwld açect if it had Exbr$sl Funds.
W PMt7.vr, W
p¿frãøtw 1Z4g pþ¡
-
Interest incorne related'to Extemal Investnentr wilt be calculaffi daily and altoðahd
beck to Participanls on the basis of their relative contribution to the Invætrnent Pool fi.rnds on
that date.
Section 1.8 ReÞayment,
,f,* repay the principaf amount of suoh loan,
ac,erued thereorL on demand and in any eyent not trter than the
expiration d¿te of SEC authôrization for the operation of the Utility Money Pool. Alt loans madç
through the Utility Money Pool may be prepaid by the bonower without pre,mium orpenalty,
Each Particþant receiving a loan hereuna",
together with
all intetest
Sectiog 1.9 Form of LoanS to Particþants
I¿g¡s to tbe Participants through the Utility Mone! Pool will be rmde purzuart to openaccount advanccs, although any AEPUF or Partìcipant would at atl times
entitled to receivc
upor reque$t a promissory note evidencing the Fansaction. Any such note shall: (a) be
substantially in the form attaahed hercwitb as Eltbibít A; (b) be dated ¿s of the d¡te of the ini-rial
bonowing;
rnalure on dema¡rd or on a date mutually agrçÊd to by the Partíes to the
@nsectlon, but in any event not later tha¡ the expiretion date of the SEC authorization for the
'operation of the UtitÍty Money Pool; and (d) b€ repayable in whole at any time or.ïn part from
time tro time, without premium orpenalty.
k
(cl
ARTIçT,ETI
OPERÁ.TION OF TEE UTITITY MONEY POOL
Section2.t OpqratÍon.
Operation of the Utilify Money Pool, including record keeping nnd coordlnation of loars,
wilf be handlçd by AEPSC under the authority of the trcaswer or eny æsislast treasurer of AEF
andlor AEPSC. AEPSC shull be responsíble for the detensrination of all applioable interest ¡ates
md ckarges to be applíed ø any loans ftom thc UtÍIity Money Pool and earniugs O be applied to
æy toans æ the Utilþ Money Pool and/ot Iovesunent Pool outstaoding at anf time hereunder,
shalt mainta¡n reoords of¿ll advancec, iatÊrcst charges and acccuals and interest and principal
p¡æeufc for purposas hereofi, and shell prepare periodc repods thereof for the Parties. Services
i:ød€rsd by AEPSC wíIl be 'Et cost" in tceordance wÌth n¡Ies of the $EC.
Sectíon 2.2 Certain Costs.
The çost of fecs and/or compensatìug balances paid to banks to maintain credit lines witl
be aUocaled fo the ParticÍpanF on the basis ofrelative nûaxÍmum non-colncide¡tal bonowings of
thc PartÍcipanfs.
Dw t?284lt.vt ç DâE: I 2¡t,¡20û1 lz4:t PM
Eætion 2,3 Evsnq pf Defau&
If a¡y Participant shall gunerally not pay its debts as such debts become due, or shall
adnit in writing its inability to pay its debts generatl¡ or shall make a general æsignmcnt for the
benefit ofcredÌtorE or any proceeding shall bc instih¡ted by or agaÍnst any Participant seeking to
' adþdicate it a bankrupt or insolven! then ADPSC, on betralf
of tho Utilìty Money Pool, men by
notice to the Participant, terminate the Utility Money Pool's commitnent to thc Particþant
pd/or declare the unpaid prineipal amount of any loarrs to such Partícipwrt, and all interest
theteon, to be fo*hwith due and payable and all such amornts shall forthwith become due and
payable withor¡t present¡nent, demand, protest or othor fonnalities of any kind, all of which are
hereby otpressly waived by the Participanl
.
ARTICLEIII
A.EPUTILITIES¡"I¡NDINGL[,C
Sectlon 3.1 AEPUF.
AEPUF is a special purpose financing conduit, formed to fi,¡ud the Utility Money Pool,
AEPUF may obain fi¡nds frcm exûêmâl sourtËs or Êom AEP or AEP Utilities. AEP, AEP
lrtïtÍties erd.the Operating Coropanies oe elso authorized to fund the Utitity Money Pool
throuþ thie iszuauce of short-term debr AEPUF will have a seperate bank accourit for all Utility
Moncy Pool funds. AEPUF may issue commercial Enper or other short-term debt for the benefii
ofthe UtilityMoney Pooi pæticipants ard\ì,íl¡ lendaashproceeds ofthe iszua¡sc ofcommercial
ptper úû each Partieipant as ssid Participant's needs are ídentified. rühen AEPUF directly issucs
eoü¡uereía[ Papff tû dealers tro fì¡Ed the Utility Money Pool, each Operating Company that
bonoq¡s fmm AEPUF müst maintaïE comparable debt ratings equal to or grcater than AEPLJF
ard maintain rcquisite backup faeitities with one or Eore financial instit¡tions.
Seg{Íon.3.2 Loãns,
AEPIIF shatl p,rtcvide the cash proeeeds of eactr issuanee af somneruial paper or other
short-term debt to the Utility Money Fool. The Foceeds of borrorrings by AEFUF witl not be
loerÊd to AEP orAEP Utilities, Tbe proceeds of the borrowings of AEPUFwilt be used to repay
ÁEFLF s bonsvrings or be invested to continue fimdios the utitity Money pool.
Section 3.3 Several Ljêbilitv,
It is ocpressly agrecd that the obligations of each Participant to AEPUF are several and
not joiar and, subjept to paragraph 3.4 below, that each Partioipant shall not be responsible to
^åEPUF or æy assìgnee or cteditor of Á,EPUF for any payment in excess of paymens due under
eay PartÍcþnrt's outstaüdíÞg Eote and iæ pro rata share of other expenser¡ and administative
coss úfAEPUF in connestion wfth ¡ts f.mdíng offhe Utility Money PooL No Participanr will be
[Í¡ble forthe borro*.ïngs of any ather aff¡liate r¡nder the Utility Money Pool,
tu
MeÅgl.v't t. DaE'î?JVzAgí ttltg PM
Section 3.4 Place,ment A&eåtq.
_
(a)
As a condition precedent to each comme¡cìal paper dealer arrd placement agsnt
(eaotr, a'?lacement Agent') ontering into a deqler or placement agreement with AEPUF (each
such agteement, e "Placement Agreement"), each Participant agrees: (i) to pay all costs,
.
e{pgqsqs, liabilities, losses apd damagæ, includíng lÌabílities in reqpect of thg AEPUF's
,indemnific¿tíon obligations under the Placcment Agreements (collectively, the "Liabílities')
which it may incur relating to the offe¡ and sale of AEPLJF'q comr¡ercial paper, thg proceeds of
whÍch were used to maks any loan to such Participan! under thís agr€ement, and (ir) to pay íts
Pro Rata Share of all other Liabilities whisb AEPUF may incur other thaq any such Liability
whích rplates to the offer and sale of AEPUF's commercial paper the proceeds of which were
rscd to malce any loan to any other þartioipant iu the Utility Moncy Pool in respect of whioh s¡ch
other affiliaæ is obligated to pay the fi¡ll amount of such Líability. As used herei¡ the term "Prrr
Rata Sha¡e" of any Liability sball mean an aurount equal to tlte product of zuch Liabitity and a
fractíon exprèssed as a percentage (x) the nuÐerator of which is the average outstanding loans
fiade ùo tbePartlcipant during the period f¡om the daæ which is three years pdor to the d¿te such
LiabitÍty is due and payable to the date such Liabífity i's duc and payable (the "Deternination
Pøiod), and (y) the denmínator of which is the average aggregate oußfædíng loans made
druíng the DsterÍiinrtion Pe¡Íod to the Participaat a¡d all other Participants whíoh received loans
fuoæ AEPUF aud which are obligated to pay sueh tiability in sÊeordance with this provisíon
(b)
Each Participaat æd AEPUF hereby acknowledge and agree that each Placenent
Áæ¡¡t is a úrird-parry beneficiary of this Artiele IIt and is eatïtled b the barefits of the
&ligæiors of each separate ParticÍpant coffat¡ed ín this Artiele IU snd is entitled ta bríng any
asdm to enfo¡Ee srrch obtÍgaions directly agaiust the separate PøtioipanL [n the case of any
rysclfic LÍabil:ty arisitrg out sf or in con¡estion with the Plecement Agreennent, øach Participant
úall pey ffte amouat of suc& Pætieiparfs LÍability dîrectly to such Flacement Agent or as ihe
P!æenentAgeff diúects.
(cl '
Thís Artigle III shalt not be amenrted or modified wÍthout the prior wrínen
consæt of eûth Placemett Agect The agreem*its and obtigations of each of the Farticipants set
forfh Ía út3 Article EI shalt survivc the term¡tration of tbis Agreement,
Ä,RTTCLETV
h'IISCE.LLA¡{EOUS
Sectíon4.l Amendments.
No ørendqcnt to
ihis
signcd by aft Parties úereto.
w
Ûwj1.v7,
Ðâte: I 2JV2tt01 I 243 PûI
shall be eftctive rnless the same be in writing and
(
('
S,ectiot*tå I¡s¿t Resúonsibilitv'
*y
.
Nothlng høein contained sball rcnderAEP or Âny Partl liabte-forrùe ob-ligatig-ns .of
party(es)
huounder and tho righrs, obligatíons and liabilíties of AEP and the Parties a¡e
othor
sweral¡näccorda¡cewiththeírræpectiveobligations,andnotjoint'
Section 4.3 Gs.vemíng Law.
This Agreement shall be governed b¡ and construed in accordâsoe with, the laws of tbe
State
ofNew York.
(.
fu wtLtrll
ÐarÆ
lT2&t1 lz,t8 Plil
IN WITNESS WHBREOF, the undersigned Pæties have duly csused this doou¡uent to be
sígned on their behalf or the date fïrst wtitæn above by the undersigned thereunto duly
a¡¡thorized.
i.
;
A¡t{ERr€AilTlf"*"POWERcOItilr')Atìtv'INc.
AEP ITNI.ITIES' TNC'
IITILITY FT,NI}ING LLC
AMERICAI{ ELECTRIC POWER SET{VICE CORFOIì.{TION,
.{gent and PartlclPrnt
AE,P
ParticiPauts:
AEP G]ENERAfiNG COMPANY
A.EF TEXA¡¡ CBNTR.AL COMPANT
AEP Tts)(ASNORTIT COMPANY
APPA¡"AcHIAN FO'IVER COMPANS
COLIJMBIIS SOUTEERI\T POïVEM. COMPAI{Y
_
I¡{DIåNA. MICHIGAN POTqER, COMFANT
KENTT'CKI' POWER COMPAFTY
I(ITTGSPORTPOWF;RCOMPÁIITY
OEIOPOïi¡ERCOMPANI'
PT'BLTC SERYTCE COMPA¡TS OF OKLASOIVÍA
SOUTHITESfERN ETECIRIC POrnFiR COMPAI{Ï
$ÍEEEIJNE FOWER COMPAIVY
BI"åCTTEAìIryK COAL COMPAIìTY
CEDARCOAI, COMPÁNY
@rfR.eL ÄrpÂtråcHrÅN coAI, cltMPANy
CENTRÅLCTÂL COMPÁFTY
coI,OMETrIF{C,
6Í}FTF"gVIÍ,T,E CO.AL PITEPA,RATIOFT COMPAÌ{Y
T}TL&T HIT,Í,S LIENITE COMPAIìTT, Lf,C
FRAF{KLIN REAL ESTÀTE COMPANY
TNDTANÀ B&ANKLIN
nEÅl,tY, tNC.
$yIcCIrINCSOT}THEEH APPAI,ACHIÁN COÂL COMPANg
of the above-listed conrpaníes.
oæçntxf7.vt, MÊ I?ßEAæ îZlXt PM
as
EXHIBIT
A.
F.ORM OT UTILITY MONEY POOL NOTE
TO BE EXECUTED BY BONROWING PARTIES
TO AEP OR OTEER PÁ,RTIEfI
20_
(the 'Tlotrower"),
FOR VALUE RECEIVED, tho undersìgned,
(the
'Lendern) at its prÍnçipal
bereby promisæ to paY to the ordet of
20---, or at the
on demand or on
office in
th*
the
expiration-date
ín
event
not
option of$e Borrower, whichever first occurs, brx any
l"t "
priucþal
sum set forth
PoaL
thc
the
Utility
Mcuey
oitne SpC agthorízatíon for the operatíon of
paíd
iû fu[ at
This
may
Botc
be
A¡rount
Outsta¡dïng."
as
on the attaohmenf bercto
"Prineipat
.The
'any
pennhy.
prennÍrwr
Pdncipat
Amount
or
time
pa¡t
to
time
ftom
in
tÍme sr
'¡'ithout
cost
incuned
by
effective
daily
weigüd
ave¡age
fhe
composlæ
beår
interest
at
sball
OueøEdíne
+
Parr¡es fof E¡cÞmal Funds outstanding onthat date. [f there are no E:rtemal Funds
oubrødíng on that dete, then the ¡øtç would be the CÐ yietd equivalent of the 3Gday Fe{eral
rf,2¡p2tt Non-Finaryial Conmersia¡ Paper Composite Rate (the "Composiæ'), or Íf no
Resen¡c
Composíte is cstabtíshed for ttøt óay, then the applícable rate will k the Compositc for the next
lbeknding
-
preeeding dsy
forwhísh aComposite is esbblÍshed.
fbÍs Note stpll be govenrcd by, and consEued æd intcrpreted in
I¿wsofdre $tate of NewYofk"
accordærce with, the
IN WIï¡IBSS WIIEREOF, the undersigned, pwwant to due aühoiiz*¡o,t has caused
this Notc to be execì,¡ted in i¡s na¡ne a¡rd on ib behalf by Íe duly authorized offteer.
lNameof Borou¡erì
By:
Namel
Title:
Dæ t22fl87.vt
î
D6tr:
l?JsE(N t ¿lr, Pliî
t0
(
Dâte
Principal
I¡an
Amount
(Rcpavment) OæÞnd¡his Bæ
('
W WZrr.6 I W l?rgf¿ffi
1t
',
243
Pfüî
Interest
E)ilIIBIT F.2
:
AMENDMENT NO.1
TO
AEP SYSTEMÂMENDED AIID RESTATED
UTILTTY MONEY POOLAGREEMENT
ThiS AMENdMENtNO. 1 tO thE
A\'IENDED A}TD RESTATED UflLITY MONEY POOL
of
day
, 2010 by anl
AGREEMENT ("Agreement") is made and entered into this
('AEP"),
AEP Utilities
amotrg AmericanElectic Power Compan¡ Inc., aNew York corporation
- holding comaanies under the
Inc., á Dehware corporation ("AEP Utilities'), both registered
uAetn), American Electric Power
(the
as
amended
1935,
Act
of
Public Utillty Holding Company
Se,rr¡ice Corporation (*AEPSC), aNew York corporationand anonutility zubsidiary of AEP (in
its role as ãdminisnatíve agent and as a partícipant in the Utílity Money Pool), AEP Utility
Funding LLC, ø Delaware timitÊd líability company (*AEPUF'), and certain of thc direct or
indirect-sr¡bsídíaries of AEP, each of which are signatories hereto and partícipants in the AEP
Utility Money PooI f?articipants'), or whích zubsequently become signatories hereto and agree
to abide by the terms herein- (Ail of the above are referred to as a Party or Parties to this
Ag¡eement)
WHEREAS, the following entitíe,s are each a direct or indireet subsidiary of AEP, anda
Pártícípæt in the AEP Utility-Money Pool (collectivety referred to herein as "Opeiating
Compies'):
AEP Geuerating Company
AEP Texas Central Company
AEP Texas North Company
Appalaehian Power Company
Calumbus Southern Power Company
lndiana Michigan Power Company
Kertucþ PowerCompany
Kingsport Power Company
Ohio Power Compmy
Fublie Service Company Of OHahoma
SorlÈwestem Elecfrie Power Company
Wheeling Power Company
And
.
WHEREAS, in addition to the Operating Companies, the following are Participants in the
ÁEP IltitÍÉy Money Pool:
American Electic Power Service Corporation
Blacúåawk Coal Company
Cúar Coal Company
(
Cenfial Appalachian Coal Company
Central Coal Company
Conesville eoal Preparation Company
Dolet Hills Lignite Company, LLC
Franklin Real Estate Company
Indiana Franklin Reality, trnc.
'.
WHEREAS, AEP and the Parties have established a pool (the 'Utilìty Money Pool") to
coordinate and provide for certain ofthe Participan*' short-term cash requirements;
WHEREAS, AEPUF has been formed to fund the Utility Money Pool;
SiHEREAS, the following entities are indirect subsidiaries of AEP and will swn, operate,
manage.and control facilities in their respective states for the transmission of elechicity at
'viholesale to íts customers (colleetivelY, the "Transcos'):
.
AEP Appalachian 1'¡¿¡smission Compann Inc., aVirginia corporation
AEP Indiana Michigan Transmission Compan¡ Inc., an Indiana corporation
AEP Kentucþ Transmission Company, Inc., a Kencucþ corporation
AEP Ohio Transmission Compan¡ Inc.o an Ohio corporation
AEF Oklahoma Transmissíon Company, Inc.o an Oklahoma corporation
AEP SorÍhwesÊem Transmission Company,Inc., a Delaware corporation
West Virgfuia Transmission Compan¡ Inc., a West Vïrginia corporation;
WIIEREAS, æch of the Transcos, upon receipt of an order from the Federal Enerry
Regulatory Commissíon ("FERC'), will be deemed a'þublic utilitt'' for FERC purposes and
will be regulated by the state utitity commissions ia the states where they operafe and therefore
æe dee,îred'þub1ic utilities" for purposes of inclusion in the Agreement;
WHEREAS
, æehof
the Transcos desires to become a parly to the Agreement; and
NOW TFIEREFORE, io consíderation of the premises, and the mutual promises set forth
herein, the Parties hereto agree ¿¡s follows:
t.
The Agreement is hereby amended to provide tnat eacn
hereby
aæepædas a Particþant in the Agreement
beforv is
2.
of the Transcos listed
Each of the following Transcos hereby elecæ to become a Participant in the AEP
Money Pool and hereby agrees to be bound by the terms and conditions of the
UtilÍb¡
System
Agreement:
ÁEP
AEP
AEP
AEP
AEP
Appalachian Transmission Compan¡ Inc.
hrdiana Michigan Transmissíon Company, Inc.
Kentucþ Transmissíon Company, Inc.
Ohio Transmission Company, Ine.
Oklahoma Transmission Compan¡ Inc.
AEP Southwestem Transmission Compady, tnc.
:
IN WITNESS WHEREOF, the undersigned PartÌes have duly caused this docr¡ment to be
signed on their bçhatf on the date first vnitten above by the undersigned thereunto duly
authorized
AMERTCAN ELECTRTC POWER COMPAIIY, INC.
and
AEP UTrLrflES, INC.
AEP TITILTTY FUNDING LLC
AMERICAII ELECTRIC POWER SERVICE CORPORATION' as
Agent and ParúieÍpant
Current PartÌcipants:
AEP GEIIERATÏNG COMPANT
AEP TEXAS CETYTRAL COMPA}TY
AEP TE]TÁ,S NORTH COMPAFTY
APPÄI.ACEIAN POWER CCMPÁNY
COLT]MET}S SOUTEERI{ POWER COMFA}IY
IFTDIANA. MICEIGÄT{ POWER COMPAT\TY
KENTTICTil POWER COMPÄIVY
KIFIGSPORT PCWER COMPÁNY
OHIO POWERCOMPÂI\IY
PT]BLTC SERVTCE COII{PÁNY OF' OKT,AEOII4A
SOITTFWESTERN ET,ECTRIC POWER COMPÂIVY
.
\YEEELINGPOWERCOMPA}IY
BLÂCKEAWKCOAL COMFANY
CEDAR.COAL COMPAI\TT
CENTRAT ÄPPALA.CEIAN COAL COMPANY
CSNTRÂL COÄL COMPÁIITY
COI\IESIIILTÆ CO^åL PREPARATION COMPAI\TY
DOLET rrrr.rs LIGNITE COMPAIIY, LLC
FRÁ.IìTKLTN REÁ,L ESTATE COMPA¡TY
INDIÁNA. FRÄNXUN REALTY, trNC.
SOIITHERFT APPALACETAN COAL COMPAFTY
By:
Assisfant Treastrer of each
of the above-listecl companies.
Newly Addèd Participarits :
AEp APPALACHIAN TRAI{SMTSSTON COI\FANY, INC.
AEP N{DIANA MICHIGAN TRANSMISSION COMPANY, INC.
: .
AEP OIEIO TRAI\ISI\fiSSION COMPAIYY, rNC.
'AEP OKLAHOMATRANSMTSSION COMPAI\IY,INC.
Anr sourIrwESTERN TRANSmSSTON COMPAIIV, INC.
AEP WEST VIRGII{IA TRANSMISSION COMPA}TY, INC.
By:
V. Hawkins
Assistant Treasurer of each
/s/Renee
of the above-listed com¡rarúes.
I
i
EXHIBIT G
i
{
SERVICE AGREEMENT
:
TIIIS SERVICE AGREEMENT, made effecü've as of the _ day of
. 2010
(the "Effective,-D{e"), is between Appalachian Power Compan¡ aVirginia corporation
.: ("Çompanyu), and AEP Appalachian Trbnsmission Company, Inc., a Virginia corporation
(uClienj").
WITNESSETH:
WHEREAS, both Company and Client are associate companies inthe American Elecûic
Power System which is comprised of American Electie Power Company, Inc. and its subsidiary
companies.
WHEREAS, Company is a public utility in Virginia and West Virginia and maintains an
organization of employees who are experienced in the operatíon and maintenaûce of electric
tra¡smíssíon facilÍties, together with appropriate facilitíes md equiBmen! tbrough which it is
prepared to provide various electric transmission operation, maintenance andtechnical and other
services, as hereÍnafter províded, to Client.
WHEREAS, such services \reill be rendered by Company at
cosL
.\
NOW, TFIEREFORE, in consid.eration of the premises and of the mutual agreements
hereh contaínd Company and,Client hereby agree as follows:
1.
Aereementto Provide Electric Trarismission Services. Company agrees to
provÍde to Clíent Êana time to time, upon the terms and conditions hcreinafter set forth, zuch of
the followíag electríc transmíssion se,n¡ices as rury properþ be rendered by Company to Client
ât $rch tímes, for such periods and ín zuch manner as Clie,nt may from time to time require and
which Coorymy is e$dpped to perform including but not limit€d to: consultation, analysis,
adwee aud perfomance of services ín connection with matfers relating to the operatior¡
in$pe,cf¡or, naintenance, maûaÊ'ing third party joínt use afiachments on Client's facilities, and
eftergenoy ¡estorafíon of Clíent's electríe transmission assets in Virginia and Tennessee.
Inp,æviding zuch servicesn Company may ¿umnge, where it deems appropriate, forthe
services of,orperts, consultaots, advisers and otherpersons with necessary qualifications as are
required for or pertÍnent to the renditíon of such servíces.
2.
Agreementúo Take Servíces. Client agrees to take from Company zuch of the
sersices dsscríbed fu Sectíon I hereof aod zuch additional general and special senrices, whether
ooÉ row contemplatú, as are reçresteif from time to time by Client and which Company is
eç¡Íppedtoperform.
3.
ThÍrd Partv Joínt Use. Client hereby appoints Company as its agent for purposes
of fieensÍng,spæ.e on ClíenÍ facíIitíes for third party joint use attachments. Pursuant to such
agencyr Compariy, ât the direction of Clien! may license space or¡ Cüent facilities pursuant to
terms and conditions Company utilizes ín its joint use agreements with such third parties.
4.
Compensation and Allocation. As compensation forte services to be rendered
hereunder, Client agrees to pay to Cornpany all costs whieh reasonably can be ìdentified and
'telated to particulæ tansactions or services performed by Company on Ctiflrt'sbehalf. As soon
as practicable after the close of each montþ Company shall render a monthly statement to Client
whioh shall reflçct the bílling infomration necessary to idedify the costs aud allocations made
and charged fo¡ that month. Client agrees to remit to Company pa)qrent for all charges billed to
Clienf upon recelpt of the monthly statement.
. 5.
Term and Termination. This Service Agreement shall become effective upon the
EffectÍve Date and shall continue in fttl force and effect until tqminated by eitherparty hereto
upon not less than ninety (90) day's prior written notíce to the otlrer par{y. This Service
Agreement also shall be subject to temrination or modification at any time if and to the extent its
performaace mdy or shall conflict with any nrle, regulation or order of any other governmental
body hai'íne jurisdietíon.
6.
Fasitities arrd Propertv License. In addition to the senrices provided for herein,
eaobparty he.reby gfaats a license to the other party to atrach to or oceupy the graating parËy's
facilities, equipmenÉ and land both above grormd and below grormd forthe prqrose of
constructing, opemtiag, maintaining and removíngthe ætachingparty's &cilities and equipment.
The term of sr¡ch líce¡se shall commence as of the Effective Date set forth above and shall
expire onthe fiftÍeth anniversary of the Effective Date. Thereafter the term sÉ¡all ¿ufsn¿tically
reeew fûr suceessíve one year terms r¡nless either parÉy provides writËen aotice of its intent to
tcffiifrãte frû lsss rhãñ six months prior ûo the expirdion of the tern or renem¡al term- The licecse
gËded heæÍn shaE survive any terminæion ofthis Service Agreemenl
Sígnøfires appear ef the følLowÊng p age
I
IN WilNESS WIDRËOF, the parties hereto have caused thìs Servicç Agreement to be
ofthe EfFective Date.
executed as
APPAIÁCHIÄN PO\ilER COMPANY
By:
Name:
Its:
AEPA
APPALACHIÄN TRÄNSMISSION
COMP'ANY, rNC.
By:
Name:
Its:
-
RCGBxhibitNo. l
PTIBLIC SERVICE COMMIS SION
OF WEST VIRGINIA
CHARLESTON
CASENO. 1O-0577.8.PC
APPALACHIAN POWER COMPANY and WHEELING POWER COMPANY, both dba
AIVERICAN ELECTzuC POWER and AEP WEST VIRGINIA TRANSMISSION COMPANY,
INC.
Application for approvat of amangements among
affrliates related to the operation of a new public
service corporation 'thøt will own transmission
facilities and provide transmission services.
DIRECT TESTIMOI{Y OX'
RIIODERICK C. GruTTIN
JAI{UARY 6,2011
page
1 Q.
2 A:
3
4
5
6
7
I
9
10
11
72
13
T4 O.
15
1,6 A:
t7
18
79
20
21.
22
23
24
i of6
PLEASE STATE YOUR NAME, ADDRESS AND PRESENT POSITION.
My name is Rhoderick C. Griffin. My business address is 1 Riverside Plaza,
Columbus, Ohio 43215. I am currently Manager, Regulated Accounting, of
American Electric Power Service Corporation ("AEPSC"), a wholly-owned
subsidiary of American Electric Power, lnc. ("AEP"). Appalachian Power
Company ("APCo"), Wheeling Power Company ("WPCo"), AEP West Virginia
Transmíssion Company, lnc. (.WV Transco") and AEP Appalachian.
Transmission Company, lnc. ("VA Transco") are also direct or indirect
subsidiaries of AEP. I am responsible for maintaining the accounting noofs and
records, and regulatory reporting for AEPSC. I am also responsible for AEPSC's
monthly service billings to its affiliates. My responsibilities for AEPSC also
include compliance with the Federal Energy Regulatory Commission's ("FERC")
Uniform System of Accounts accounting and reporting requirements.
PLEASE REVIEW YOUR EDUCATIONAL BACKGROUND AND YOUR WORK
EXPERIENCE.
I attended Eastern Kentucky University and received a Bachelor of Business
Administration degree, with an emphasis in Accounting in 1979. I have been a
Certified Public Accountant in the State of Ohio since 1984. I have been
employed by AEPSC since August 2OO1,when I was hired as an Administrator in
the Non-Regulated Accountíng group. ln February 2003 I moved to the
Corporate and GeneralAccounting group. ln May 2004lwas promoted to
Accounting Manager of Consolidations. ln May 2006 I became a manager in the
Regulatory Accounting Services group where I was responsible for providing the
AEP operating subsidiaries with accounting expertise and support for regulatory
Page2 of 6
1
filings, which included preparation of cost of service and rate base adjusiments,
2
filing required schedules and testimony. ln August of 2008 I became Manager of
J
Regulated Accounting where I was responsible for the books and records for four
rl
T
operating companÍes (lndiana Michigan Power Company, Kentucky Power
5
Company, Kingsport Power Company and AEP Generating Company). I moved
6
to my present position in March 2010. Prior to my employment with AEP, I spent
7
approximately 20 years in various roles in public accounting and consulting
8
services.
9
o.
PROCEEDINGS?
10
11
HAVE YOU PREVIOUSLY TESTIFIED IN ANY REGULATORY
A:
Yes, I filed testimony with the FERC in Docket No. ER-08-386-000 and with the
VirgínÍa State Corporation Commission in Case No. PUE-2010-00038
12
lô
IJ
o.
WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
14
A:
The purpose of my testimony is to support certain aspects of the Application of
15
APCo, WPCo and \lVV Transco to the Commission for approval of arrangements
t6
among affiliates related to the operation of a new public service corporation th-at
17
will own transmission facilities and provide transmission services. Specifically,
i8
will testify as to the services to be provided by AEPSC, APCo and WPCo to WV
19
Transco pursuant to the proposed Service Agreements attached to the
20
Application
2l
o.
ARE YOU SPONSORINGANY PORTIONS OF THE APPL¡CATION?
22
A:
Yes. I am sponsoring the following Exhibits to the Application:
I
Page 3
1. Exhibit C-1 (proposed
I
Seruice Agreement between APCo and
of6
\M/
Transco),
2
2.
Exhibit C-2 (proposed Service Agreement between WPCo and \All/
Transco),
3.
Exhibit D (proposed Service Agreement between AEPSC and \ffV
Transco),
8
4,
Exhibit E (Allocation Factor lnformation), and
5.
Exhibit G (proposed Service Agreement between AEPSC and VA
Transco.
9
10
I note that Exhibits c-1 , c-2, D and G to the Application are legal documents
11
prepared by the AEP Legal Department, while the Allocation Factors included as
12
Exhibit E to the Application have been developed by various AEP personnel over
13
the years.
l4
o.
HOW WILL WV TR.ANSCO OBTA¡N THE SERVICES NECESSARY FOR THE
15
PLANNING, OPERATION, AND MAINTENANCE OF THE TRANSMISSION
I6
SYSTEM FACILITIES TO BE OWNED BY IT?
17
The services required by \rVV Transco will be provided primarily by AEP's
l8
centralized service company, AEPSC, and by APCo and WPCo pursuant to
t9
service agreements. copies of the proposed Service Agreements between
20
APCo and VW Transco and between WPCo and \A/V Transco and between
2I
AEPSC and VW Transco are attached to the Application as Exhibits C-1,' C-z
22
and D respectively.
Page 4
a.
of6
PLEASE ÐESCRIBE THE SERV¡CE AGREEMENTS BETWEEN WV
2
TRANSCO AND AEPSC AND BETWEEN WV TRANSGO AND APCO AND
J
BETWEEN WV TRANSCO AND WPCO.
4A',
The provisions of the Servíce Agreements are modeled after those in the existing
5
long-standing service Agreement in efÍect between AEPSC and Apco, which
6
was most recently approved by this commissíon by order on March 4, 2008, in
7
case No. 07-1544-E-Pc. Paragraph
I
Agreement and the wPCo-\Â/v rransco service Agreement attached to the
9
Application as Exhibits C-1 and C-2 describe the services that will be performed
1 of both the
Apco-VW Transco seruice
10
by APCo and WPCo for \A/V Transco, while Appendix I to the AEPSC-'vW
11
Transco Seruice Agreement attached to the Application as Exhibit D describes
72
the services that will be performed by AEPSC for WV Transco.
1,3
Generally, APCo and WPGo will perform services including, bui not limited
t4
to: consultation, analysis, advice and performance of services in connection with
15
the operation, inspection, maintenance, third party use and emergency
l6
restoration of VW Transco's electric transmission assets Ín the State of West
1.7
Virginia. AEPSC's services to WV Transco will generally include but are not
18
limited to transmission services, regulatory services, finance, accounting, and
19
strategic planning services, arid shared seruices, such as human resources,
20
information technology, and business logistics.
2l
The APCo
- \ ru Transco Service Agreement
and the WpGo
-
WV
))
Transco Service Agreement also contain provisions appointing APCo and WPCo
23
as vl/v rransco's agents for purposes of licensing space on \AA/ Transco's
Page 5
of6
1
facilities for third party joint use attachments, as well as a mutual facilities and
2
property license grant. Under the latter provision, each party grants to the other
J
party a license to attach to or occupy the granting paÉy's facilities, equipment or
4
land for the purpose of constructing, operating, maintaining and removing the
5
attaching party's facilities and equipment.
6
o.
TRANSCO.
7
I
PLEASE DESCRIBE THE SERVICE AGREEMENT BETWEEN APCO AND VA
A:
A copy of the proposed Service Agreement between APCo and VA Transco is
attached to the Application as Exhibit G. The terms of the proposed APCo
9
-vA
-
10
Transco Service Agreement are substantially the same as those of the APCo
11
\AÄ/ Transco
12
of services for VA Transco in connection with Virginia transmissÍon operations.
13
since Exhibit G is an APCo affiliate agreement, APCo is presenting it for the
t4
Commission's review in this proceeding in comptiance with W,Va, Code 924-2-
15
12. Al.the present time, the Transco application
l6
but it is planned to be resubmitted and therefore it remains a matter relevant to
17
the instant application
18
a.
service Agreement, except they will apply to APCo's performance
in Virginia has been withdrawn,
HOW WILL APCO, WPCO, AND AEPSC BE COMPENSATED BY WV
79
TRANSCO FOR SERVICES PROVIDED UNDER THE RESPECT¡VE SERVICE
20
AGREEMENTS BETWEEN THEM, AND HOW WILL APCO BE
2t
COMPENSATED BY VA TRANSCO FOR SERVICES PROVIDED UNDER THE
22
SERVICE AGREEMENT BETWEEN APCO AND VA TRANSCO?
Page 6
1
A:
of6
As compensation for the services to be rendered under the Service Agreements
to which it is a party, \¡\A/ ïransco will pay APCo, WPCo or AEPSC, as the case
2
may be, all costs that can be reasonably identified and related to the particular
4
services performed for or on behalf of \iW Transco. ln the case of the AEPSC
5
wv rransco
6
AEP is involved in or has received benefits from a transaction or service
7
performed by AEPSC, costs will be allocated and billed to WV Transco and such
I
other affiliated company or companies in accordance with the allocation factors
9
attached to the Application as Exhibit E. compensation for services and
-
service Agreement, where more than one affíliated company of
10
allocation of costs under the Service Agreement between APCo and VA Transco
11
will be handled in the same manner as under the Service Agreement between
t2
APCo and WV Transco.
Because the various services provided by and through AEP-affiliated
13
t4
service providers to \A/l/ Transco and VA Transco will be provided at cost and
15
because services will be allocated on a cost-responsibility basis, WV Transco
L6
and VA Transco will receive cost-effective services under these arrangements on
t7
a basis that is fair and reasonable to the respective AEP-affiliated service
18
providers. Overall, each Service Agreement includes reasonable terms and
19
conditions, and does not give either party an undue advantage over the other
20
party and does not adversely affect the public in West Virginia.
2L
Q:
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
22
A:
Yes.
PUBLIC SERVICE, COMMISSION
of,'wrsr vmcnqH
cHanr,nsToN
CASENO. 10-0577.8-PC
APPALAEI{AI{ POWER COMPANY ANd WTIEEI,ING POq¡g* COMPANY. bOth,
dba AMERTCAN ErEcrRrC powER and AEp WEST VTRGTNTA q4\isMrs¡roN
COMPAI.trY,INC.
Application' f,or apBroval of arangements
atriong qffiliates relatgd to the operation of a
new public service corporation that will own
"|'
DIRECT TESTIM{)NY OF
JERAI,D R;BOTELER
JANUARY 6,20L1
Page 1 of 7
Introduction
1
2
Q:
PLEASE STATE YOI]R NA]\M, ADDRESS AND PRESENT POSITION.
3
A:
My name is Jerald R. Boteler, Jr. My business address is 1 Riversi dePlaza,
423i5. My current position is Director, Corporate Finance,
4
Columbus, Ohio
5
American Electric Power Service Corporation ("AEPSC"), a wholly owned
E)
zubsidiary of American Electric Power Company, Inc.
7
Power Company
I
I
10
("[PCo"), Wheeling Power Company ("W?Co"),
and AEP
West Virginia Transmission Company, Inc. ("WV ftansco") are also direct or
indirect subsidiaries of AEP.
Q:
PLEASE REVIEW YOTIR EDUCATIONAL BACKGROIIND AND YOUR
WORKEXPERIENCE.
11
12
("AEP"). Appalachian
A:
I
graduated from Millsaps College in Jackson, Mississippi
talgTg,where I
13
received a Bachelor's of Business Administation Degres in pinance, and from
14
the Cox School at Southeni Methodist University in Dallas, Texas in 1982, where
15
I received a Master's Degtee in Business Administration with a concentration in
16
Finance. From 1983 to 1985, I was employed by InterFirst Bank, N.A. in Fort
17
WorÍr, Texas in various commercial bank credit analysis and review positions. In
18
1985 I was employed by Oryx Energy, Inc. as a Financial Anaiyst and worked
19
various positions on the treasury staff of that company from 1 985 until 1996,
20
rising to Assistant Manager, Corporate Finance and Credit. In February 1996,L
21
was hired by Central and South West Corporatíon (subsequently acquired by AEP
22
in 2000), first as a Senior Financial Consultant, then as Manager of Project
23
Finance and Director of Project Finance. My responsibilities included raising
in
Page2 of 7
1
capital through negotiation of financing agreements for various gas-fired electric
2
generating projects. In July 2001, I joined AEPSC as Director, Whoiesale
3
Finance, supporting financing activity for the unregulated companies of the AEP
4
System. In Juty 2003,Iwas named Director, Corporate Finance of AEPSC. In
5
that capacity, I was responsible for capital markets activity for several of the
6
regulated utilities, establishing dividend recommendations and capifaltzatton
7
targets, and assisting in the management of liquidity for the overall AEP System.
8
In May 2007,lwas named to the same position for AEP and became responsible
I
for parent company financing and banking activities, as well as financing
10
activíties for AEP's tuansmission ventures and all leasing activity for the AEP
11
System companies; including utility subsidiaries.
12 Q:
13
WIIAT ÄRE YOUR RESPONSIBil,ITDS AS DIRECTO& CORPORATE
14 A:
I
15
raising programs of AEP, its non-regulated subsidiaries, and transmission
16
ventures involving the AEP system's non-operating companies.
17
responsibilities also include preparing recommendations for the payment
18
dividends by those companies, establishing caprtaßzatton targets, interest rate
19
hedging, and supporting the relationships of those companiss with the rating
20
21 Q:
22
FINANCE OF AEPSC?
am responsible for plaruring and executing the corporate finance and capital-
agencies, parbrers
My
andpublic andprivate investors.
HAVE YOU PREYIOUSLY TESTMIED IN ADIY REGT]LATORY
PROCEEDINGS?
of
Page 3
1A:
Yes. I have fiiéd testimony with the Indiana Utiiity Regulatory Commission in
Cause No. 43682 and vrith the
?
of 7
Virginia State Corporation Commission in Case
3
No. PUE-2010-00038.
4Q:
5A:
WHAT IS TIIE PURPOSE
6
APCo and' WPCo (collectively the Companies) and'WV Transco. Specifically,
7
will testif
I
I
Transco as a vehicle to make incremental additions to the existing Companies'
OF,
YOI]R DIRECT TESTIMOI\IY?
The purpose of my testimony is to support certain aspects of the Application
as to the
of
I
primary financial reasons behind the formation of WV
tansmission system. Given that WPCo has no public debt and is not rated by the
10
credit rattngagencies, my testimony wilt specifically address the furanciai
11
condition of APCo in relation to the WV Transco. In addition, I will address the
12
request of WV Transco to participate in the AEP
13
14
Utility Money Pool.
Q:
ARE YOU SPONSORING AI{Y PORTION OF TIIE APPLICATION?
A:
Yes. I am sponsoring Exhibits F-l and F-2 to the Application, a copy of the AEP
Utility Money Pool Agreement and a proposed
15
System Amended and Restated
16
Amendment to the AEP Utility Money Pool, respectively. I note that Exhibit F-2
17
is a legal document prepared by the AEP Legal Deparhnent.
18
Q:
THAT
ARE THE KEY DRTVERS
T]NDERLYING AEP'S FORMATION OF WV TRANSCO?
19
20
FROM A FINANCIÄL PERSPECTIYE,
A:
Vertically-integrated investor-owned utilities are facing a chalienging and
21
uncertain environmenl. APCo is facing simificant pressure to maintain its credit
22
ræings while, on the other hand, its capital spending needs are significant across
23
all areas of its utility business, including transnissior¡ and are projected to extend
Page4 of 7
If
1
over the next decade.
2
financed through debt issued by APCo, the increased debt burden could adversely
3
affect its financial cond,ition and cred.it
profile.
4
needed investment using WV Transco
will not adversely affect
5
condition and credit rating metuics of APCo.
6
Q:
On the other hand, financing this
the financial
WILL WV TRANSCO RECETVE BINANCIAL SUPPORT F'ROM AEP IN
CARRYING OUT ITS OPERATIONS?
7
8
these hansmission system additions were constructed and
A:
I
Yes. In the same manner that WV Transco will rely on AEPSC and AEP
Transmission for operationaVtechnical and managerial resources, rÀ¡V Transco
10
will
11
its abitity to suppiy, oï cause to be supplied capital. As widenced in its 2009
12
a¡nual report, AEP had revenues, assets, and common shareholders' equity
13
over $13 billion, $48 billion, and $13 billion, respectively, at the end of 2009.
14
Q:
HOW DOES THE F'ORMATION OF
\ilV TRANSCO
TTH',LP
of
TO RELIEYE
FINANCIÄL PRESSI]RES ON APCO?
15
16
also be able to rely on the financial resources of its ultimate parent, AEP, and
A:
Without WV Transco, the transmission projects that APCo is required to
17
undertake limit the amount of capital available for other needed investments by
18
APCo, including generation, tansmission in support of aging infrastructure and
19
dishibution projects. WV Transco is a company designed to focus only on
20
making transmission investments, and
21
only projects without being limited by the funding level available within APCo.
22
This will provide long-tenn benefits to West Virginia customers by ielieving
will
be able to pusue certain tansmission-
Page 5 of 7
1
APCo of the need to raise equity and debt associated with those projects, and.
2
preserving debt issuance capacity for APCo's other system needs.
3
Q:
4
5
DOES THE F'ORMATION OF'WV TRANSCO PRESENT OTHER
SIGNIF'ICANT FINÄNCING ADVANTAGES?
A:
Yes. This transmíssion-only structure provides
'WV
a tuanspareney
that is desired by
o
certain investors.
7
(collectively \ ¡ith the WV Transco, "Transcos") of AEP Transmission Company,
I
I
LLC ("AEPTCo"), would be solely in the business of planning, constructing,
Transco, and the other transmission subsidiaries
owning, operating and maintaining new transmission assets. This tansmission-
10.
only business will be a straightforward, fansparent business, meaning that
11
investors should be able to easily understand and assess it for investment
1Z
purposes. The hansparency comes from managing one type of electrical asset
13
opposed to operating three types of major electrical assets regulated by multiple
14
state and federal agencies.
15
businesses with shonger credit profiles and ratings. AEPTCo, representing the
16
combined financial sbength of its seven subsidiary Transcos including WV
17
Transco,
18
credit ratios and strong, stable cash
19
business, AEPTCo should be able to develop a stong credit profile as it builds
20
newtansmission assets and places them into service. Similarly, by freeing APCo
21
of the equity and debt capital-raising burden needed to zupport capital-intensive
22
new tansmission facilities,
23
of its annual expenditures, which in turn should enable APCo to better manage its
will
err"r,
as
to capital is aiso relativeþ easier for
need to establish itself asa stand-alone business with the necessary
'WV
flows. Over a period of time
Transco
will provide APCo with
as a
single-line
greater control
Page 6 of 7
1
credit ratios. These characteristics should help APCo obtain improved and
2
broader access to debt capital over time, in both weak and strong capital markets.
3
Arry long-terrn financing benefits, in the form of lower cost of debt, will
4
ultimately benefit customers.
5
Q:
PARTICIPATE IN TIIE AEP I]'IILITY MO¡I-EY POOL.
6
7
PLEASE ADDRESS THE REQUEST OF WV TRANSCO TO
A:
I
I
By Order dated January 18, 2001, in Case No. 00-0753-E-PC, the Commission
authorized the Companies to participate in the AEP Money Pool (now known as
the AEP Utility Money Pool) with other affrliated companies on the AEP System.
10
The operation of the Money Pool is designed to match, on a daily basis, the
11
available cash and borrowing requirements of each participant, thereby
12
minimizing the need for borrowings from external sources. On August 3,2004,
13
the Companies filed an application seeking the Cornmission's approvai
14
chariges in the AEP
15
financing subsidiary, AEP Utility Funding, LLC, as an additional funding source
16
for the AEP Utility Money Pool. By Order entered on Novemb er
17
Case
18
to participate in the AEP Utility Money Pool under the revised terms and
19
conditions detailed in the application.
20
Q:
23
Utility Money Pool, including the formation by AEP of
lI,
2004,
a
in
No. 04-I234-E-PC, the Commission authorized the Companies to continue
WHAT IS WV TRAI{SCO SEEKING IN THIS PROCEEDING
REGARDING THE AEP UTILITY MONEY POOL?
21
22
of
A:
In order to obtain the benefits eqjoyed by the Companies and its affìliates on the
AEP System, WV Transco norv seeks the Commission's authority to participate in
PageT ofT
Utitify Money Pool along with the existing participants and the other
1
the AEP
2
AEP Transcos. Except for the addition of WV Transco and the other new
5
participants, the terrns and conditions appiicable to the operation of the AEP
4
Utility Money Pool will
5
AEP
6
propose to execute an amendment to the AEP
7
copy of which is attached to the Application as Exhibit F-2.
be unchanged. Accordingly, the existing parties to the
Utility Money Pool, along with WV Transco and the other AEP
Transcos,
Utility Money Pool Agreement,
I
Q:
DOES TIIIS CONCLI]DE YOTIR DIRECT TESTIMOI{Y?
o
A:
Yes.
a
'
t
R"b.^tt^[
JRB ExhibitNo.
^
PTIBLIC SERYICE COMMISSION
OF \ilEST VIRGI}¡-IA
CHARLESTON
CASENO. 10-0577-E-PC
APPALACHIAN POWER COMPANY and WHEELING POWER COMPANY, both
dbA AMERICAN ELECTRIC POWER and AEP WEST VIRGINIA TRANSMISSION
COMPA}IY,INC.
Application for approval of arrangements
among affïliates related to the operation of a
transmission facilities
and
provide
transmission services.
REBUTTAL TESTIMO}IY OF
JERALD R BOTELER, JR.
.A,PRIL
{R0583288.1)
20,20t1
1
Page
1
2
3
4
5
6
7
I
I
10
11
12
13
14
15
16
17
18
19
20
21
22
23
I of4
Q:
A:
PLEASE STATE YOURNAME.
Q:
ARE YOU THE SAME JERALD R. ROTELER, JR. WHO F,ILED DIRECT
My name is Jerald R. Boteler, Jr.
TESTIMONY IN THIS CASE?
A:
Q;
A:
Yes.
WHAT IS TIIE PURPOSE oF YOUR REBUTTAL TESTIMOII-Y?
The purpose of my rebuttal testimony is to address several of the mischaracterized
statements put forth and discussed in the direct testimonies of Thomas D.
Sprinkle, on behalf of the Staffof the Public Service Commission of West
Virginia, and Byron L. Harris, on behalf of the Consumer Advocate Division of
the Public Service Commission of
Q:
'West
Virginia.
PLEASE COMMENT ON TIIE ASSERTION THAT THE SENIOR
MANGEMENT OF'AEP IS FOCUSED ON EARNING HIGHER
RETUR¡{S AND PROFITS FROM THE \ryEST VIRGINIA TRÄNSCO, AS
STATED IN THE DIRECT TESTIMONIES OF STAFF \ryITNESS
SPRINKLE AND CAD WITNESS HARRIS?
A:
AEP's Chief Financial Offrcer, Brian X. Tierney, is quoted in the testimonies of
Mr. Sprinkle and Mr. Harris, in reference to remarks he made on AEP's
3'd
quarter 2010 eamings call with AEP's analysts and investors. The witnesses
inaccurately conclude that Mr. Tierney's comments regarding a higher eamings
growth rate from transmission investrnent would be a direct result of operating
WV Transco. Rather, throughout the quoted presentation, the most significant
discussion regarding hansmission refers to the numerous projects that AEP is
{R0583288.1}
Page2 of 4
1
pursuing through its joint venture transmission companies, Electric Transmission
2
Texas
3
the transmission build by these entities dwarf the projected investment by
4
Transco.
5
Q:
(ETÐ
and Electric Transmission America
(ETA). The size and scope of
WV
WOULD YOU PLEASE ADDRESS THE COMMENTS MADE BY MR.
o
HARRIS REGARDING AEP'S ADDITIONAL EARNINGS DTJE TO
7
TRANSMISSION INVESTMENT?
I
A:
o
Mr. Ha:ris's Exhibit BLH-4 references
a slide
entitled "Capital lnvestment and
Earnings Profile", showing a graph of projected capital spending and andual
10
earnings potential. This slide was produced for the benefit of AEP investors who
11
use this information to make investment decisions regarding
12
stock. In his testimony, Mr. Harris highlights
13
AEP Transcos will produce $125 million of eanrings in 2016. The fact of the
14
matter is that, if these capital investments were instead made by the respective
15
AEP'operating companies, as opposed to the AEP Transcos, then the earnings
16
would be attributed to each respective AEP operating company. It should not be
17
viewed as an incremental earnings benefit to AEP as a result of the AEP
l8
Transcos.
19
Q:
21
A:
projection on the slide that the
i
DOES MR. IIARRIS REBUT YOUR TESTIMONY THAT \ryV TRANSCO
WILL ITELP ALLEVIATE FINANCIAL
20
a
AEP's common
PRESSURE,S ON APCO?
Not at all. Rather, Mr. Harris attempts to shift the focus of the discussion by
22
making statements about IW Transco's apparent desire to gamer FERC
23
incentives and "ratemaking candy". Mr. Harris's testimony offers no convincing
{R0583288.1}
(
Page 3
of4
1
rebuttal of the long-term financial benefits that APCo
2
formation of the WV Transco. The reality is that APCo's recent capital
3
expenditure program did result in depressed financial credit metrios for APCo and
4
severely threatened its investment gtade credit rating. As discussed by witness
5
Potter, while most of these large projects have been completed, APCo
6
continue to invest avery signifìcant amount of capital, and ís not immune to
7.
scrutiny by the credit rating agencies. The fonnation of WV Transco is meant to
I
be a proactive approach to help alleviate some of the financial pressures that
I
APCo faces as a vertically integrated utility.
will receive tltough
will
10 Q:
11
DOES THE TESTIMONY OF MR. HARRIS OR MR. SPRIFIKI,E OFFER
12
WHITE PAPER, SPECIFICALLY REGARDING TIIE II\TVESTOR
: 13
ANY REFUTATION OF'THE CONCLUSIONS IN THE TRANSCO
APPEAL FOR TRANSMTSSION.ONLY DEBT?
14 A:
Again, neither Mr. Harris nor Mr. Sprinkle makes any claim that challenges the
15
conclusions drali'n from the Transco White Paper. The report provides an
16
encouraging view of the Transco structure from the perspective of the investment
17
community. The enhanced investor appetite for transmission-only debt capital
18
may very well result in considerable debt capital savings. To reiterate, any long-
19
term financing benefits to WV Transco, in the form of lower cost of debt,
20
ultimately benefit customers. APCo's integrated asset mix cannot lay claim to
21
those same benefits.
22 Q:
23
CAN YOU PLEASE SUMMARIT,ETHß REASONS FOR THE
FORMA'TION OF \ryV TRANSCO?
{R0583288.1}
will
Page 4 of 4
1 A:
As stated in greater detail in the testimony of Company witnesses Potter and
2
Barton, AEP management is focused on maintaining and enhancing the reliability
3
of the transmission gnd in West Virginia, while also ensuring that the long-term
4
finances of APCo remain well positioned for the fliture. We believe that the
5
formation and operation of
6
help accomplish these objectives. We ask that the Commission review the
7
proposal to create WV Transco with due consideration to its expected net long-
I
term benefit to APCo customers.
'WV
Transco is a prudent and cost-effective stategy to
I
9 Q:
10 A:
DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY?
Yes.
{R0s83288.
r
}
CPExhibitNo.
^ cAsENO.
1
..:.:.
10.0577-E-PC
"î
:Ë'c,P-a
Page
1
of
13
IntroductÍon
1
2
a.
PLEASE STATE YOTTR NAME, BUSINESS ADDRESS AND TITLE.
J
A.
My name is Chris Potter and my business address is 707 Virginia St., Suite 1100,
WV 25301. I
4
Charleston,
5
Power Company (APCo ).
a¡n Vice President Regulatory and Finà:rce for Appalachian
6
a.
WHA'T ARE YOTIR PRINCIPAL AREAS OF'RESPONSIBILITY WTIII APCO?
7
A.
I am primarily responsible for managing the regulatory and financial strategy for APCo,
I
including planning and executing gte filings and rulemakings, and insw.ing that APCo
9
complies with the requirements of federal and state regulatory agencies.
I
am also
10
responsible for managing APCo's financial areas to enflre that adequate resources such
11
as debt, equity and cash are available to
12
assets
13
a.
build, operate and maintain the electric system
providing service to retail and wholesale customers
PLEASE DESCRIBE YOI]R EDUCATIONAL AND PROFESSIONAL
t4
BA.CKGROI]ND.
15
I
t6
University (CCSÐ
l7
Central Power and Light Company, now AEP Texas Cental Company (TCC), as an
18
intem in the Budgeting section of Accounting. In November of 1991
t9
position
20
coordinator included monthly closing of TCC's financial books, preparation
2T
financial statements and implementation of various mainframe systems used in the day
22
to {ay operations of TCC. hr July
23
Services, Inc. (CSWS) as the Closing Coordinator of TCC and Southwestem Electric
received my Bachelor of Business Administration degree from Corpus Christi St¿te
of
in 1991. lVhile
attending CCSU
General Ledger coordinator
oî
I
was employed by the fomrer
I
accepted the
for TCC. My duties as General
Ledger
of external
1994'I hansferred to Central and South West
Page z of
In June of
I
n
1
Power Company (SWEPCO).
2
Consultant for CSWS but maintained the same Closing Coordinator responsibilities. In
J
March
4
Pricing/Costing Consultant. In October of 1996,I was promoted to Project Manager in
5
the Pricing/Costing deparbment and in May
6
Manager. In June of 2000, with the consummation of the AEP/CSW merger, I accepted
7
the position of Principal Regulatory Consultant for AEPSC. In August of 2003, I was
,
8
of
!996,
I
transferred
was promoted
to the CSWS Pricing/Costing
of lggg,Iwas promoted
to Accorurting
department as
a
to Senior Project
promoted to Manager in the Regulated Pricing and Analysis deparhnent where my
responsibilities included managing
9
1995,
qicing and costing resources for rate cases,
10
regulatory filings and rulemakings, as well as provide pricing and costing services to
l1
APCo and other AEP electric utility operating companies in the areas of regulatory
t2
analysis, cost of service studies and rate design.
13
Director
14
of the state regulatory filings. In June of 2010, I accepted my current position of_Vice
15
President
t6
a.
kr May of 2007,I was promoted to
Regulatory Case Management with oversight authority for predominantly atl
-
-
Regulatory and Finance for Appalachian Power
HAVE yOU PREVIOUSLY TESTTF'mD BEFORE AI\¡-y REGIILATORY
t7
COMMISSIONS?
18
Yes, I
l9
Corporation Commission, the fukansas Public Service Commission, the Louisiana
20
Public Service Commission, the Oklahoma Corporation Commission, the Public Utility
2t
Commission of Texas, the Federal Energy Regulatory Commission and the Tennessee
22
Regulatory Authority.
23
0.
have sponsored testimony before this commission, the Virginia
ARE YOU SPONSORING ANIY EXIIIBITS?
State
Page 3 of
1
A.
13
Yes. CP Exhibit No. 2 is Additional Infoniration (AÐ submiued by APCo, Wheeling
2
Power Company (WPCo) and AEP West Virginia Transmission Company, Inc, (WV
3
Transco). This was filed with the Commission on October 22,2010 in Case No. 100577-E-PC
4
5
a.
WHA'T IS TIIE PURPOSE OF YOUR DIRECT TESTIMO}IY?
6
A.
I am testifying on behalf of APCo and WPCo (collectively the Companies) in support
'West
7
of the application they filed with AEP
I
Transco) to authorize WV Transco to own and operate transmission inveshrents in the
9
Companies' sen¡ice area. I
will
Virginia Transmission Compan¡ Inc. (WV
discuss:
10
o
APCoos financial position today, and its anticipated capital needs in the flrture;
11
o
The distinct roles of the Companies' participation within PJM and how these
t2
roles
.
13
will
be affected by the formation of WV Transco; and
The impact on West Virginia retail customers of
$f[
J¡ansço building and
t4
operating tansmission assets in the Companies' West Virginia service territory
15
as discussed
in the AI filing.
16
Additionally, due to my prior responsibilities and work assigrrments, I am qualified to
77
discuss the contents of the
l8
a.
AI filing.
DO TIIE COMPANIES SrippORT WV TRANSCO BUTLDING,
t9
OPERATING TRANSMISSION ASSETS
20
F'OOTPRINT?
2T
A.
Yes. As
discussed
IN TIIEIR
OwlIINc, A¡[n
TRANSMISSION
in detail by Company witress Barton, 'WV Transco will provide
22
benefits to the Companies and their West Virginia retail customers, as well as to all
23
V/est Virginia retail customers \r'ithin the PJM footprint, Notably, WV Transco will
Page 4 of
13
will allow for more
1
decrease the transmission capital burdens on the Companies, which
2
fmancial flexibility to make the necessary generation and distribution investments to
J
maintain and enhance reliabilify
The planning and operation of AEP's transmission system in West Virginia will
4
it is today, and the Companies will
5
continue to be performed in much the same way
6
continue to be responsible and accountable for the safe and reliable delivery of retail
7
electis serviqe in West Virginia. WV Transco will comply \¡¡ith all of the applicable
I
requirements
9
the approval of its transmission projects. With respect to the statutory exception from
10
the requirements in W.Va. Code $$24-2-ll and 24'2-I1a to obtain certificates of
11
convenience and necessity that ex-empts "ordinary extensions of existing systems in the
12
usual course of business,"
13
of projects that would be used by APCo and WPCo, treating the tansmission systems
L4
in West Virginia of APCO, WPCo, and other o\fircrs as the applicable existing systems.
15
In addition,
16
pursuant to the PJM planning process
t7
system users throughout the PJM
18
in West Virginïa.
of West Virginia laws, regulations, and administrative
'WV
'WV
orders regarding
Transco intends to use the same standa¡ds and analyses
Transco's participation in necessary transmission projects constructed
will provide reliability
benefi.ts to transmission
fooþrint, including the Companies' retail customers
APCo's Financial Position and Capital Needs
19
20
a.
PLEASE DISCUSS APCO'S CTTRRENT FINANCIAL CONDITION.
2t
A.
Over the past decade, APCo has undertaken a very subst¿ntial capital expenditure
22
program to upgrade its coal-fired generation plants and add required environmental
23
controls to keep the plants runni¡g. Additionatly, APCo has made substantial capital
Page 5 of
13
I
iirvestments to its transmission system, including the 90-mile Wyoming-Jacksons Ferry
2
765-kV transmission
J
financial profile for APCo, and in particular, weak cash flow metrics. In early 2008,
4
Moody's changed APCo's rating outlook from Stable to Negative, threatening to push
5
APCo's credit rating to one notch above non-inveshent grade
6
APCo's outlook has since been changed back to Stable, the prospect of increasingly
7
stringent environmental regulations on APCo's generation fleet, in addition to needed
8
capital investrnent
9
solutions outside of its traditional way of doing business.
10
0.
These significant capital programs resulted
in tansmission and distribution,
in a strained
if not lower.
has caused APCo
While
to look
at
\ilILL WV TRANSCO FINANCE ALL O[' THE NEW TRANST{ISSION
II\¡-VESTMENT IN THE APCO F'OOTPRINT?
11
12
line.
A.
Not neèessarily, although the intent is that 'WV Transco will construct most of the
13
significant projects, as discussed by Company witness Barton. The Companies expect
l4
that they
15
minor in nature, primarily consisting of refl¡rbishment or replacement of existing assets.
16
The major difference between the Companies and WV Transco financing these projects
t7
is that the Transco can devote all of its capital resources to the transmission function
18
while the Companies, especially APCo with its extensive generation, transmission, and
19
dishibution system, would have to allocate their scarce capital resources among the
20
various functions of a vertically inægrated utility.
2l
22
a.
will
continue to add transmission capital assets, but that those would be more
HOîV \VILL WV TRANSCO'S FINANCING F',OR TIIE
REQTITRED
TRANSMISSION CAPITAL AFFECT APCO'S FINANCIAL SITUATION?
Page 6 of l3
14.
By having WV Transco finance certain transmission irrn"r'no"nts that rvould have
2
otherwise been built by APCo,
J
APCo. The importance of keeping APCo's credit rating at an investment grade should
4
not be underestimated. Non-invesünent grade utility companies not only have limited
5
access to capital, but they are required by investors to pay higher interest costs on the
6
debt capital raised, thereby increasing the cost
7
customers, as discussed in the direct testimony of Company witress Boteler.
a.
à, nouoriut pressure on
of debt service ultimately paid by
PLEASE DESCRIBE TITE VARYING ROLES
TIIE
COMPANIES
FILL IN
THEIR PARTICIPATION IN PJM?
10
11
some of
The Companies'Roles within PJM
8
9
it wilt help alleviate
A.
As a vertically integrated utility, APCo cunentþ has 3 distinct roles within
PJM:
t2
Generator, Transmission Owner, and Load Serving Entity (LSE). .WPCo has no
13
generation but
t4
credits that the Companies incur resulting from each role.
15
0.
A.
Q,
22
AS A
GENERATOR
BE AFFECTED BY TIIE
No.
APCo's participation as a generator will not change due to the formation of WV
\ilILL
APCO,S OR WPCO'S ROLES AS TRANSN/ilSSION OWNERS BE
AIT'ECTED BY TIIE FORMATION OT'WV TRÄNSCO?
20
2l
ROLE-
Transco.
18
19
WILL APCO'S
and an LSE. There are va¡ious charges and
F'OR.ru.a*TION OF WV TRANSCO?
t6
17
it is a Transmission Owner
A.
Yes, but only to the extent that WV Tranôco inveshnent will replace a portion of the
Companies' future transmission investments. The Companies will continue to recover
.
Page 7 of13
I
their transmission costs in PJM in the same manner as they do today. This process is
2
described more fully in CP ExhibitNo. 2
3
a.
FORMATION OF \ilV TRANSCO?
4
5
WILL APCO'S OR WPCO'S ROLES AS LSES BE AFFECTED BY TIIE
A.
No.
As LSEs, the Companies purchase wholesale tansmission service from PJM.
6
These charges áie based upon the investunents and expenses of all of the Transmission
7
Owners within PJM and are allocated to each LSE according to the
8
charges
9
PJM hansmission system, whether it be APCo, WPCo, WV Transco, or another party.
10
a.
will
pfU OATT. These
continue to be incured by the Companies regardless of who invests in the
DO YOU ÐßECT THE CHARGES TIIE COMPANTES INCT]R FOR THE
11
PROVISION O[' TRANSMISSION SERVICE TO RETAIL CUSTOMERS TO
72
CHANGE SIGNIF'ICAI\¡TLY DT]E TO THE FORMATION OF }W TRANSCO?
13
A.
No.
Because the Companies and
WV Transco have similar formula rates,
the
t4
incremental West Virginia LSE charges for wholesale transmission service received
15
from PJM will not be significantþ different for new transmission
16
regardless of whether APCo, WPCo, or WV Transco makes the invesünent. This topic
17
is more fully described in CP ExhibitNo. 2.
investments
Page 8 ofl3
Retail Cost Recoverv and Comparison
2 a.
rs a poRTroN oF pJM SYSTEM TRANSMISSTON COSTS ALLOC,A,TED TO
3
TIM COMPANIES?
4 A.
Yes.
5
transmission costs based on their usage of the fransmission system.
6 Q.
HOW DO TrrE COMPANTES RECOVER THESE PJM TRÄNSn{TSSION-
7.
RELATED COSTS?
8 A.
g
They do not directþ pass their PJM-OATT costs through to retail customers at this
. 10
of
Because the Companies are LSEs within PJM, they are allocated a portion
time. PJM-OATT costs (which in the future maybe partly derived from'WV Transco)
are included as a component
of the Expanded Net Energy Chæge GNEC) and
are
11
netted against the OATT revenues received from both affilia-ted and non-affiliated LSEs
12
through the recently modified Transmission Agreement.
13
revenues that are included in the ENEC.
It is the net of these costs and
L4
Currentþ, other than the net tansmission cost/revenue described above, the
15
Companies recover the return on and of the S/est Virginiajurisdictional share of their
16
tansmission invesbnent and associated expenses as a component of base rates. In the
17
future, the Companies believe that
18
incur under the PJM-OATT for the provision of transmission service to West Virginia
lg
retail customers from those customers.
20 a.
WILL TIIE
COMTVilSSION'S JURISDICTTON
2I
RECOVERY
OF PJM.RELATED TRANSMISSION CHARGES
22
.DEPENDENT
it would be appropriate to
recover the costs they
OVER TIrE RETATL
ON WHICH TRANSMISSION COMPAI\Y NWESTS IN PJM?
BE
Page 9 of
I
A
No.
The Companies
will
13
be charged their LSE costs for transmission service regardless
2
of who invests in the transmission system. Recovery of these costs will be under the
J
jtnisdiction of this Commission regardless of who makes tansmission investments in
4
PJM.
lmpact on Retail Customers
5
6
a.
PLEASE DISCUSS THE DIFFERENCES
IN THE COMPANIES'
RETAIL
IN
THE
7
RATES RESI]LTING FROM AI\I INCREMENTAL IFMESTMENT
I
TRANSMSSION SYSTEM MADE BY TTIE COMPANMS YERSUS THE
9
SAME INCREMENTAL IIYVESTMENT MÄDE BY WV TRANSCO.
10
A.
Since the APCo and WPCo retail rate impacts are similar,
I will focus
on APCo's
11
situation in the examples below since it o\ilns a far more extensive transmission system
12
than WPCo.
13
currently determine the retail costs for ratepayers. The first is the State Annual
l4
Transmission Revenue Requirement (SATRR). The following table from CP Exhibit
15
No. 2 details the SATRR calculation in West Virginia for the hypothetical $40 million
T6
inveshent described in the pro-forma example. It uses APCo's most recently approved
t7
ROE in West Virginia and current company data for capital structure and cost of debt.
18
This calculation results in a SATRR of 56.327 million as sho,¡m in Tabte 1 below.
If APCo makes the new investments, there are two major components that
Page
10
of l3
Table 1:
State Annual Transmission Revenue Requirement
lAPicõTn
lncrementalAddition in Plant ln Service - State Level
Preferred Stock Rate
Long-Term Debt Rate
Short-Term Debt Rate
6.042o/o
0.889o/o
42.6380/o
Common Equity 7o Cap Structure
0.280Yo
Preferred Stock % Cap Structure
Long-Term Debt % Cap Structure
Short-Term Debt % Cap Structure
Pre-Tax Cost of Capital (%)
53.422o/a
3.659%
7.750o/o
3,0gg,g50
Pre-Tax Cost of Capital ($)
-
o&M
Depreciation Expense
F¡T
State/LocalTax
Revenue
I
10.500%
4.352T0
State RetailROE
2
/
40,000,000
1,400,000
664,000
964,281
198,979
on State
The second component thæ determines the retail costs to rate payers is the net
J
of
4
the OATT revenue it receives and expense it incurs from PJM. Because APCo is both a
5
Transmission Owner and an LSE
6
Transmission Owner) and incurs expenso (as a LSE) from PJM. Using the pro-forma
itr PJM, APCo both
receives revenue (as a
analysis in CP Exhibit No. 2, a $40 million dollar APCo-ÍWV fansmission investnent
I
in PJM would leld an OATT revenue to APCo-WV of approximately fiA.Zøl millioa
9
However, using this example, the APCo-WV LSE would also be liable for its allocation
10
of incremental OATT transmission expense for the full invesünent in the amount of
tl
t2
.
approximately $6.596 million. These amounts net to $164,898 of revenue that APCo-
WV would receive from PJM. In other words, APCo is a net rçceiver of $164;898 from
Page
tt
oftl
I
PJM due to the incremental investment in the example provided in this discussion. This
2
$164,898 is then deducted from the $6.327 mitlion SATRR for a net cost to APCo-WV
J
retail customers of $6.162 million.
4
The
WV Transco build
case is much more transparent. The
APCo-WV LSE is
5
simply charged its allocation of incremental OATT transmission expense, which is the
6
approximate $6.646 million calculated using the
7
Exhibit No.
I
transmission expenses that are recovered from retail customers.
9
2.
WV Transco fomtula rate in
This expense would then be included as part of APCo's total
Table 2 below summarizes the two build scenarios and their respective impact
I represents
the cunent state ín which APCo-WV
10
on APCo-WV retail customers. Case
1t
makes the $40 million investnent and recovers the costs through base
12
represents this sa¡ne investment made by WV Transco.
13
CP
Table
2: Impact
rates. Case
2
of Investment on APCots Retail Customers
lmpact of lnvestment on APGo's Retail Gustomers
Case
Company lnvestement
PJM Cost Recovery Rider
1*
2
APCo
\Â/V Transco
No
N/A
6,761,115
PJM OATT
Revenue
t4
* Gase 1 is the current scenario
15
As Table 2 reflects, given the cr:rrently approved recovery methods, the annual
16
hansmission cost to retail customers would be slightly higher for the same capital
l7
investnent
if it was made by WV Transco than if it were made by APCo. This
Page
12
of
13
1
represents an incremental amount to the typical residential customer; approximately 3
2
cents per month
J
increase, there are reasons
4
revelse over time.
5
lower
6
Transco should produce a stronger credit rating, allowing
7
debt than APCo.
8
a.
for a customer that uses 1000 kWh per month. While this is an
It is reasonable to expect that 'WV Transco's
PLEASE DESCRIBE THE DMFENNNCE
it to achieve
I[' TIIE PASS THROUGII
11
TRÄNSMSSION CIIARGES \ryERE APPROVED.
for WV
a lower cost
of
OF' WIIOLESALE
Table 3 below compares the cost to retail customers for the same two cases
if
be
TIm SAME INCREI/ffiNTAL INVESTMEIIT MADE BY
APCO AI\D \ryV TRANSCO
A.
of debt will
IN COSTS TO APCO'S RETAIL
10
t2
cost
over time when compared to APCo because the single business model
CUSTOMERS F'OR
9
to believe this rate difference will diminish and possibly
a pass through mechanism were approved for APCo.
as discussed
If the Companies
13
above
T4
allowed to recover the wholesale transmission charges they incur for the provision
15
transmission service to their West Virginia retail customers, the difference in cost to
t6
those retail customers would nearly be eliminated as shown
t7
Additionally, under a pass through methodology any of the WV Transco cost of capital
18
advantages resulting from the lower debt cost discussed above would
19
the customers. This comparison illustrates the fact that
20
Transco that causes a difference in cost of tansmission service, but rather the differing
21
treafrnent of those costs in retail rate making proceedings.
22
were
of
in CP Exhibit No.2.
flow directly to
it isnot the existence of the WV
Table 3: Impact of Investment Case on APCo's Retail Customers
Page
13
of
13
lmpact of lnvestment on APCo's Retail Gustomers
Case
Cornpany lnvestement
PJM Cost Recovery Rider
3
4
APCo
\¡lMTransco
YES
YES
1
Summary
2
J
a.
PLEASE SUMMARIZE THE BENEF-ITS TIIAT YOU BELIEVE WV
4
TRANSCO BRINGS TO THE COMPANIES AND THEIR WEST VIRGIIIIA
5
CUSTOMERS.
6
A.
WV Transco will provide benefits to the Companies and their West Virginia customers
7
with little or no impact on retail rates, regulatory oversight, or the way transmission
I
projects are planned or built. The formation of WV Transco
9
the financial health of APCo, in particular by removing the financial burden
will
assist in süengthening
of
10
constructing transmission upgrades that are needed to maintain and enhance reliability
11
in West Virginia. Further, the improved financial health of the Companies will provide
12
them with the financial opporlunity to allocate more capital to projects designed to
t3
maintain and enhance their generation a¡d disnibution systems. Discretionary projects
t4
that may not be undertaken by the Companies
15
in additional jobs, tax base and íncreased reliability for the state. These benefits will be
t6
made possible without any signiflrcant impact to the costs bome by the Companies
t7
West Virginia retail
will, if
undertaken by WV Transco, result
"urtom".s.'
18
a.
DOES THIS CONCLUDE YOUR DIRECT TESTIMOIYY?
19
A.
Yes, it does.
cP f*nbn ¡¡o.
rn
WILLIAMC.PORTE
ATTORNEYATT..TW
P.O, BOX l79l
CIIARIESTON,WV 25326
ROBINSON
&McELWEE
--
DTRECTDIAL; (304)347-t34'0
E-lvl{IL: wcpt?ùramlawcottl
October 22,2OlO
BY IIAND DELTVERY
s{rÊ4 H't sËf
eZ
zffft
F$Ë
Ð{Éc sEË Þxç
Mrs. Sandr¿ Squire
Exeoutive Secrctary
West Virginia PublÍc Seryice Commission
20l Brooks Steet
Charleston,Wv 25301
Re:
Appalachtan Power Comparcy, Wheelìng Pov'er
C ompany, and AEP West Wrglnta Tv anrmßsí on
Company,Inc,
Case.No.
Dcar
e
l0-0577-E-Pç
Mrs. Squire:
On Oetober ,zOLO,in compliance with tbe Conmission's August 4, 2010 Order,
Appalachian Power Company and Wreelíng Power Compatry ("the Companies') filed a
teiær sating.-thst, b)¡ Ostob€r 22, ZOhL, they wolld file ür the abole-refcrgq^ccd
proceeding Uiê ø¿iüon¡at information whioh was the subjeot
motion
of their'July 19,2010
I
now file the original "nd twelve (12) copies o{ the AI}DITÍONáL
INI'oR1IIATION SI]BIflTTED BY APPALACIIIAN POWER COMPAI{Y'
1THEELING POWER COMPANY, A}[D AEP ìVEST VIRGINIA
TRA¡{SMISSION COMPAIIY, INC, In fi¡¡ther compliance wirhthp Commission's
August 4É Order, thc Companies will consult wítb the-othe,t parties about a proposed
ffi-
procedural sohedule for fiuther proceedíngs in this dooket.
(w.v¿ sørsBn#2943)
.
Counsel for Appalachían Power Company'
Wheelíng Power CompanY, and
AEP West VÍrgíniaTransmission Compaoy,Inc.
'WCP:dlm
Enclosures
--
---
CEARLESTON, WV 25301 ¡ (304) 344.5800
263s2 r efr.)6zz-s0z:2
r
StrEBT.
r-EaD.CEl¡rEn ¡
cc: 4oa¡¡[¡rfi
¡tçrv¡c'ftd"il¡ÈbrMArNsrREEr¡rffi.ffii#U
1R0534379.U
700 vTRGINIA
EAST
wt
CP Exh¡bit No. 2
:
PIIBLIC SERVICE COMIVfi SSION
OF \ilEST VIRGINIA
CHARLESTON
cAsD NO.10-0577-E-PC
Joint Petition for consent and approval of
Anangements among Affliates Related
to the operation of a New Fublic Service
'
Corporation that will owu Transmission
Facilitics and providc Transmission Services.
ADDITIONAL INT'ORI{ATION STTB1VIITTED BY
APPALACHTAN POWER COMPAITY, TVruELING POWER COMPAI{Y,
AND AEP 1VEST VIRGINIA TRANSIVfi SSION. INC.
.
Intrcdnction
Since AppalachianPoser Company and WboelíngPower Company
.andsometimes
('the Companíes"
jrst*APCo') andAEP WestVirginiaTransmissionCompan¡ Ins. ñledtheir
applicatíon on April 23,20l0,the Compauies' represeirúatÍves have met several times wÍth
¡u¡\ryer questíons and provÍde
additional information about the AEP Transco proposal. The focus ofthe 4æstions posed by the
Staffand the ÇAD was how the AEP Transco proposat would affect the cost ofta¡smissíon
servioe paid by retail customers ín West
Virginia lhe
purpose
ofthís supplemental filing is to
providc additional i¡foruation aboutthe lransco mechanisn and its intended ope,ration and íts
orpeotcd impact on customøs. When the alloc¿fíon oftansmission expenses and revenues is
discussed in this documen!
it is assumed thatthose allocations are made pursuant
ûo
the
provisions of thc Amended AEP Trmsrnission Agreeinent ('Amended TA"), as cont¿ined ín a
settleme¡rt agreement now pending ap'proval in FERC Docket No. ER09-12?9.
(R0J33969.t)
CP Exh¡bit No.2
ft1
5,rmmflr/, both the AEP operatíng companíes ('OpCos") and the AEP Transco
eompanies ('Transcos") use a common transmission cost-of-service formula'rate methodology,
.'
which will produ.c€ comparable annual üansmission revenue requirements ('ATRR") for new
tansmission inveshnents whether thåy a¡e owned by OpCos or Transcos. In the course of this
supplemental filing, the Companies use as an illustìation a h¡pothetical investuent of $300
million in tansmission facilities and compare the üeaürent of that investnent tinder two
soenarios
-
if it were made by the OpCos and if it were made by the Transcos. The analysis
('NTS") expense incr¡rred by APCo-WV
shows that ttre annual Nelwork Transmission Service
for $300 millíon of new AEP Zone trar¡sinissíon ínvestnoents v¡ilt vary by less than $50,000
under thc two sceirados.
At the West Virginia retail level, uùere APCo and rffPCo annr¡al electic revenues are
cnrte,ntly approxímately $1.2 bitlion" a total cost difference of $50,000 amounts to about O.}MVI,
which would be less than hatf a cent per month for
kWh per month. 'lnis
il
a
t¡pical residential customer r¡síng 1,000
a small dmount in any case, but especíalfy when viewed relative to the
benefits provided by the AEP Transco ¡noposal: a financÍalty sEonger APCo that, together with
AEP WV Transco, will be able to make the inveshents needed to enhance service to West
Virgínía crstor¡ers. Additionally, there are reasorur to believe that thís cost difference
will
¿iminish over time and perúaps even reversË.
How the cost and revenue flowg from transmission lnvestmenfu Egrktodav
To ass€ss thc proposed Transco mechanism, one first needs to review how ¡evenue and
elpense orrnently flow as a result of i¡vpsüne,lrts in ransmission, focusíng on the roles
,
operating company within PJM and under its OATT.
t1
ofan
is ìmFortant to note that all the costs
assooiated with the new tansmission investuents considered in this review are æsumcd to be
(R0533969,1Ì
GP Exh¡bit
No.2
allocated 100% to the AEP Zane, i.e.,that they aro "zonal' costs, rather thaa'?JM regionalized"
costs. The illushated impacts would be reduced if PJM were to allopate cost responsibility to all
PIM zones (in effectto socialize them) or ûo certain zones ontlre basis of i'dentified benefits.
To start the process, each AEP East operating company's exístíng fuansmission rate bæe,
projeoted new plant-in-service additions, and expenses are entered into the AEP East operating
companíes' PJM O,{TT formula rate, rezulting in the ATRR needed to cover all expenses
(de,preoiation and taxes included), and províde a faÍr return on the tansmissioninvestment The
sr¡m of the AEP East operating oompani€s' ATRRs, collectively thc "Total OpCo
ATRR", is
rolled iato a single NTS rate for the AEP Zone. Thís process occurs annually, starting in May
vlhenthe resutts ofthe annual formuld rate update are publíshed. The annual update is reviewed
with all inærested parties at a meeting in June, and all interested parties are afforded af least 150
.
days úo make discovery requests. There is a defined period druing whioh any issues aan be
infonnally resolved
as
well
as a
formal resolutÍonprocess, ifone is ne€d€d. Alf ofthesc
procedrues are in addition to thc staadârd rate challenge righe that parties have rmdcr FERC
rules and rcgulatíons. Inportantly, the formula rate mechanism also includes a true'up.procæss
(uùioh is similar to the over/trnder r€covery proccss in the 'lVest Vírginía EI¡EC)
the
úo ensure
that
Toal OpCo ATRR collected from customers reflects the acfual ûansmissíon cost of se,rvice
ofeach operating comparly. The anrrent OpCo fomrula rate and prooedures wþre developed in a
procecding at the FERC, where intercsted parties partícipated and a settlement was reaohed and
rece,ntly approved, in FERC DocketNo. ERQS-1329.
PJMprovides NTS to Load Serving Entities (T.SEs') and collects a load ratío share
(deternined by the annual,coincident peak or "1 CP" method) of the Total OpCo ATRR ftoar
eac,hLSE. Based on cwront
(R0533969.r)
1 CP levels, AEP, and thereby its native load
customøs, ís
CP Exhiblt No. 2
alloçated some 86.7% of the Total OpCo ATRR expense and other zonal LSEs (uåolesale
customers) a¡e allooated some 13.3%.
PJM pays to AEP the r€venue it colfeots for NTS provÍded to all LSEs iu the AEP 7-one,
to satisfy the Total OpCo ATRR. Pt¡¡sua¡t to the A¡aended TA, AEP allocates this fransmissíon
revenue to the AEP East operating companies oo the bæis of how much each company
confributed to the Totalopco
ATRR
AEF allocaæs the assosiated NTS expense to the AEP East operating companíes based
on theit AEP load ratio sha¡es (determined by the twelve coincid.ent peak or "12 CP" method per
thE Amended
TA).
The NTS charges arc reduced by relatívcly minor amounts of poínt-úo-poínt
tfansmission service revenues oollected by PJM on tb¡ough-and-out tansactions, the proceeds
which arc allocated to LSEs'as
Finatl¡
a
credit against their NTS chæges.
of
i
each AEP East operatíng conpany has some regulatory mechanism for collecting
those costs tbrough their retaíl rates. The retail
ratemdng mechanisins díffer from støte to
state.
In lVest Virgini4 rotum on and oftranmission invesünent and expenses inourred by APCo-WV
are included, in a base rate case. In addition, the Companies would includs in retail iates the
allooatnd nst of OATT tevenue and NTS expense.
s€rrico paid by the Companies'
and
tadition¡l
retail
I¡
thís regard, the cost for tansmission
in West Virginia is a blend of ths PIM OATT
state ratemaking processes. In their pending basp rate oase, the Companies are
pfoposíng to ohange this finnl step by estabtishing a Eans¡nission cost tacking process that
will
re¡over or refirnd OATT hansmission cost under- or over-r€coveries, kuing up retail rates to
aptual RTO hansmission coSts.
{R0533969.rt
CP Exhibit No' 2
The nrônosed Transco mechanism would foqow the s¡me basic steps.
For each of the AEP Transcos, its tansúission rate base, projeoted new plant-in-service
additions, and expenses are entered ìnto the AEP Traræco's PJM OATT formula rate, resulting in
the ATRR needed. to cover all erpenses (dépreoiation
and.
ta:res included), and provide a
fair
retumon the Transcos' tansmissíon ínvestnent. The sum of the AEP Transcos' ATRRs ('Totat
Transco ATRR') is rolled into the síngle NTS rate for the AEP Zone. The Transco formula rate,
pursuant to â s€ttlement filed in FERC DocketNo. ERI0-355-00Q is mechanically the same and
follows the same procedrues
as the
AEP OpCo formrrla
raûe,
PJM colleots each AEP Zone LSE's load sha¡c (under the 1 CP metho-d) of the Totat
Transco ATRR as part of the rate it charges for NTS, and pays this revenuc to AEP, to satísfr the
Total Tra+sco ATRR.
.
AEP allocafcs *his NTS Íevenue to the AEP Traucos on the basis of how nuch each
Tra¡sco couüibuted to the Total Transco ATRR. The Transcos are entítled to receíve this
reveilrue beoase they made the rate base ínvesments and incr¡ned the expenses for the
new
üæsmissionftcilítíes.
AEP alto€stî the Transco-relatedNTS e:qpenselo tho AEP Eastoperating compaiies
according to the A¡nended TA base.d on load sba¡e (under the 12 CP method), just as ít does for
thc
Nfil
expÊnse relatcd to OpCo
invesheirts
h West Virginia, the Companies
NTS
tevenue
propose to include in their retail rates the Transcos'
allocated to the Companies as a fransmission expense. However,
f¡vçshrents and expenses underlying the Transcos' ATRR and the associated PJM OATT NTS
revenues, whích would appear on the Transcos' books would not be ssst somponents in rate
proceedings for ttre Companies.
{R0t33969.1}
CP Exhiblt No. 2
.
The nro formd anplvsis
Exhibit 1, attraohed hereto, is a pro forma analysis that evaluates the APCo-WV cost
impacts of
$3
00 million of new AEP Zone tansnlission investmenÇ models how it would flow
through ttre various ratemaking steps, and, ultimately, be charged to West Viiginia retail
oustomers. Inthe Transco Build Case, the $300 million invesfrhe¡rt is spread between the fïve
AEP Transco companies in PJM. ln the OpCo Build Case, this same $300 m¡lt¡s¡ invesû¡ent in
new ûansmission is'made by the corresponding operating companies.
ì
Comparison of the OoCo end Transgo P.IMOATT F'oruule RsÉe¡
It shoutd be e,mphasized th¿t the formation of the Transcos wilt not affect how
fuansmission projects are planned or built and does not change tlre regulatory oversíght. AEP
wÍll interact in the
sa¡ne way
with tbe üdemal stakeholdø proçesses aqd State regulaton will
hqve tbe same oversight over uihat gets built (sitirig, permi,ttìng, certiñcation, quatity of service,
etc.). The same people (ÄEPSC and opcrating company employees aod contractors) will be
providíng tbe same servíces at the same costs. The same procedures and allocation factors
be used to allocats overhead cssts and purchase materials. Real estate and rigþt+of-way
will
will be
acquircd inthe same maûner.
The two fon¡rula rafes (AEP OpCos' and Transcos') a¡e very simila¡ and would produco
a simílar Total ATRR for thc same invesÍnents for tbe following three reasçns:
' l)
The inputs to the forürula rates are similar. The capital cost and ongoing
projec'ts
Transso.
(R05339ó9-tÌ
will
be the sarne regardless
O&M costs of
of whether the project is owned by an OpCo or a
CP Exhib¡t No. 2
2) The fonnula mechanics (ho¡¡, the formulæ work) æe similar.
If one looks
rates approved for the OpCos and as qettled for the Ttanscos, one
will
at the formula
see that the
mechanícs ofthe Transco formula rate are the same as those ofthe OpCo formula rafe.
3) The calculations of the ATRR æe simìlar'. The retr¡rn on equity ("ROB") included in the
Tra¡sco for¡irula ræe is the same as that contained in the OpCo formula rate. Fr:rtlrer, the
Transcosl weighied average cost of capital
('V'ACC')
is in tíne with the cost of capital
of the OpCos. The table below shows ttre WACC in eash fomrula rate from ttre latest
aonual forrrula rate update (July 2010). In addÍtion, over the long term, lve expect the
Traûscos' WACC to be lower than the OpCos' due to reduced cosb of debt. For
exanrple,
if a Transco can achieve an'A' oredit rating, the average
of debt between
'A'
and
in tlre cost
'BBB' utilitieg (uihioh is 0.63% sinoe 2008)l would tanslate
irito approximdely $1 million ofannual ínterest savings on $300
-ittion oftotal
ihveshcnt
ÌVACC ComparisonTable
Operating Cornpany OATT
FERC Dock;t No. ER08-1329
Pre-tax
wAcc
csP
oPCo
¡&M
ÂPCo
KPCo
8.ûo/o
82õVo
T¡ansco OATT
FERG Docket No.
ERI&355
8.42%
8.67o/s
8.4070
8.670/o
fo addi-tÍon to the WACC similæíties, the depreciation and tax mtÊs used in eaph formula rate are
similar. The pro forma analysis demonstrates these símilarities. As shown in the circled values'
in the Revenue Requirement Compalison Table below, the Total ATRR from the Transco Build
I
Bæed on dífferÊnc€s in l0-year average utility bond y'lelds; data óourced ûom Bloomborg.
(R053396e,r1
CP Exhibit
No.2
'
Case is withín 170 of the Total ATRR ûom the OpCo Build Case. In addition, a long term debt
.
cost savings of 0.26% for the T¡ansco would eliminate this difference.
Revenue Requirement Comparison
lf|Þcg ÞUlE rr¡Sg
r
)ATT RêYcnur Rêqubqnênt
J9UO ËUllg
rirta
)ÂTTRcvcnuc Requbamcnd
Tnn¡coTotrl
*1!?¡23ÉJe,
APF Tnn¡Co
spcor@t-
årvo- YA
JS2,37s,Bq9,
$€,761,1r5
KgPCo
sE,760,724
$0
$r,7sar4i
tÊ,sss,504
rm trurgc
s10,27s,883
¡úil .
¡¡a
l&ìt.ftil
T¡ble
nr I r¡nl90
$t,781,e85
wY llln'c,o
¡20,8re,478
$q,e59,50{
¡is,aoe,rte\
AFGo.Wv
:tá 7ål tl6
KFSO
t1,71t t43
Ohlo Pow¡r
s13,3{2,3ft0
-...wEf$0
Comparf,son of the Allocations of ReTenueand Expeme
'
In the Tmnsco Build Case, the Transcos a¡e allocated their share oftheTotal Transco
ATRR and the OpCos are not alloòated revenue since they did not make the inveshent or incur
the
debt Iu the OpCo Build
Case, the OpCos are allocated their sbare of the Total. OpCo
AïRR
Thcse åmounts a¡e shown in the Revenue Requirement comparison Tablc above.
As described earlier, the mcthodology for allocating the NTS expense to the OpCos is the
same in both cases, Because the allocation methodologies a¡p thc sarne, the overall difference
bstweø thc two ATRRs is disüibuted by load ratio sharc among. the OpCos.
NTS Erpense Alloc¡tÍon Comparistrn Tabls
tilEcoH!üHll ToltRR 65F 0ld0P6fü ltfl.fi El.E
lô.591 r9.9* t0.t9¡ ur
FfloÉaul
tlodondE¡çm' $1??e$3 8,æ7J01 10{79,19 6.3,l2,0ffi ¿19l.6S1
tnñ
IPCo.VA |PCo.UV
lçCo fif0o
tFCo
llhft$h
s.tEJsB ss.lls
71s,088
?.018^7ls
r(gco
tFco
llïoiltâth
szs.0ß
t13,3ll
0,0t5,007
il.1Í (í.m.ìÐ)
12.61 5.gf l.B9É- 1.1%
7"ôl7.6ts
&qÍ6!LEryq!!
sÐF fnoroìnf tür.ut ttË.E lrco.vA lFco.tTv Íipco
5.S*
$¿srlüs s,ßl,sl 10,4m,613 52nvn 21É,tn 7,s0,fr5 40"æ0¿lD 3.f0,lu
ililürct
.
ryuolwcvr$
¡rhd
.
t85s tg,sÁ 10.t$ LT¡ 14.{ï r23*
ßr
ffi
lür,Ër lrq/õ¡ F9,83t lß,nz $57151 t19,951 Ë3,170 ¡I,ß0 tôæ3
0,8tlt 0,8Í 0.EÍ 08s 0.Btg 03* o.Ett 03Í 0.8* .0,8*
ünu,ü¿4
The overall result is that the difference in the NTS e4pense allocated to APCo-riW r¡nder
the two cases, and circled in the NTS Expense Allocation Comparison Table above, ís less than
$50,000, If the Slest Virginia PSC Elproves the Companies' proposal to track RTO tausmission
e:lpcnses, there
{R0J3$6e.r)
will
be a very small impact, assurning no reduction in debt costs to the Transco,
iea96
t3,3%
$52,751
0.891
CP Exhlbit No. 2
on 'lvest Virginia retail customers if fransmíssiou inveshrents are made by the Tra¡scos rather.
tban the OpCos.
West Vireinis Ret¡il Rate Imoact
As díscussed above, in the Transco Build Case, the NTS exp€nse allocated to APCo-WV
is the total cost to \Mest Virginia retail customers. This amount, $6.596
nillion, is circled in the
NTS Expense Allocation Compæison Table.
Inthe OpCo Build Case, the¡e are two oomponents: firs! reürm on and of üa¡rsmission
rate base and expenses incurred by APCo-WV æe included in a bundlecl rate case. The cost
seryic,e components other than cost of capital (net plant in service,
of
O&M, depreciation, taxes,
eúc.) would be very similar to the inputs of the AEP operatíng company PJM
OATT forsrula rate.
The following table detaits this salculation using APCo's most recently approved ROE and
curent data for capitat sfructure and cost of debt,-resulting in a State ATRR of 86.327 million.
State Revenue Requirement Calculation
locrulloRtd Pl8nt ln Sgrlc¡. St¡tc
l¡vsl
lApcffi]
10,000,000
tlrtr Rlt¡llROE
10.600*
Prdrficd Sod( Rdr
t¡nû.Tsm Dobl Rdc
6,ú4?9/!
EtbtRrtt
o.eisgt
Short-f¡Irn
Com¡nor Equ¡ty
¡1.3ú29¡
T Crp Stl¡dúË
clp Slndun
42.83895
PrdcrrËd Stûd( lå
0.2804ó
LollgrTÉñ Dcb(
Crp Sür¡ÊUn
Short Tonn DsS .,6 Crp gn ú¡¡6
68,12ùt
PÞTo(CortCCrÐild
(9å)
7.760te
PÈT¡x CoC
(¡)
3,09c.c50
96
ol Câ!¡ld
oeM
:,T'**ry'
StdolLoc¡lTs
8.€5999
l,¡[00,000
:ii:i
19f,970
In addition, APCo inoludes the net of OATT revenue allocated (double-círoled
in the
tevetrue requirement comparison table) and NTS expense allocated (circled in the NTS Expense
(R05339óe.tl
..
CP Exhibit No.2
Allocation ComparÍson Table) in retail rates. These amounts net to $ 164,898 in the pro foína
example.
Combining these two components in the OpCo Build Case, the total cost to rl/cst Virginia
retail customers is $6.162 mittiorl which is $484,000 lower than the total cost to West Virginia
retail ct¡stomers in the Tra¡sco Build Case. Since current urnual glectric revenues for the
Companies are about $1.2 billiorL the cost differences between Transco ownership and OpCo
oumershíp would still be a very small percentage, about O.OAVo,or 3 cents per month for a 1,000
kWh per month residentìal cusûomer.
Toiat Cost to West Virginia Retsll Customerr Table
OpCo Bu[d Casc
0,327,r08
Dlllerence (Trans6o ñr¡hug OpCo Cos-f,
Transco Euifd Caec
s
183,958
Conclusion
The pro forma aoalysis preseirted herein shows tbåt thè current annual ûansmíssieq ssst
.
wouldbe slightly higher for the same investments if made by the f¡gnsçss; however, there a¡e
teff¡on$ to believe this rate differense
r
will djminish
over time and, perhaps,.reverse:
It is tcasonsble to expeot that the Transcost cost of capital will go down over time,
compared to the OpCos' cost of capital, because the single business model for Transco
_
'
should producc a shong credit rating allowing AEP Transco to achiei,e a lower cost
of
debt.
r
.
(R0533969.U
If tbe Companies' proposal to tack RTO trarismission charges in retail rates is approved,
any cost of capital advantages for the Transco would flow directly to custome¡s.
10
Cp Exhibit No. 2
ln summation, the Companies and AEP'ùÍestVíiginiaTransmission Company, tno. hope
ihat the foregoíng addítíonal information is usefi¡l to the Cornnrission and the parties in
understanding and rlssessing their Transco proposal, the manner in which it would operatq and
its expected impact on West Virginía ratepayers.
Respectfu tly submitted,
APPALACHIAN POIVER COMPAI.¡Y
V/HEELING POWBR COMPA}IY
AEP WEST VIRGINTA TRA}ISMISSION
COMPANY,INC.
ByCounsel
Ðt%c,M
William C, Porth (wrsa *nts)
A¡ne C. Blankenship ØrryB#s044)
Robinson &McElwee PLLC
PostOfficeBox 1791
Charloston, West Virgínia 25326
'
Jasres R*Bapba
Hcstor Garcia
American Electic Power Semice Corp..
I RivcrsidePlaza
PostOfficeBox 16631
Columbus, Ohio43215
Counsel for Appalachian Power Company,
rtrheeling Power Compan¡ and
AEP T/est Virginia Transmission Compan¡ Inc.
(R0r33969,t)
11
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CP Exh¡bit No. 2
PI]BLIC SERVICE COMMISSION
OX'\ilESTYIRGIIITIA
CIIARLESTON
cAsENO. 10-0577-E-PC
Joínt Petition for consent andapproval of
Arangemenls among Affiliates Relaæd
To the operation of eNewPublio Service
Corporatíon that will own Transmission
Facilities and provide Tnnsmission Services.
cERTrErcAlE OA qERVTCE
I, Williasr C. Porttt counsçl for Appalaohian Powor Company, rWheeling Power Company, and
AEP West Virginia Transmission Company, Inc, do hereby certifr thd true copies of the foregoþg
ADDITIOÑAL INFORIT{ATTON ST]BMITTED BY APPALACEIÄN POWER COMPÂI{Y,
\üHEDLING POWER COMPA¡IY, ÄIYD AlP \VEST VIRGII\TIA TRAI{SMTSSION COMPAT$T'
S{C. õre sen'ed ry lana deüvery oi firct-ohs U.S. I\daíl thís 22d day of Ootobor, 2010, ad&essed to
the foltowingz
L,eslie J. fuidersono Esquire
Prútic Servicc Commissíon
201 Brooks Stest
Charleston, West Virgínia 25301
DavidA.
1100
BcntCreckBlvd,, Suito
101
MeohanÍosburg; PA I 7050
Comselfor
Comselþr
StaffofVest Vtrgtnla
P ubllc
Denick P. \ñ/illiamson, Esqgiro
Spilnan Thomas &BaËlq PLLC
West \4rglnîa
Energt Users Grotp
Semíce C ontmí s s íon
Sado, Esquiro
Jacquolino Lako Roberts,
Susan
Esçiro
ConsrÍnor Advocafe Dívision
700 Union Building
723 l&n¿whaBlvd.r Esst
Charlesúon, WV 25301
I. Riggs, Bsquiro
SPItlvfAN TtIOlvfAS & BATTLE, PLLC
P.O. Box273
Charleston,
W
25321.-0273
Comselfor
West Yirgìnía
Energt Users Group
Cowselfor
Consumer .Ádvocate Divìsíon
John H. Shott, Esquirç
621 Commeroo Street
Bluefiel{ Tt¡V 24701
Counselfor So*h
Bluefield Neíghborhood Ass ociatìon
frr"* (.
le
William C. Porú (wv statcBarlDNo.2g43)
(R0498555.1)
R¿b,rft''I
CP
ExhibitNo, I
^
PUBLIC SERVICE COMI4ISSION
OF WEST VIRGINIA
CHARLESTON
CASENO. r0-0577-E-PC
APPALACHLAN POWER COMPANY and WFIEELING POWER COMPANY, both dba
AMERICAN ELECTRIC POWER and AEP'WEST VIRGINIA TRANSMISSION COMPANY,
INC.
Application for approval of arrangements among
affiliates related to the operation of a new public
seryice corporation that will own transmission
REBUTTAL TESTIMONY OF
CHRIS POTTER
APRIL 20,20L1
{R0583290,
r
}
Page
1Q:
2A:
3Q:
.4.R8
4
THIS CASE?
I of3
PLEASE STATE YO{JR NAME.
My name is Chris Potter.
YOU TIIE SAME CHRIS POTTER WIIO FILED DIRECT TESTIMOI.TY IN
5A:
6Q.
7A:
WIIAT IS TIIE
8
statements put forth and discussed in the direct testimonies of Thomas D. Sprinkle, on
9
behalf of the Staffof the,Public Service Commission of V/est Virginia, and Byron L.
Yes.
PTJRPOSE OF'YOUR REBUTTAL TESTIMOIIIY?
The purpose of my rebuttal testimony is to address several of the mischaracterized
10
Harris, on behalf of the Consumer Advocate Division of the Public Service Commission
11
of West Virginia.
12 a.
DID STAFF \ryITNESS SPRINKLE AND CA,D WITNESS IIARRIS F'TTLLY AND
13
FAIRLY ASSESS THE COSTS AND BENEFITS OF' THE COMPANIES'
14
TR.A,NSCO PROP9SAL?
15
A.
No. Both Mr.
Sprinke and Mr. Ha¡ris focused on a short term perspective. Both failed to
76
take into account the anticipated long-term benefits associated with the Transco proposal.
t7
As
18
differential between the hístorical transmission model and the Transco model can be
19
expected to diminish and possibly even reverse over the long
20
testimony also failed to recognize the distinct benefìts of the WV Transco proposal,
2l
which include, but are not limited to:
22
o
(R0583290. l )
I noted in my direct testimony,
the rate increment necessitated by the small coðt
term. The Staff and CAD
the easing of financial pressffe on APCo to help protect its credit ratings;
Page2 of
o
1
the freeing up of available capital of the Companies so that
2
designed
3
systems;
.
4
to maintain and enhance non-tansmission
3
it can be used on projects
aspects
of the Companies'
the enhancement in quality of service to West Virginia electric customers due to the
5
WV Transco undertaking üansmission projects of a more proactive nature (such as
6
replacing aging assets) which the Companies, in the absence of 'WV Transco, may
7
need to defer due to the many demands on their limited capital budgets; and
o
8
and tax revenues).
9
10
a.
CAD \ryITNESS HARRIS SEEMS SKEPTICAL ABOUT THE EXPECTED
FUTURE BENEFITS, DOES HE NOT?
11
12
the beneficial economic effects'WV Transco will bring to ttre State (in terms ofjobs
A.
Yes¡ extremely skeptical. He goes so far as
to
assert that
the Companies have not
T3
provided "any evidence" to support their expectations of future benefits "because they
t4
cannot" do so. Harris Testimony at
15
meet. The future effects of the Transco mechanism cannot be known to a certainty in
1'6
advance, but the qualitative nature of the effects can be assessed as a matter of reasonable
t7
judgment and testified to on the basis of such judgment. This constitutes legitimate
18
probative evidence. With respect to future events,
t9
which can be marshaled, and decision-makers reasonably rely upon it in planning the
20
courses
2T
dismisses the Companies' judgments about
22
speculations" (Flarris testimony at 6), evidently feels no qualms about offering his own
{Ros83290.1}
6. Mr. Harris' standard is virtually
of conduct which they will pursue.
impossible to
it is often the only type of evidence
Moreover, CAD witness Ha:ris, who
likely future events as "based upon
Page 3
I
opinions about what he asserts the fi¡ture is "likely" to hold (IIanis testimony at
2
faimess, the same evidentiary standard must be applied to all parties.
J
a.
of3
7). In
HO\ry DO YOU ADDRESS MR. HÄRRIS' SUGGESTION THAT THE
4
FORMATION OF \ryV TRANSCO IS NOT I{EEDED TO RELIEVE FINANCTAL
5
PRESSURE ON APCO BECAUSE APCO \rytI,I, NOT IIAVE TO MAKE LARGE
6
CAPITAL EXPENDITURES IN THE NEAR F'UTURE?
7
Mr. Harris correctly points out that APCo has recently completed a very significant
I
capital expenditure progrÉtm. Presumably, he also witnessed the effect that such a capital
9
program can have on the financial health of a vertically integrated utility such as APCo.
will
10
While many large projects have been completed, APCo
11
substantial amount of capital, and
12
agencies. APCo faces much more uncertaínty about the future capitalrequirements than
13
Mr. Harris appears to recognize. As a capacity-short company whose fleet is heavily
t4
reliant on coal, APCo faces exposure to significant new environmental requirements,
15
such as those which may result from the EPA's proposed carbon regulations, and it
t6
need to be
17
The formation of WV Transco is a proactive approach to help alleviate some of the
18
financial pressuÍes that APCo will be facing.
le
20
will
to invest
a
continue to be subjected to scrutiny by the credit
will
in a financial position to comply \ ¡ith all legal and regulatory requirements.
Q:
DOES THIS CONCLUDE YOUR REBUTTAL TESTIMOI\TY?
A:
Yes.
{R0583290. l )
continue
OF TVEST
YIRGINIA
CIIARLESTON
CASE NO. 10-0577-E-PC
anangements nmong affiliates related
to the operation of a new public service
corporation that will own transmission
CERTTFICATE OT' SERVICE
I, William C. Porth, counsel for Appalachian Power Company, Wheeling power
Company, and AEP West Virginia Transnrission Company, lnc., do hereúy certifu lhat t*"
copies of the foregoing testimony were served by hand delivery or first-clas* Û.S. uáil ttris zOft
day of April, 2011, addressed to the following:
Leslie J, Anderson, Esquire
Public Service Commission
201 Brooks Street
Charleston, West Virginia, 25:301
Counselfor
Staff ofVest Virginia
Denick P. Williamson, Esquire
Spilman Tåomas & Battle, PLLC
1100 Bent Creek Blvd., Suite l0l
Mechanicsbtrg, PA I 7050
Counselþr
lTest Virginía Energy (Jsers Group
David A. Sade, Esquire
Jacquelíne Lake Roberts, Esquire
700 Union Building
723 Kanawha Blvd., East
Charleston, WV 25301
Counselfor
Susan J. Riggr, Esquire
SPILMAN igON¿ES & BATTLE, PLLC
P.O. Box 273
Charleston, WV 25321-0273
Counselfor
West Virginía Energt Users Group
William C. Porth (w-V
{Ros83406.1 }
stare Ba¡ rD No.2943)
rn
WILLTAM C.PORTII
ATTORNEYATLAW
P.O. BOX l79l
CHARLESTON,WV 25326
ROBINSON
&McELWEE
DIAL: QM) 347 -8340
E-MAIL: wcp@¡amlaw.com
DIRECT
IãTIT
attorneys at law
January
ffi:14
TH
6,2010
ÉÊ'11 Fgt
'lilî{ Êå
ËXEt sEË ùIU
Mrs. Sandra Squire
Executive Secretary
201 Brooks Street
Charleston, WV 25301
Re:
"l
Appalachían Power Compøny, lØheelìng Power
Company, andAEP West Virgínia Transmission
Company,Inc.
Case No. 10-0577-E-PC
I
Dea¡ Mrs. Squire:
I æn enclosing herewith on behalf of Appatachian Power Company, V/heeliiþ
power
Compan¡ and AEP West Virginia Transmission Company, Inc., in the abové-referenced proceeding,
the original and twelve (12) copies of the direct testimony of Lisa M. Barton, Rhoderick C. Griffin;
Jerald R. Boteler, Jr., and Chris Potter..
Very truly
yours,
^
tfbc.frA
William C. Porth
(w.va.
stare Bar #2943)
Corursel for Appalachian Power Company,
Wheeling Power Compan¡ and
AEP West Virginia Transmission Company, [nc.
WCP:dlm
Encloswes
Service
4O0
List
FIFfiI THIRD CENIER.
140
700 VIRGINIASTREET, BeSr. CHentSStOhí, wv 25301 . (304) 344-5800
WEST MAIN STREBT O STIJÎE 3OO . CI.ARKSBURG, WV 26302 .
QrJq AZZ-]ON
-www.ra.mlaw.com
OF'WEST VIRGIMA
CIIÀRLESTON
cAsE NO.10-0577-E-PC
:
.
affangements among affi liates related
to the operation of a new public service
corporation that will own tansmission
CERTTFIçATE OF SERVTCE
I, \Milliam C. Porth, counsel for Appalachian Power Company, IVheeling Power
Company, and AEP West Virginia Transmission Compan¡ Inc., do hereby certify that true
copies of the foregoing testimony were served by hand delivery or first-class U.S. iriait t¡ir eú
day of January, 2011, addressed to the following:
Leslie J. Andersor¡ Esquire
201 Brooks Steet
Charleston, West Virginia 25301
Counsel'þr
StaffofWest Vírginia
Pubilic Service Commíssíon
David A. Sade, Esquire
Jacqueline Lake Roberts, Esquire
Consumer Advooate Divi sion
700 UnionBuilding
723 Kanawha Blvd., East,
Charleston, V/V 25301
Counselþr
'
Denick P. Williamson, Esquire
Spihnan Thomas & Battle, PLLC
i 100 Bent Creek Blvd., Suite 101
Mechanicsburg, PA 17050
Counselfor
West Virginiø Energy (Jsers Group
Susan J. Riggs, Esquire
SPILN{AN THOMAS & BATTLE, PLLC
P.O. Box 273
WV 25321-0273
Counselfor
West Virginia Energt (Jsers Group
Charleston,
Consumer Adv o cate Division
C. Porth
{R05s50r 1.1}
(WV State Bar ID No. 2943)
BEX'ORE THE
PUBLIC SERVICE COMMISSION OF'\ryEST VTRGINIA
cAsE NO. t0-0577-r,-PC
IN
THF',
MATTER OF
,
APPALACHIAN POWER COMPANY
WHEELING PO\ilER COMPAI\TY
AEP \ilEST VIRGINIA TRANSMISSION COMPANY,INC.
DIRECT TESTIMONY AND EXHIBITS
JAI{UARY 6,2011
,.
DR,ECTT.ESIIII{ONI{Í:ANO,UruBITS
-::t1.Tl..l:Y-:t1'.:=::- --:-.:T=..'
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"'
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t'.
:
..r
:.:
LIvtts ExhíbitNo,;l
CASE NO,.10=0577-E-PC
.
......
...1.,. .i.:
...
APPALACIUAN'poWER COMPANY and-,WÈuBI-tNG POTVERcOMPANY; b-eth dbä '., '
PO\TTER ANd AEP',Ï\¡EST VTNCÑT* TN,ANSN'fl SSION.COMPANY,
AMERICEN
...;
' EËECTRIC
.
.',.,..',.
.
. ...';,'t".: . j ...r'.
I¡iJC.'.
r":
,appt¡aiion- for approwrl,of arrringêments ámorrg .,'
. ' . : . :
.affiliates relateð to the 'operatiôh, of a; new publi'o
:
.
.
.
.._.
,d
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.o
,.
..serviceeorpoiati.onthafl.tYilI'owll.fu¿mstqission.]:.
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facil,ities¿mdprovidetansmission:serviees.: ,-. ',, ;,
..:'...,..-"r:-......:
.
I
.
..,
...,,:
'
''
. .:
DIREET TESTtrVIONY
JAIruARY 6,2011
'.'..
: '' '
:
....
OF
LISAMT'BARTON:
:
.'i
.
:..'
Page
1
a.
PLEASE STATE YOUR NAME, BUSINESS AFFILIATION AND
ADDRESS
?
J
I of12
A-
My name is Lisa M. Barton. I am employed by American Electric Power Service
4
Corporation (AEPSC), one of several subsidiaries of American Electric Power
5
Company, Ine. (AEP). My business address is 700 Morrison Road, Gahanna, OH
6
43230-6642.
Business Development for AEPSC, and
7
8
a.
I
sfuategy and
am an officer of several AEP affiliates.
CAN YOU PLEASE IDENTMY TIIE AT,P AFFILIATES F'OR WHICH
YOU ARE AN OFFICER?
9
10
I a:n currently Senior vice President Transmission
À
Cnrrently,
I
am Senior Vice President of A-EP Transmission Company, LLC
11
(AEPTCo), which is a wholly-owned subsidiary of AEP Transmission Holding
72
Company, LLC (AEPHoldco).
l3
AEPTCo subsidiary companies and President of Electuic Transmission Americ4
l4
LLC @TA), whích is a joint venture between AEPHoldco, a wholly-owned
15
subsidiary
l6
America Transco, LLC, awholly-owned subsidiary of MEHC. In addition, I arn a
:1,7
member of the Board of Managers of both the Prairie \Mind and Tallgrass joint
18
ventutes, which are ventures with ETA.
l9
a.
22
am also Senior Vice President of each of the
of AEP, and Mid.{merican Energy Holdings Compány (MEHC)
PLEASE REVIE\ry YOUR TRAINING, EDUCATIONAL BACKGROUND,
PROFESSIONAL QUALIFICATIONS, AND BUSINESS EXPERTÉNCE.
20
21,
I
A.
I eamed a bachelor's degree in electrical engineering in 1987 from Worcester
Polytechnic Institute in'Worcester,
MA
and a Juris Doctorate degree in'1993
from
Page2
.1
Suffolk l-Iniversity Law School in Boston,
2
MA. I
ofl2
am a member of both the New
Hampshire and Massachusetts state bars.
Prior to joining AEP,
J
I was manager of Transmission
I
Regulations and
4
Compliance for Northeast Utilities Service Corporation.
5
experience in the energy
6
various positions
v
marketing, compliance, and legal and energy consulting for Northeast Utilities
I
Service Corporation, its zubsidiary Fublic Service Company of New Hampshire,
9
Ransmeier and Spellrnan LLC, and Strategic Energy LLC.
have over twenty years
field. Throughout my tenure in the industry, I have held
in the areas of
engíneering, rates and regulatory afflairs,
10
a.
WHAT ARE YOTIRPRINCIPAL AREAS OF RESPONSIBILITY?
l1
A.
As Senior Vice President of Transmission Stategy and Business Development for
I
am reqponsible for tansmission- planning within the Regional
t2
AEPSC,
t3
Transmission Otganiz.a¡ons (RTOs)
t4
Interconnection;
15
(ERCOT); developing and executing transmission stategy and business plans for
16
AEP's operæing companies; budgeting and financial anaþsis over tLe AEP
t7
transmissio
18
and oversight of AEP's transmission joint ventures and the interface with its
19
coþorate partners.
of
Southwest Power Poot (SPP), PJM
LLC (PJM), and the Elecfric Reliability Council of
Texas
n orgauzafion; exha-high voltage (EITÐ tansmission development;
20
a.
WHAT IS TIIf,' PIIRPOSE OF YOIIR DIRECT TESTIMOI{Y?
21
A.
I
support the application
sf
Appalachian Power Cornpany (APCo), Wheeling
22
Power Company (WPCo) (collectively the Companies), and AEP West Virginia
23
Transmission Company, T¡e. (WV Transco)
inthis case. I provide
an overvjew
of
Page3 of 12
1
the AEPTCo corporate structure, discuss the business rationale and benefits
2
associated with creation of
J
by AEP affrliates to WV Transco, discuss the selection process for transmission
4
projects to be owned by WV Transco, and discuss WV Transco's membership in
5
PJM.
6Q.
7^.
8Q.
9A-
ARE YOU SPONSORING AI.IY PORTIONS OX' Tm, APPLICATION?
WV Transco, describe various services to be provided
Yes. I am sponsoring the body of the Application
as
well as E>rhibits A and B.
PLEASE DESCRIBE TIIE AEPTCO CORPORÁ.TE STRUCTURE.
As described below, AEPHoldco is a wholly-owned subsidiary of AEP. AEPTCo
of AEPHoldco. In
10
is a wholly-owned
11
AEPTCo, AEPHoldco also holds AEP's share of non-Texas tansmission joint
72
ventures including Potomac-Appalachian Transmission Highline,
13
Pioneer Transmission,
T4
holding company for seven tansmission-only public utilities, one of which is WV
15
Transco. Table
16
seven hansmission-only public
i
transmission subsidiary
addition to
LLC (PATÐ,
LLC @ioneer), and ETA. AEPTCo in tum serves as a
below illustates the corporate structure of the AEPTCo and the
utilities,
Page
Table
1
-
4 ofl2
A-EPTCo CORPORATE STRUCTURE
AEP Oklahoma
Transmission
Company, lnc.
("OKTCo")
*Ilightighfed companies representAEPTCo and theAXFTCo subsidiary companies.
2
J
4
a.
IIAS AEP FORMED OTHER WHOLLY-OWNED
5
COMPANIES IN TITF' OTIIER STATES WIIERE
6
COMPANMS?
7
A.
Yes. AEP
TRANSMISSION
IT HAS OPER,A.TING
has formed a total of seven wholly-owned subsidiaries, which
will
do
in ten of the eleven states in AEP's service territory. Transcos in
8
business
9
Michigan and Oklahoma have already begun conducting business. On December
10
29, 2070, the Pubtic Utilities Cornmission of Ohio (PUCO) approved Ohio
11
Transco's application to be an electric
utility,
On
April 26,2010, an application
Page 5 of
i2
1
was filed regarding AEP Appalachian Transmission Company (VA Transco) in
2
Virginia. That application
J
Transco settlement
4
contemplating the formation
5
region since AEP already has a transmission-only oompany, ETT, operating in
6
ERCOT. ETT is a joint venture of MEHC and AEP subsidiaries
in
was withdrawn pending FERC approval of the AEP
Docket No. ER10-355-000. AEP
of a new Transco subsidiary l¡iithin the ERCOT
7
a.
WHY DID AEP FORM WY TRANSCO?
I
A.
Vertically-integrated investor-owned utilities are facing
9
is not presently
uncertain environment. As more
fifly
a
challenging and
detailed in the testimony
of
Company
10
wiú,lesses Boteler and Potter, APCo is facing significant presswe to maintain its
11
credit ratings at a time when capital spending needs are significant across all areas
t2
of the utility
13
particular, the Companies' tansmission system is expected to require a sustained
t4
level of investment to megt customers' needs and North American Elecftic
15
Reliability Corporation (NERC) reliability requirements as well as PJM
16
requirements.
t7
business and are projected
to persist over the next decade. In
In addition to these new transmission projects that are mandated or
tle
are
18
required for compliance,
t9
grid is a€ing and various improvements to and replacements of existing facilities
20
will be required. Thç Compani"r; ioubüity to make ¿[ improvements to
2t
system when capital is
22
irnmediate necessity being defened. The operation of WV Transco
23
many of these capital constraints.
Companies recognize that the existing hansmission
the
tightly constrained can result in projects which are not of
will
alleviate
Page 6
of
12
I
Additionally, the operation of WV Transco will have an indirect benefit on
2
the reliability of the generation and dish'ibution systems. The decisions to
5
undertake the maþrity of new transmission investments are no longer within the
4
exclusive control of local utilities, as they are mandated by NERC and various
5
RTOs. Without WV
6
transnrission projects may
7
invesû¡,ents
q
diskibution projects. VfV Transco,
9
transmission invesûnents, will be able to pursue certain transmission-only projects
10
in West Virginia without being limited by the funding levels available wiUrin ttre
11
Companies. This will provide long-term benefits to West Virginía customers by
12
relieving the Companies of the burden of incurring debt for those projects, and
13
preserving debt issuanoe capacity for other needs.
t4
0.
i5
16
Transco,
the capital demands of these mandated
limit the amount of available capitai for other needed
by the Companies to benefit customers, including generation and
a
company focused only
on
making
PLEASE DESCRIBE WHO OWNS TIIE AEP TR.ANSMISSION SYSTEM
FACILITIES TODAY.
A.
Today, AEP fânsmission facilities are primarily owned by AEP's operatíngf
17
companies, which provide electric service rÃ/ithin AEP's eleven-state tenitory.
18
The Companies cunently o'wn over 5,400 circuit miles of transmission lines
ìn
within the AEP transmission system.
20
a.
2I
22
23
HOW IS THE AEP TRANSMISSION SYSTEM PLANNED ANI)
OPERATED TODAY?
A.
Although the transmission facilities are currently owned by the individual AEP
operating companies, the entire AEP transmission system is planned and operated
PageT of 72
I
on an integrated basis through the coordinated eflorts of the AEP Transmissisri
2
Department (A-EPTransmission), a business unit of AEPSC. To accomplish its
J
responsibilities, AEPTransmission utilizes a combination of services provided by
4
AEP òperating company employees, AEPSC employees, and contractors.
AEPTransmission works closely
5
with
neighboring utilities, other
6
interconneited entities, and the RTOs to plan and operate the transmission grid.
7
Much of the ooordination is handled with and through the respective RTOs to
8
aligu to the hansmission planning and operational requirements set out in each
9
RTO's protocols and operating criteri4 and firrther d.efined through NERC
10
requirements. Adminishatively, the AEP transmíssíon system is divided into two
11
zones: the
72
filing,I will focus onthe AEP East Zone.
Easú
Zone and the West Zone. For purposes of this WV Transco
13
a.
PLEASE DESCRIBE TIM, AEP EAST ZONE TRANSMISSION SYSTEM.
L4
A.
The AEP East Zone transmission system consists of the facilities owned by the
1,5
seven eastern AEP operating companies. The East Zone tncludes nearly 15,000
T6
miles of hansmission circuitry operating at or above 138 kV, including
t7
approximately 3,800 miles of 345 kV transmission lines, and over 2,100 miles
18
765 kV transmission lines within the states of lndiana,
T9
Tennessee,
20
economically and reliably deliver electric po\rer to serve approximately 24,000
2T
MW of customer demand.
Vitgt"iq
of
Kentucþ, Michigan, Ohio,
and'West Virginia, which allow AEP operating companies to
Page
I of12
The East Zone operating companies are members of ReliabilityFirst
1
.|
Cotporution (RFC), a regional reliabilþ organization of the NERC, and the PJM
J
RTO. The East Zone is centrally located \¡iithin the Eastenr lntercormection.
4
a.
HOW WILL TIIE CREATION OF lVV TRANSCO AT'FECT TIIE
OF TIIE AEP
5
OWNERSHIP AND OPERATION
6
SYSTEM IN THE STATE OF WEST WRGINIA?
7
'WV
Transco
will
TRANSMISSION
deveiop, construct, own, and operate certain new hansmission
to
existing transmissipn facilities owned
8
faciiities interconnected
9
WPCo, other AEP eleckic utility operating
"o*puii.r,
by
APCo,
other AEPTCo
fooþrínt. The creation
10
subsidiaries, and unafflrliated thfud parties within the PJM
11
of WV Transoo will result in much of the new fuansmission inveshnent in West
t2
Virginia being owned by the WV Transco instead of by the Companies. There
i3
wilt be no change in the plaruring, operation, and maintenance of the tansmissiån
L4
system since the services provided to WV Transco
15
service providers and
16
are being provided
17
to rely on the necessary and
18
financial, and transmission system expertise of the Companies, AEPTransmission
79
and AEPSC to ensure sea¡¡less operation of transmission services across both the
20
Companies and WV Transco.
will be through the same
will be administered in the same manner that
these services
today. As the Companies do tod.ay, 'WV Transco will be able
appropriate manageriai, techoical, engineering,
2l
As discussed in detail by Company witness Griffin, services required by
22
WV Transco wiil be provided primarily by AEPSC and the Companies. A-EPSC
23
cost conhol measures
will apply to WV Transco
as
they have historically applied
Page9 of 12
1
to the Companies. The sewices provided to WV Transco by AEPSC and the
2
Companies
J'
affiliate services are provided to other AEP operating companies today. Because
4
the service costs and their allocation are similar, WV Transco will achieve the
5
same cost-effectiveness that the Companies have achieved for years:
6
Services provided by AEPSC and the Companies
will be provided on an at-eost
basis,
in the
same manner
in which
will be pursuant to
7
affiliate agreements that address the types of services that will be provided, the
8
ailocation methodology for services billing procedures, and terms of payment for
9
services provided. The form of each service agreement was modeled on the long-
10
standing agreements that currentþ exist in the AEP System. Company witress
11
Griffin's testimony describes the structure of these service agreements
12
a.
WILL WV TRANSCO ITAVE THE F'INA}ICIAL VIABILITY
13
PROVIDE TRANSMISSION SPNVICT AND F'ACILITIES
t4
VIRGINIA?
15
A.
IN
TO
\ryEST
Yes. As discussed by Company witress Boteler, in its early years WV Transco
16
will be able to rely on the financial resources of its ultimate parent, AEP, to obtain
17
the necessary capital to meet its obligations as a Transmission Owner
18
Virginia. As AEPTCo
l9
capital markets and
20
its affiliated Transcos.
21 a.
SPECUICALLY, WHAT TYPES OF ASSETS WILL WV TRANSCO
))
owN?
will
establishes an asset base,
it will be able to
secure the necessary capitai required
in
West
access the
in conjunction with
Prye t0 of 72
1
A.
It is proposed
that WV Transco
will
develop and own only new tansmission
of West Virginia. The Companies will retain ownership of
2
assets wittrin the State
J
all transmission assets currently in service.
4
tran5fpr any
5
approvals
6
Commission, the Virginia State Corporate Commission, and the Federal Energy
7
Regulatory C'ommisslen ffERC).
I
9
of the
If a decision
Companies' tansmission assets
is made in the future to
to WV Transco,
will be sought from the appropriate regulatory
prior
agencies including this
Certain new hansmission assets in'West Virginia will be developed and
owned by WV Transco.
In ordêr to
ensute that the assets managed
by WV
of suffi.cient scope and are sufficiently physically discemable from
10
Transco are
11
fansmission assets owned by the Companies, AEPSC has developed an AEPTCo
12
Project Selection Guideline (PSG), Exhibit
13
determining which facilities
t4
Companies and whích
15
PSG \^,iil be used by AEPTransmission personnel
16
include
t7
Transmission Companies and assets
18
expeoted that the
t9
transmission projects and, thus, be subject to the WV Transco furancing and
20
potential financing benefits described by Company witress Boteler. Projects that
2l
qualify to be owned by the AEP Transmission Companies will be_subject to case-
22
by-case evaluation.
23
time to time.
a
will
B to the Application, for use in
will be developed by the AEP Transmission
be developed by the AEP operating companies. The
to
designate projects and
clear physical demarcation between potential assets
of the AEP
of the AEP operating companies. It
is
'WV Transco projects would include the more significant
In addition, the PSG may be reviewed and amended from
,,
I
a.
PLEASE DESCRIBE
Page
IIOW WV
TRANSCO
Il
of
WILL PLAN
L2
AND
2
CONSTRUCT ITS TRANSMISSION SYSTEM IN CONJI]NCTION Y/ITH
â
PJM;
4
A.
The AEP transmission system
will continue to be plarured by AEPTransmission
5
and PJM
in a ma¡ner that is consistent with the approved regional planning
6
processes
in place today. Consistent with such RTO processes and procedures,
7
AEPTransmission
I
modification plans, and conduct system studies in order to reliably serve customer
9
needs. Since AEP intemal tansmission planning, monitoring, and cost control
will
will
develop, propose and construct system expansion and
continue much the sarne as today, the external interactions and
10
measures
11
estabüshed communications with PJM \Miil also continue much the same as today.
12
Q:
\ryILL WV TRANSCO AND THE COMPANIES
INTERACT
i3
DIF'F'ERENTLY WITH RESPECT TO TRANSMISSION PLANMNG IN
t4
PJiVI?
15
A.
No.
AEPTransmission
will particþate on behalf of WV Transco in PJM's open,
of
t6
transparent planning processes, just as AEPTransmission does today on behaif
T7
the Companies, thus ensuring that AEP has a consistent voice within the PJM
18
processes. The goal of a single intemal planning process is to meet the specific,
19
long-term needs
20
transmission sewice needs of the PJM system. Further, WV Transco
27
have any advantages over any particþant in the PJM planning processes. The
))
PJM planning process ensures transparency and coordination through existing
23
stakeholder processes. Generator interconnection, facility planning, hansmission
of the AEP
System while mainøining the reliability and
will
not
.
Page
l2oflZ
will
be reviewed
1
sãrvice needs, and impactó on the tansmission system of AEP
2
and evaluated as they are today under the PJM RTO requirements and processes.
3 Q.
4 A.
DOES THrS CONCLUDE YOUR DIRECT TESTTMOI{Y?
Yes it does.
ÌlÌ::.rw-
(
(
R.batt-(
LMB Exhibit No.
1
^
OF'\ryEST VIRGINTA
CIIARLESTON
CASENO. 1O-0577.8.PC
APPALACHIAN PowEL COMPANY and WHEELING PowER COMPANY, both
dbA AMERICAN ELECTRIC POWER and AEP TVEST VIRGINIA TRANSMISSION
COMPANY; INC.
Application for approval of arrangements
among affiliates related to the operation of a
transmission facilities
and
provide
transmission services.
"|
REBUTTAL TESTIMONY
OF'
LISA M. BARTON
d
APRrL 20,2011
tRo583196.1)
(
rn
\ryILLIAM C. PORTH
ATTORNEYATLAW
P.O BOX
ROBINSON
&McELWEE
DIRECT DIAL: (304) 347 -8340
E-MAIL: [email protected]
r
April20,
2011
BY HAND DELTVERY
Ë4;14' Ff{. ¡+Fg
Z't g'ÐÍ'i' FS¡: EJtE'f; gEE fifr
Mrs. Sandra Squire
Executive Secretary
201 Brooks Street
Charleston,
WV
25301
Re
: Y:;##::":'i;; i:,?fíi:;H';:'#,i::;'"
,
Company, Inc.
Case No. 10-0577-E-PC
Dear Mrs. Squire:
I am enclosing herewith on behalf of Appalachian Power Company, Wheeling Power
Company, and AEP \Mest Virginia Transmission Company; [nc., in the above-referenced proceeding,
the origina! and twelve (12) copies ofthe rebuttal testimony oflisaM. Ba^rton, JeraldR. Boteler, Jr.,
and Chris Potter.
Verytruly
yours, l)
tr"-,,^- (-{'L
William C. Porth
(W.Va. State Bar #2943)
Counsel for Appalachian Power Company,
Wheeling power Company, and
WCP:dlm
Enclosures
ccr
Service
List
400FrFrHrHHSåffÄilfgJ'.1ää'ff."åiåi:;,ffi
www.ramlawcom
{R0s83404.1}
l79l
CHARLESTON,WI 25326
i+';?üy,:,;.,':):,f ::)344-ss00
Page 1
1
2
3
4
5
6
7
I
I
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Q:
A:
My name is Lisa M. Barton
Q:
ARE YOU TTIE SAME LISA M. BARTON \ilHO FILED DIRECT
of3
PLEASE STATE YOTIR NAME.
TESTIMOI\TY IN THIS CASE?
A:
Q:
A:
Yes.
\ryHAT IS TIIE, PURPOSE OF YOUR REBUTTAL TESTIMOI{Y?
The purpose of my rebuttal testimony is to address mischaracterized statements
regarding the nature of AEP Transmissioú Company's (AEP Transco's)
wholesale tansmission rates and the business pu{pose of forming AEP Transco
put forth and discussed in the direct testimony of Byron L. Harris, on behalf of the
Consumer Advocate Division of the Public Service Commission of West
Virginia.
A.
DO YOU AGREE WITH \ryITNESS HARRIS' ASSERTION THAT 6'TIIE
REQUEST F'OR THE WV TRA}{SCO IS MOTIVATED BY ONE THING -
THE F'ACT THAT TIIE F'ERC HAS LAID OUT A VERY LARGE BO\ryL
OF RATEMAKING 'CANDY'A}[D AEP WANTS TO GET AS MANY
ENTITIES AS POSSIBLE TO GET CANDY F'ROM THAT BO\ryL''?
A.
Absolutely not. A critical objective in the process of creating the new Transco
Companies was to establish wholesale rates that are very similar to the existing
wholesale hansmission rates recently approved for the AEP Operating
Companies, including APCo, in FERC DocketNo. ER0B-1329.
The Operating Companies' wholesale rates represent the settlement of an
open regulatory process, includ.ing intervention from State Commissions and
(R05831 96.1)
Page
2 of3
1
groups representing various wholesale, industrial and retail customers. These
2
agreed upon wholesale rates do include a 50 basis point adder to the base ROE
3
(incentive) for continued Regionai Transmissíon Organization participation, but
4
do not include any of the other incentives referred to by CAD witress Harris.
It was a critical objective for the Transcos to have very similar wholesale
5
6
rates as the Operating Companies to ensure that wholesale transmission
7
customers, including APCo, would pay a very similar cost of service for new
I
transmission facilities regardless if those new facilities were owned by the new
o
Transco Companies or by the AEP Operating Companies. As discussed by
*à.r
10
Company witness Potter, the settlement filed
11
would establish wholesale ratés for the Transco Companies that meet this
12
objective.
FERC Docket No. ER10-355
13
Mr. Hauis correctly points out that WV Transco and/or APCo may in the
14
futtue seek additional incentives for specific projects, if any future project merits
15
consideration for incentives. However, it would be the nature of the project that
16
drives consideration for additional incentives and not simply the fact that the
17
project is owned by WV Transco. WV Transco and APCo would be equally
18
likely to seek additional incentives for projects that merit consideration,
19
any other independent hansmission company that proposes a kansmission project
20
in'West Virginia.
in addition, FERC has also granted
21
22
an incentive return on equity
as
for
independent transmission.companies that are not affiliated \4¡ith generation-
(R05831 96.1)
would
Page 3
'WV
1
owning or distribution-owning companies.
z
transmission company and, as such, could not seek these incentives.
3
a.
Transco is not an independent
IS MR. IIARRIS CORRECT IN HIS ASSERTION TIIAT Í6AFIP'S MOVE
4
TO CREATE TIIE TRA.NSCOS IS CLEARLY DRTVEN BY TIIE
5
OPPORTITNITY TO USE THE GENEROUS RATEMAKING
6
PROCEDURES TIIAT EXIST AT TIIE FERC?
7
A.
I
I
of3
No. Mr. Hanis does not consider the overall context of the remarks of Susan
Tomasky, President of AEP Transmission, which he cites in his direct testimony.
He refers to attachment BLH-5 (Labeled CAD 1-5, Attachment 1), atanscript
of
10
a presentation given
11
document does Ms. Tomasþ mention that FERC's ratemaking procedweS are the
12
clear reason behind the formation of the Transcos. in fact, in her explanation
13
the business rational for the Transcos, Ms. Tomasky zuggests the formation of the
14
Transcos provides AEP with "dual benefits." The fnst benefit she mentions is
15
that Transcos provide transmission growth through "an opportunity to access
16
capital ftom different sources in order to be able to relieve some capital pressures
17
from our operating companies." She then goes on to address the FERC rates. Mr.
18
Harris notes this major point conceming the capital pressures on the operating
19
companies, but he downplays its significance by addressing it in a footnote.
by Ms. Tomasþ as a basis for hís assertion. Nowhere in this
20
Q:
DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY?
21
A:
Yes.
iRo5831 96.1)
of
2oTao42a-3040 FERC PDF (Unoffícial)
04/21"/2o:-1
135 FERC 1161,066
IINITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMIS SION
Before Commissioners: Jon Wellinghoff, Chairman;
Marc Spitzer, Philip D. Moeller,
John R. Norris, and Cheryl A. LaFleur.
Inc.
Docket Nos. ER10-355-000
Company,Inc.
ER10-355-001
AEP Appalachian Transmission Company,
AEP Indiana Michigan Transmission
AEP Kentucky Transmission Company, Inc.
AEP Ohio Transmission Company, Inc.
AEP Oklahoma Transmission Company, Inc.
AEP Southwestern Transmission Company, Inc.
ü
ORDER APPROVING CONTESTED SETTLEMENT, SUBJECT TO CONDITION,
AND DISMISSING REQUEST FOR REFIEARING
(Issued April2I,2011)
{
1.
In this order, the Cornmission approves the contested Settlement Agreement
(Settlement) filed pursuant to Rule 602 of the Commission's Rules of Practice and
Procedurel by American Electric Power Service Corporation (AEP ServiceCo) on behalf
the new AEP Transmission Companies2 and other parties3 (collectively, Settling Parties)
'We
regarding transmission formuia rates.
find that the Settlement is just and reasonable,
t
18
c.F.R. $ 3s5.602 (2010).
2
AEP Appalachian Transmission Company, Inc.; AEP Indiana Michigan
Transmission Company,Inc.; AEP Kentucky Transmission Company, Inc.; AEP Ohio
Transmission Company,Inc.; AEP \Mest Virginia Transmission Company, Inc.; AEP
Southwestern Transmission Company, Inc.; and AEP Oklahoma Transmission Company,
Inc. (collectiveiy, AEP Transmission Companies).
t
Blu" Ridge Power Agency; Craig-Botetourt Electric Cooperative, East Texas
Electric Cooperative; Northeast Texas Electric Cooperative, Inc.; Tex-La Electric
Cooperative of Texas, Inc.; Indiana Municipal Power Agency; Old Dominion Electric
Cooperative; American Municipal Power,Inc.; AEP Intervenor Group; Buckeye Power,
Inc.; Arkansas Electric Cooperative Corporation (AECC); Golden Spread Cooperative,
Inc. (Golden Spread); and Indiana Michigan Municipal Distributors Association.
Ë
..
.FillllPll,. , , -,
äw?
2031042r-3040 FERC PDF (Unofficial)
04/2t/20Lr
1
Docket Nos. ERl0-355-000 and ERl0-355-001
subject to AEP ServiceCo making a compliance filing. We also dismiss as moot Golden
Spread and AECC's joint request for ciarification, or in the altemative, rehearing of the
Jánuary 28,2010 order.a
L
2.
Background
American Electric Power, Inc. controis a number of public utilities that own
generation, transmission and distribution facilities. The AEP Operating Companies
include seven utilities which are members of PJM Interconnectiôn, L.L.C. (PJM)5 and
two utilities which are members of Southwest Power Pool, Inc. (SPP).6 AEP
Transmission Holding Company, L.L.C. is the parent of AEP ServiceCo and AEP
Transmission Company,L.L.C., (AEP TransCo). AEP TransCo is a newly formed
company that serves as a holding company for seven new AEP Transmission Companies
which geographically align with the state or states in which they operate and which were
formed to help the AEP Operating Companies strengthen their f,rnancial conditions and
promote investment in the transmission-only AEP TransCo.T AEP ServiceCo provides
professional and business services for AEP TransCo and the new AEP Transmission
Companies.
3.
On December 1, 2009, AEP ServiceCo, on behalf of AEP TransCo, filed forwardlooking formula rates for the seven new AEP Transmission Companies. Specificçlly,
AEP ServiceCo filed revised tariff sheets to the open access transmission tariffs (ÐATT)
of PJM and SPP to establish an annual transmission revenue requirement (ATRR) for
each of the new AEP Transmission Companies. Because the f,rling raised issues of
material fact that could not be resolved on the existing record, the Commission issued an
order on January 28,2010, accepting and suspending the formula rates for five months, ^
subject to refunâ and subject to ihe õutcome of n"utitrg and settlement judge procedures.s
o
AEP Appalachian Transmission Co, Inc., et. al.,I30 FERC
(January 28 Order).
I
61,075 (20i0)
s
Appalachian Power Company, Columbus Southern Power Company, Indiana
Michigan Power Company, Kentucky Power Company, Kingsport Power Company,
Ohio Power Company, and Wheeling Power Company.
6
Southwestern Electric Power Company and Public Service Company
Oklahoma.
t AEP ServiceCo. December 2,2009 Filing, Exhibit AEP-100 at74.
8
January 28 Order, 130 FERC n61,075.
of
20IL0421,-3040 FERC PDF (Unofficial)
04/2a/2011,
-3
Docket Nos. ER10-355-000 and ERl0-355-001
-
4.
On March I,2010, Golden Spread and AECC filed a joint request for clarification,
or in the alternative, request for rehearing of the Commission's January 28 Order.
5.
On September 24,2010, Settling Parties filed the Settlement summarized below.
On November 9, 2010, the Settlement Judge filed a report to the Commission,and the
Chief Administrative Law Judge acknowledging that the proposed Settlement was a
disputed matter to be addressed by the Commission.e On November 10, 20l0,the Chief
Administrative Law Judge issued an order terminating settlement judge procedures and
forwarding the Settlement to the Commission.l0
il.
Settlement
A.
Settlement Terms
6.
The Settlement package consists of six Articles and seven Attachments. Articles I
and II of the Settiement provide the background of this proceeding and state that the
Settlement is intended to resolve all matters in this proceeding between the parties.
Article III references the Attachments to the Settlement, which provide the settlement
terms and formula rates for the AEP Transmission Companies which will be incorporated
into the OATTs of PJM and SPP. Article IV address.r i-p1"-.ntation terms of the
Settlement, inciuding an effective date of July 1,2010. Articles V and VI provide nonseverabilþ and reservation provisions. The substantive provisions of the Settledrent are
summarized below.
.
Attachment A-1 addresses the agreed-upon cost of service and formulamte
principles for the new AEP Transmission Companies in PJM. Attachment B-1 addresses
the agreed-upon cost of service and formularate principles for new AEP Transmission
Companies in SPP. Attachments A-1 and B-1 reflect the revised tariff language to be
incorporated into Attachments H-20, H-20-4, and H-20-B of the PJM OATT and
Attachment H of the SPP OATT. The treatment of formation costs; return on equity
(ROE), capital structure, long-term debt cost, and interest rate derivative hedging on
long-term debt; Post Retirement Benefits Other Than Pensions (PBOP) expenses; and
transmission depreciation rates are specified in Attachments A-1 and B-1. Attachments
A-1 and B-1 also provide that if any of the AEP Transmission Companies wishes to
7
e
American Elec. Power Serv. Corp., 133 FERC
ro
f
63,004 (2010).
American Elec. Power Serv. Corp., Docket No. ERl0-355-000, November 10,
2010 (unpublished report).
.ß
2Or'LO42r-3040 FERC PDF
(Unofficial)
04/21'/20LA
Docket Nos. ER10-355-000 and ER10-355-001
change either its stated depreciation rates or its PBOP expenses,
Power Act (FPA) section iOs" filing to do so.
-4it must make a Federal
8.
Sections 6.7 and6.8 of the Settlement, along with Aftachments A-1 and B-1,
specify the standard of review for modifications to the formula rate after approval. Any
modidcation to the Settlement sought by a SettlingParty,regardless of whether the
modification is agreed to by other Settiing Parties, will be subjggt to the'Just and
reasonable" standard of review under FPÃ section205 or 206.12 A Seuling Party or
parties seeking to modify the formul araïe in any respect must do so as specified under
the FPA.
g.
The "public interest" standard of review will apply to Settling Parties seeking any
modification of the following that is not agreed to by all Settling Parties: (1) the duration
on the
and amount of the Equity Ratio Caps, (2) the duration and amount of the limitation
Companies
amount of any incentive return on common equity that AEP Transmission
may request, ând (3) the methodology for determining whether the AEP Transmission
Companies are required to file a change to the PBOP expense allowance'
10.
Section 6.8 states that if the Commission acting sua sponte, or an intervenor or
other interested entity that is not a Settling Party, seeks to modify the Settlement, the
standard of review will be "the most stringent standard permissible under applicable
law.,' Notwithstanding the above, Auachãrents A-2, seôtion 3.f. and B-2, sèôtiorrûU. Z to
the Settlement speciff that the protocols "in no way limit the rights of [the] AEP
parry to initiate a proceeding at the
[Transmission iompânies] or any Interested
Rate or any Anrrual Update
[Commission] at any time with respect to the Formula
and
ãonsistent wiih the p*y'r full rights under the FPA, including [s]ections 205,206
306, and the [Commission's] regulations."
Section I.C.7 of Attachment A-1 and section I.C.8 of Attachment B-1 identify the
formation costsl3 to be included in the Settlement rates. Formation costs incurring after
11.
tt
16
u.s.c.
$ s24d (2006).
tt
16
u.s.c.
$g 824d, 824e.
Formation Costs include, but are not limited to, all costs associated with
obtaining any necessary federal, state, or local approvals for formation/operation of the
AEp Transmission Companies, all costs associated with establishment of the AEP
Transmission Companies and the evaiuation of how to accomplish same, and any other
category of cost that AEP treated as a Formation Cost for purposes of its request to
,r.oî.ipr"-Jgne 30, 2010 formation costs. Settlement at Attachment A-1, section I.C.7
at25 andAttachment B-1, section I.C'8 at 52.
13
t'
2011,0421,-3040 FERC pDF
(Unofficial)
04/2r/20:-L
Docket Nos. ER10-355-000 and ERl0-355-001
-5-
June 30, 2010, shall not be included in the transmission formula rates of the AEP
Transmission Companies or the AEP Operating Companies. One half of the AEP
Transmission Companies' formation costs which incur before June 30,2010, will be
included in the formula rate, with such amount to be allocated equally among the AEP
Transmission Companies and amortized over four years.
12.
Section I. D. of Attachments A-1 and B-1 specifies the agreed-upon cost of
common equity used in the formula rates for the AEP Transmission Companies in PJM
and SPP, respectively. Under Attachment A-1, the AEP Transmission Companies in
PJM agree to a base ROE of 10.99 percent, plus a 50 basis point adder for the continued
membership in a regional transmissionorganization (RTO), for a total ROE of 1I.49
percent. Section L D. of Attachment A-1 establishes a moratorium for 36 months from
the effective date of the Settlement whereby the AEP Transmission Companies in
PJM may only request ROE adders for üansmission rate incentives pursuant to Order
Nos. 679 and679-A1a of up to 125 basis points, i.e., lz.74percent. Mor"ou"r, section
I. D. of Attachment A-1 specifies that the Settlement does not establish a lower or upper
end of the zone of reasonableness for the AEP Transmission Companies in PJM. Under
Attachment B-1, the AEP Transmission Companies in SPP agree to a base ROE of 10.7
percent, plus a 50 basis point adder for the continued membership in SPP, for a total ROE
of 1I.2 percent. Further, the AEP Transmission Companies in SPP agree to a
moratorium which provides that they will not make a filing with the Commissioy'
pursuant to Order Nos. 679 and 679-A which would increase the ROE above an equity
cap of 12.45 percent for 36 months from the period commencing July 7,2070 through,
and inciuding, June 30,2013.
13.
Attachments A-2 andB-2provide the formularateimplementation protocols
governing the annual updates and the true-up mechanism for AEP Transmission
Companies in PJM and SPP. Attachments C-l and C-2to the Settlement provide tariff
ianguage, formula rate implementation protocols, and formularate templates for the PJM
and SPP OATTs, respectively. Attachment D provides the agreed-uponpopulated
Formula Rate Templates, which calculate the projected ATRR for the first rate year based
on net plant projected to December 31,2070, using historical 2009 cost data.
14.
Article IV includes the AEP Transmission Companies' request that the
Commission grant a July 1,2070 effective date and allow the agreed-upon rates and
charges to become effective without condition or modification. Article V specif,res that
the provisions of the Settlement are not severable. Article VI expressly conditions the
ra
Promoting Transmission Investment through Pricing Reform, Order No. 679,
FERC Stats. & Regs. n31,222 (2006), order onrehþ, OrderNo. 679-4, FERC Stats. &
Regs. n31,236, order on reh'g,7I9 FERC n il,062 (2007).
'Jl
2ot'1-o42L-3040 FERC PDF
(Unofficial)
04/2I/20It
Docket Nos. ERl0-355-000 and ERl0-355-001
-6-
Settlement on the Commission's acceptance of the terms and conditions without
modifications or omission.
B.
Comments on the Settlement
1.
Initial Comments
15.
On Octobe r 14,2}t!O,the Indiana Utility Regulatory Commission (Indiana
Commission), Maryland Office of,People's Counsel (People's Counsel), and
CommissionTrial Staff filed initial comments. The Indiana Commission argues that the
Settlement does not provide benefits to the public, customers, of consumers.
Specifically, the Indiana Commission argues that the Settlement will not result in:
be built under the PJM and
1i) construction of any transmission that otherwise will not
Spp OATTs, (2) construction of any large-scale transmission project, (3) interconnection
,"n"*able resources, (4) reduction of congestion, (5) improvement of
of any
deüvãrability and consequent reduction of energy prices, or (6) increased reliability. The
Indiana Commission rejécts AEP ServiceCo's suggestion that the Settlement will
facilitate the AEP Operating Companies' acquisition of financing, arguing that AEP
ServiceCo has failed^ to shÑ thatãny of the companies have found it difficult to obtain
financing. The Indiana Commission further contends that the AEP Transmission
Companies will receive a higher ROE by switching regulatory jurisdictions. Fin{p, the
Indiana Commission argues that AEP ServiceCo's proposal appears to provide AEP
ServiceCo with higher *rr"n res and potentially higher profits with zubstantially less
t.*
regulatory oversight.
16.
17.
people's Counsel states that it supports the Indiana Commission's comments.
Although Trial Staff filed comments supporting approval of the Settlement, it
notes that the formularafetemplate contains iine items for production and distribution,
even though the formulae appþ solely to transmission-only entities. Notwithstanding
Staff
that these line items ¿re set at zero and are intended to act as placeholders, Trial
that
asserts
Staff
Trial
at
all.
contends that they should not be included in the template
their inclusion islnconsistent with Settlement protocols requiring each new AEP
Transmission Company to make an FPA section 205 fiiing before attempting to recover
costs associated with pioduction or distribution through the formulatate. Therefore,
Trial Staff ,."o-*"nãs that the Commission approve the Settlement, but require AEP
ServiceCo to remove the line items for production and distribution costs'
fi
CASE NO. 1O-0577-E-PC
APPALACHIAN POWER COMPANY and
WHEELING PO\ryER COMPANY d|blA
AMERICAN ELECTRIC POWER and
AEP WEST VIRGINIA TRANSMISSION COMPANY, INC.
DIRECT TESTTMONY
OF
BYROI{ L. HARRIS
On behalf of the
Consumer Advo cate Division
Of the
Of V/est Virginia
Dated: April 6. 20tr 1
I
1 Q.
2 A.
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
3
Union Building, Charleston,'West Virginia 25301.
My name is Byron L. Harris. My business address is
723 Kanawha Boulevard, East, 700
.
4
s a.
6 A.
7
PLEASE STATE YOUR EMPLOYER AND POSITION.
I am the Director of the Consumer Advocate Division of the Pubtic Service Commission
of West Virginia.
8
9 A.
10 A.
PLEASE DESCzuBE YOUR EDUCATIONAL BACKGROUND.
11
in history and economics. I received my Master of Arts in Economics from Indiana
12
University
i3
Demand for Electricity in the Public Service Indiana Region."
ln 1976,I obtained a Bachelor of Arts Degree from
in 1980. My
Indiana University, where I majored
Master's Thesis was entitled, "A Forecast of the Residential
t4
15 A.
16 A.
HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS COMMISSION?
Yes. I have testified on numerous occasions in natural gas and electric cases.
17
18 A.
T9
20 A.
HAVE YOU PREVIOUSLY TESTIFIED BEFORE ANY OTHER ADMINISTRATIVE
21
Minnesota. I have also testified before the Minnesota Energy Agency and the Minnesota
22
Pollution Control Agency.
BODIES?
Yes,
I
have testified before the Public Service Commissions of lndiana, Wisconsin and
23
24 A.
DO YOU SERVE ON ANY COMMITTEES ON BEHALF OF THE CONSUMER
ADVOCATE DIVISION?
1
2
A.
Yes.
I
am on the Executive Committee of the National Association
I
of
State Utility
J
Consumer Advocates (NASUCA).
4
Committee. I am also a member of the Staff Subcommittee on Accounting and Finance
5
the National Association of Regulatory
was formerly the chair of the NASUCA
Gas
of
Utility Commissioners.
6
7
a.
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
8
A.
I will explain why the Consumer Advocate Division
recommends that the Commission
9
deny the request of Appalachian Power Company (APCo), Wheeling Power Company
10
(WPCo) (collectively the Companies) and AEP West Virginia Transmission Company
11
(WV Transco) (all collectively the Applicants) for approval of certain
I2
agreements that are necess¿ry for
13
entities are subsidiaries of American Electric Power Company (AEP).
'WV
Transco to operate in West Virginia.
affrliate
All of these
1,4
The Commission should reject the Applicants' requests because allowing 'WV
15
Transco to invest in transmission projects in lieu of investments by APCo andlor V/PCo
T6
will
T7
cannot meet the statutory tests for approval of affiliate transactions set forth
18
Virginia Code $24-2-12.
cause higher rates
for APCo's and WPCo's customers. Therefore, the Applicants
in
West
t9
20
a.
HAS BEEN ASKED TO APPROVE.
27
22
PLEASE BRIEFLY DESCzuBE THE AGREEMENTS THAT THE COMMISSION
A.
The Applicants have requested Commission approval pursuant to WV Code $24-2-12 for
23
the following affrliate agreements:
24
1. Service agreement between APCo and WV Transco for APCo to provide certain
1
transmission related services to'WV Transco (Exhibit C-l to the Petition);
2
2. Service Agreement between WPCo and V/V Transco for WPCo to provide certain
J
transmission related services to WV Transco (Exhibit C-2 to the Petition);
4
3. Service Agreement between American Electric Power Service Corporation (Service
5
Company) and WV Transco for the Service Company to provide a variety of financial,
6
engineering and administrative and administrative services to
7
and E to the Petition)
8
4. Amended Utility Money Pool Agreement between AEP and a variety of subsidiaries
9
(including'WV Transco) to allow'WV Transco to contribute to and borrow from the AEP
WV Transco (Exhibits D
10
shortterm money pool (Exhibits F-1 andF-2 to the Petition).
11
5. Service agreement between APCo and AEP Appalachian Transmission Company
t2
(AEP Appalachian) for APCo to provide certain transmission related services to AEP
13
Appalachian (Exhibit G to the Petition)
The service agreements listed as numbers 1,2 and 4 above, are necessary because
14
'WV
15
Transco will not have any employees and
will rely upon persorurel of APCo, V/PCo
t6
and the Service Company
l7
simply allows WV Transco to obtain access to short term debt through inter-company
18
loans. The last service agreement listed is for APCo to provide transmission services to
19
the Transco that
will
in order to operate. The
operate in Virginia
-
amended Money Pool QrTo. 4 above)
AEP Appalachian.
20
21
a.
REVIEW THE PROPOSED ACQUISITON?
22
23
24
WHAT ARE THE LEGAL STANDARDS GOVERNING THE COMMISSION'S
A.
The legal standards governing the Commission's review of the proposed transaction are
set forth
in several sections of the W. Va. Code, chiefly in W. Va. Code $ 24-2-12. That
section of the Code states, in pertinent part:
)
J
4
5
6
7
8
9
10
11
t2
13
T4
i5
L6
17
18
19
20
Unless the consent and approval of the public service commission of West
Virginia is first obtained: . . . (b) no public utility subject to the provisions
of this chapter, except railroads other than street railroads, may purchase,
lease, or in any other manner acquire control, direct or indirect, over the
franchises, licenses, permits, plants, equipment, business or other property
of any other utility; (c) no public utility subject to the provisions of this
chapter, excep railroads other than street railroads, may assign, transfer,
lease, sell, or otherwise dispose of its franchises, licenses, permits, plants,
equipment; business or other property or any part thereof . . . ; (d) no
public utility subject to the provisions of this chapter . . ffiây, by any
means, direct or indirect, merge or consolidate its franchises, licenses,
permits, plants, equipment, business or other property with that of any
other public utility; (e) no public utility subject to the provisions of this
chapter .
may purchase, acquire, take or receive any stock, stock
certificates, bonds, notes or other evidence of indebtedness of any other
public utility . . , ; (g) no person or corporation, whether or not organized
under the laws of this state, may acquire either directly or indirectly a
majority of the common stock of any public utility organized and doing
business in this state.
2T
22
The Code establishes a three-part test that the Commission is
to apply in
23
reviewing the proposed transaction and determining what action to take with regard to it,
24
providing:
25
26
27
28
29
30
The commission may grant its consent in advance or exempt from the
requirements of this section all . . transaction[s] referred to in this
section, upon proper showing that [1] the terms and conditions thereof are
reasonable and [2] that neither party thereto is given an undue advantage
over the other, and [3] do not adversely affect the public in this state.
3l
Finally, W. Va. Code $ 24-2-12 specifies the actions the Commission may take in
32
its orders issued in connection with transactions submitted for its review under this
JJ
section, providing that:
34
35
36
37
38
39
[T]he commission shall, if the public will be convenienced thereby, enter
such order as it may deem proper and as the circumstances may require,
attaching thereto such conditions as it may deem proper, consent to the
entering into or doing of the things herein provided, without approving the
terms and conditions thereof, and thereupon it shall be lawful to do the
things provided for in such order.
40
41
4
1
a.
WHY DOES THE CAD RECOMMEND THAT THE COMMISSION DENY THE
2
APPLICANTS' REQUESTS F'OR APPROVAL OF THE VARIOUS AFFILIATE
^3
AGREEMENTS OUTLINED ABOVE?
4
A.
The Applicants' own analysis shows that these transactions will have an adverse impact
2
5
on the public by increasing the rates of APCo and WPCo (See Table
6
Potter's direct testimony). The purpose of the agreements for which the Applicants seek
1
approval is to allow WV Transco to construct transmission facilities in West Virginia
8
rather than APCo and V/PCo. WV Transco
9
transmission services through
will
its formula rate
onpage 11 of Mr.
then charge APCo and rWPCo for
approved
by the
Federal Energy
10
Regulatory Commission (FERC). The fundamental reason why the rates of customers of
11
APCo and WPCo will increase because of the activities of
12
that the FERC-approved formula rate for WV Transco is much more generous than the
73
ratemaking procedures used by this Commission. As
t4
below, the detrimental impact on rates from WV Transco is likely to increase in the
15
future.
YV
Transco, is due to the fact
I will explain in greater
detail
16
17
a.
V/HAT ruSTIFICATIONS HAVE THE APPLICANTS PRESENTED FOR V/HY THE
18
COMMISSION SHOULD APPROVE THE AGREEMENTS NECESSARY FOR THE
19
TRANSCO TO OPERATE IN WV?
20
A.
The only substantive arguments put forth by the Applicants in favor of the 'WV Transco
21
arrangements are presented primarily in the testimonies of Messrs. Potter and Boteler.
22
Mr. Potter contends that projected capital needs for investment in APCo's generation,
23
transmission and distribution facilities
24
in transmission facilities are done by WV Transco. He appears to imply on page 6 of his
will be lessened if
some of the future investments
1
testimony that the use of WV Transco for investing in transmission facilities
2
necessary for APCo
3
supports the notion that WV Transco is necessary to relieve financial pressures on APCo;
4
He also contends that WV Transco's operations are easier for investors to understand,
5
and that this factor should allow
6
than APCo. Mr. Boteler also contends that the presence of the WV Transco
7
APCo to obtain lower costs debt financing in the future.
will
to maintain and investment-grade credit rating. Mr. Boteler
be
also
WV Transco to obtain capital on more favorable terms
will
enable
I
9
a.
ruSTIFICATIONS?
10
11
HAVE THE APPLICANTS PRESEENTED ANY EVIDENCE TO SUPPORT THEIR
A.
No, because they cannot.
All of the justifications offered in favor of 'WV Transco
are
t2
based upon speculations about the impact of
13
future capital costs of APCo. The only evidence presented by the Applicants shows that
t4
the rates for APCo's and WPCo's customers
15
constructed by WV Transco rather than APCo or WPCo.
V/V Transco on its capital costs and on the
will be higher if transmission facilities
are
t6
17
HOW MUCH HIGHER WILL APCO'S AND V/PCO'S RATES BE
18
TRANSMISSION INVESTMENT IS MADE
19
APCO OR WPCO?
20
A.
IF
BY WV TRANSCO RATHER THAN
The size of the negative impact on rates depends upon the size of the transmission
of
2I
investment. The Applicants' Mr. Potter has presented calculations showing the impact
))
an assumed $40
23
Potter's testimony, the revenue requirement for the $40 million investment by APCo is
24
$6,162,2I1.If
million dollar investment by V/V Transco. As shown on Table 2 of Mr.
the same transmission investment was made by
WV Transco, the revenue
1
requirement would be $6,646,167, or approximately 8% higher. 'While this negative
2
impact may not seem to be very large,I believe the negative impact on ratepayers from
J
WV Transco will increase in the future.
4
It is also important to
note that Mr. Potter's calculations were based upon the
5
APCo's allowed retum on equity (I0.5%) that was in effect at the time his testimony was
6
filed. The Commission's recent order in Case No. 10-0699-E-42T setAPCo's return on
7
equity atl0.0%o.
8
9
a.
i0
11
PLEASE EXPLAIN WHY YOU SAY THAT THE NEGATIVE IMPACT ON
RATEPAYERS FROM WV TRANSCO
A.
'WV
ß LIKELY TO INCREASE IN THE FUTURE.
Transco's formula rate was initially set by a settlement approved by the FERC in
t2
Docket No. ERl0-3551. The overall rate of return for WV Transco was set at 8.29o/o2 and
13
includes a retum on equity
t4
7.36% overall rate of return established by the Commission in Case No. 10-0699-E-427
15
of
of 11.49%. This rate of return is substantially higher than the
7.36%o.
t6
This discrepancy between the rates of return for WV Transco and APCo/WPCo is
17
likely to at best remain the same or at worst be even larger in the future. One simple
18
reason for the discrepancy
19
component of a
20
lowest cost source of capital,
2T
equal, always be higher than APCo/WPCo's. ln addition, the FERC follows a number of
22
ratemaking practices that are more generous for utility shareholders than the practices
t
2
is that FERC
does not recognize short term debt as a
utility's capital structure. Since short term debt is generally a utility's
'WV
Transo's rate of retum
will, all
other things being
Th. S"ttlr-ent applies to atl AEP East Transmission Companies.
Sirr"" WV Transco does not have any debt or eQuity, the initial capital structure and the cost rate for debt
upon the average values for the AEP-East operating companies.
7
are based
generally employed by this Commission.
1
2
The FERC allows utilities filing for rates for transmission service to request a
J
a
number of incentives that increase the cost of service of transmission projects. These
4
incentives include; allowance
5
capital structures, guarantee{ recovery of abandoned projects, accelerated depreciation
6
and various "adders" to the return on equity.
7
point adder to the "base" return on equity for membership in a Regional Transmission
8
Orgarization. A transmission company can also receive an ROE adder as high as 150
9
basis points depending upon the risks and challenges involved
for construction work in progress, use of hypothetical
,A.
transmission company can get a 50 basis
in the transmission
10
project.3 Finally, FERC's formula rate procedures
11
up any under (over) recovery, which provides a guarantee that the transmission company
t2
will
allow a transmission company to true
eam its return.
The settlement in Docket No. ER10-355 provides WV Transco with a 50 basis
T3
t4
point adder to its return on equity for membership in the PJM Interconnection.
15
important to note that the settlement only limits the ability of WV Transco to request
16
additional incentives for a three year period. The settlement allows WV Transco to seek
t7
additional incentives up to 125 basis points for specific projects. Based upon the current
18
"base" return on equity, WV Transco could request a return on equity as high as 12.74Yo.
79
A
20
requested by APCo and WPCo in their last base rate case.
return on equity
of this level would be almost 100 basis points
It
is
above the level
21
22
a.
BOTH MR. BOTELER AND MR. POTTER CONTEND THAT WV TRANSCO
NEEDED TO ALLEVIATE FINANCIAL PRESSURES ON APCO.
23
3
DO
ß
YOU
For example, the FERC awarded Potomac-Appalachian Transmission Highline LLC (PATH) total adders of 200
of 12.3%. Potomac-Appalachian Transmission Highline, L.L.C.,122 FERC tl
61,188 (2008) (February 29 Order).
basis points in addition to a base ROE
I
I
BELIEVE THAT THE PURPOSE OF WV TRANSCO
2
PRESSURE ON APCO?
J
A.
ß
TO RELEIVE FINANCIAL
Absolutely not. The request for the WV Transco is motivated by one thing
-
the fact that
4
the FERC has laid out a very large bowl of ratemaking'candy' and AEP wants to get as
5
many entities as possible to get candy from that bowl. AEP can accomplish this goal by
6
creating Transcos
7
little or nothing to do with relieving financial pressure on APCo. APCo
8
through one of its most ambitious capital programs in many years
9
V/yoming-Jackson Ferry transmission line, installation of scrubbers on Mountaineer and
10
Amos Units 1, 2 and 3. As a result, APCO's capital needs are expected to decline in the
11
foreseeable future, not increase.
12
Investor Service and Fitch, Inc. draw precisely this same conclusion.a For example,
13
Moody's January 29,2011 credit opinion states that one of the 3 "Rating Drivers" was;
l4
"Financial profile and balance sheet expected to strengthen, especially as major spending
15
prosram winds down" (Emphasis added).
16
Fitch reports as Exhibits BLH-1 and2, respectively.
in each state in which it operates. The creation of WV Transco has
-
has
just
been
construction of the
In fact, the most recent ratings reports by Moody's
I
have attached copies of the Moody's and
77
The creation of WV Transco is simply a part of AEP's transmission strategy
18
which is to use transmission investments as an opportunity to enhance AEP's earnings.
19
Exhibit BLH-3 is a copy of the portion of the transcript from AEP's Analyst & Investor
20
Meeting of October 19,2010. These pages contain the discussion of AEP's transmission
21
strategy by Susan Tomasky, President
22
Ms. Tomasky's slides accompanying her presentation. As can be seen from the transcript
23
and the slides, AEP's move to create Transcos is clearly driven by the opporhrnity to use
4
of AEP Transmission. Exhibit BLH-5 is a copy of
Standard & Poor's basis its rating of APCo on its rating of AEP.
9
1
the generous ratemaking procedures that exist at the FERC.s AEP's projected benefits
2
from the Transcos are shown on the slide entitled; Capital Investment and Earnings
J
Profile in Exhibit BLH-4. This graph illustrates that AEP is projecting that the Transcos
4
will
5
the Transcos \¡/as driven home later at the same meeting by Brian Tierney, Executive
6
Vice President and Chief Operating Officer of AEP;
add approximately $125 million per year to AEP's earnings ín 2016. The impact
of
We will not waiver in oui focus on capital allocation. We're going to continue to
focus where can we earn higher ROEs in places where our ROEs are lagging? I
think you got a sense from listening to the operating company presidents that
they're acutely focused on getting those ROEs improved so we can continue to
invest for the benefit of our customers and our shareholders. And that will be a
key component of our growth strategy going forward. In the end. the hisher end
of our erowth rate is qoing to be driven by earnings from our Transmission
7
8
9
10
11
l2
13
t4
storv. which we expect to siqnificantly iuice our earnings growth rate.
15
(Emphasis added)
16
I7
a,
ONE OF THE FIVE AFFILIATE AGREEMENTS FOR WHICH THE APPLICANTS
A SERVICE
18
SEEK APPROVAL IS
19
APPALACHIAN TRANSMISSION COMPANY. V/HAT DO YOU RECOMMEND
20
REGARDING THIS AGREEMENT?
2I
A.
AGREEMENT BETWEEN APCO AND AEP
AEP Appalachian Transmission Company is the name of the Transco that AEP plans to
22
operate in Virginia. The request for approval of a service agreement between APCo and
23
AEP Appalachian is premature, because APCo has not received approval of affiliate
24
service agreements
25
Commission.6 The Commission should not approve this agreement
26
Commission has reviewed a filing by APCo to implement the agreements necessary for
for AEP Appalachian from the Virginia
5
State Corporation
until the Virginia
I should note that Ms. Tomasþ does mention (at p. 2l of the transcript) that Transco's provide a benefrt of
relieving capital pressure on the operating companies.
o
Io Muy 2010, APCo filed for approval of transmission-related affiliate transactions, but later withdrew the request
(Case No. PUE 2010-00038). To date, APCo has not re-filed for approval of the transactions with the Virginia
Commission.
10
1
the operation of AEP Appalachian in Virginia. I recommend that the Commission deny
2
the Applicants request in this proceeding and wait until the issue has been resolved in
3
Virginia.
4
5 Q.
6 A.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes, it does.
11
EXHIBIT BLH-I
CAD 1-4, Attachment
Page 9 of 16
Moopt's
tNvÊgrÕRs sÉRvrcE
Credit Opinion: Appalachian Power Company
Global Credit Research - 29 Jan 2011
Roanoke, Virginia, United S[ates
Category
Moody's
Outlook
hsuer Rating
SeniorUnsecured
PreferredStock
Paren[Arcrican Electric Povær Conpany, lnc.
Ouuook
Sr Unsec Bank Credit Facility
SeniorUnsecured
JrSubordinate
Commercial Paper
lrral¡ct
Rating
Stable
Baa2
Baa2
Ba1
Stable
Baaz
Baa?
Baa3
P-2
Phone
York
York
James Hempstead/New
William L. Hess/New
212.553.4318
212.553.3837
[1]Appalachian Pouær Conpany
(CFO PreWC + lnteresl) / lnterest
(CFO Pre-WC)/
(CFO PreWC - Dividends) /
Debt
Debt / Book
fll
Expense
Debt
Capitalization
LTM
3Q10 2009 2008 2007
3.3x 3.8x 2,6x LSx
1L9% 15.4% 10.1o/o 9.9Vo
10.8o/o 14:5% 10.1% 92o/o
48.V/o 49.60/o 51.V/ø
52.3Vo
All ratios calculated in accordance with the Regulated Electric and Gas Ulilities Rating lVelhodology using lrloody's standard adjustments
Nole: For def¡n¡l¡ons of Moody's most common rct¡o terms p/ease see fhe accompanying Uset's Guide.
Rating Drivers
Rate-regulated electric utility operations should produce reasonably stable and predictable revenue and cash llow
Regulatory jurisdictions in Virginia and West Virginia viewed posltively, but concems rising in Virginia about intervention risk
Financial profile and balance sheet expected to strengthen, especially as major spending program winds down
Corporate Profile
Appalachian Power Company (APCo, Baa2 senior unsecured/stable) is a vertically inlegrated electric utility company and is a wholly owned
subsidiary of American Electric Power Company (AEP, Baa2 senior unsecured/stable). APCo is the largest utiliÇ subsidiary of AEP ranked by
rate base.Approximately 55% of APCo's roughly $3.7 billion rate base is under lhe jurisdiction of the Virginia State Corporation Commission
(VASCC) with the remainder under the Public Service Commission of West Virginia (PSC WVA).
Recent Developnents
'
ln July 2010, the VASCC approved an order granling an annual revenue increase of $62 million based on a 10.53% ROE. The order disallowed
recovery of $54 million of costs related to the ilácunta¡neer Carbon Capture Project but allowed the defenal of approximalely 827 million of storm
expenses incurred in 2009.
ln l\/ay 2010, APCo and affìliate Wheeling Power (WP) fìled a request with the WVPSC to increase annual base rates by $156 million effectively
I
CAD 1-4, Attachment
Page 10 of16
lvlarch 2011. The request is based on an 11.75% ROE and includes a request for recovery of and a return on the West Virginia share of lhe
il¡lountaineer Carbon Capture Project. ln December 2010, APCo and WP reached settlement w¡th related parties which prov¡des for a 960
million revenue increase and deferral of approximately $18 million of storm expenses incurred in 2009. Aruling ¡s expected by.lvlarch 2011.
SUMMAFCI RAf ING
RATþN¡IE
APCo s Baa2 senior unsecured rating reflects a relatively low-risk vertically integrated electric utility company operating in states with regulaiory
aulhor¡ties that are viewed as being reasonably supportive to long term credit qual¡ty. APCo is diversifìed between its Virginia and Wesl Virginia
jurisdictions and benelits from some consol¡dated fìnancial advantages of being part oflheAEP system.
DETALED RATNG CONSIDERATIONS
SUPPORTI\E REGUU\TORY FRAÀIEWORK
lrrloody's viows both the Virginia State Corporation Commission and the Public Service Commission of West Virginia as being reasonably
supporlive tp long term credit quality. Rate cases are typically setlled in thesejurisdiclions and annual fuel clause provisions exist in both states.
ROEs in bolh states are approimately 10.5% which is in line wilh industry average. The new legislation enacted in Virginia in February 2010 set
a statutory tíme limit requhing lhe VASCC to render a final order on a rate case filing within g months. In addition, \4rginia has numerous tracker
and rider mechanisms as part of its suite of recovery provisions, althoughAPCo has not availed themselves of these as much as its
neighboring peer, Virginia Elechic and Power Company (VEPCO: A3 senior unsecured / stable outlook).
ln West Virginia, adjustment mechanisms exist for investments related to environmenlal compliance costs and new generation facilities that
bum West Virginia coal. West Vrginia also allows a special environmental related construction surcharge. Securitization is permitted in West
Virginia to finance environmental conlrol investrnents in the state. Athough we acknowledge that the recent rale case results somewhat fall
short of the expectations given the recessionary pressure in lhe two states, lt ¡s not sufficient to change our view of the credit supportiveness of
lhese jurisdictions.
INIERVENTION RISKS COMINUE TO PERCOLATE IN VIRGINIA
ln Virginia, we often óbserve thatthe regulatory and polilical environment is generally viewed as a credit benefit for the utilities operating in the
slate- The most recent legislation, in 2007, effectively moved to r+regulate lhe traditional utility market structure. But we also witnessed a quick
legislative change in January 2010, but this only had a modest cred¡t impact on APCo: Nevertheless, we are monitoring more recent legislative
efforts lhat could result in more substanlial market restructuring. At this time, we do not úew this risk factor as a material credit driver, but we do
believe thatAPCO's cuslomers are increasingly becoming intolerant of absorbing steadily rising electric costs. '
Around lr4arch 2011, AFCo is expected to file its biennial rate review with the VASCC, which will evaluate lhe company's financial profile for lhe
years ended 2009 and 2010. ln separate filings, APCo is also expected to file for recovery of its fuel costs, which is not considered as .critical as
the biennial review process. From a credit perspective, we could become concerned should this review process become contenlious, although,
at thls lime, we are incorporating a view that the ultimate resolution should be, at a minimum, credit neukal toAPC9.
ln addition, we note that eilher as part ofthe biennial review or through separate proceedings, AFCo will also be engaged in a review of its
intemal interconnection agreements. This agreement is comparable to Entergys system lnterconneclion agreement.
FIMNCIAL METRICS Ð@ECTED TO IMFRO\E
Over lhe past few years,APCo's finarícial profile and key fnancial credit metr¡cs have been relatively weakfor its Baa2 senior unsecured rating
category. The ratio of cash from operations before working capital adjustments (CFO pre.w/c) to debt has declined from approimately 24o/. in
2003 to approximately 10% in 2008 but recovered to 15% in 2009. We calculate approximately 13% forthe twelve months ended September
2010, which is v¡ewed as weak for the rating. Prospectively, a $90 mlllion environmental and reliability rider (expenses incurred in 2OOB) expired
in 2010 which will put some downward pressure on the fnancial mekics in 20'11. Nevertheless, we believe thaiAPCo could produce marginally
positive free cash flow over lhe next few years primarily due to a declining capital expenditure program and benef¡ls of bonus depreciation.
LARGE CAP|TAL EXPENDÍIURE PROGRAIìII E)PECTED TO WIND DOWN
Hislorically, the rating has been constrained by the large capital investment plan atAPCo along with lhe flnancing plans associated with those
expenditures. For the latest twelve months ended September 2010, APCo invested approximately $503 million in its infraslructure, compared to
$713 million in 2008, $759 million in 2007 and $888 million in 2006. We expect capital inveslment lo decline over lhe next several years io a run.
rate of aPproxìmately $400 - $500 million annually, a slight increase from our previous expeclations.
COAL GENERATINGASSETS WLENERABLE TO SIGNIFIGATIT ENVIRONTì/ENTA IVANDATES
We view lhe potentìal for significant environmentâl regulations or leglslation, espec¡ally retated to carbon dioxide emissions,.as a material risk
affect¡ngAPCo's coal-fìred generaling assels. APCo has roughly 6,300 tvM's of generating capacity, roughly 80% of which is coal-fired.
It4oody's incorporates a view thatlhe timing of compliance requirements within any potenlial new legislalion is likely to be many years ¡n the
future and that the cosls associated with any new legislation regarding emissions will generally be recovered lhrough rates (either through
eisting fuel clause pass-through mechanisms or other incremental rate ride¡s).
Liquidity
APCo participates in the AEP Utility ltioney Pool, which prov¡des access lo the parent company's liquidity.
4EP has two separate credit facilities that lotal approximately $3.0 blllion. One is a $1.5 billion facil¡ty exphing June 2013 replacing the original
$1.5 billion expiringin þ¡ch-2oll. The,oJl19r !s gq qmçnded $1.4E4 þilliqn fapil¡ty çxpi¡irìs j¡ Ap¡jl !Q1-?..Tle_s-e fac¡lilies c,o¡!êin a deþt le
capitalization limit of 67,5%. AEP asserts lhat it remains in compliance. There is a $600 mil¡ion and $750 million lefter of credit capacity on the
2013 facility and the 2012 facility, respeclively, and a $500 million accordion feature and a onè.year extension option on each facility. Tñere are
no material adverse change reslrictions on draw¡ngs, no liligation representation provision at the time of borrow¡ng and a def¡nition adjustment
to exclude one ofAEP's subsidiaries, AEP Texas Central, as a "significant subsidiary''to prevent cross-acceleration in the event of a default. On
June 28, 2010, AEP reduced its separate three year $627 million LC facility to $478 million due in þril 2011 which has similar terms as the two
1
CAD 1-4, Attachment I
Page11 of16
primary facilities menlioned above. ln total, AEP has committed credit facilities of $3.432 billion.
As of September 30, 2010, the credit.facilities had $713 mlllion utilized ln supporting issued commerc¡al paper and roughly $602 million of LC's
posted, leaving approimately $2.2 billion'of capacity available. Combined with $lbillion of cash on hand, total liquid¡ty amounted to $3.2 b¡llion. .
AEP has approximately $616 mlllion and $565 million of long lerm debt that wlll mature in2011 and 2012, respectively. AEP has announced lhat
it will spend approximately $2.6 billion in capital expenditures. in 20:11 and $2.9 billion in 2012. We estimate that approximately $800 to $900
million in dividends per year w¡ll be d¡stributed in the next two years.
APCo has access to up to $600 mlllion in theAEP UIll¡ty tvbney Pool. As of September 30, 2010, APCo borrowed g55 mlllion from lhe money
pool.
Over the next two years, APCo has scheduled debt malurities of $250 million in Apr¡l 2011 and $250 mlllion inAtgust 2012. Fo¡ the twelve
months ended September 2010, APCo generated approximately $606 million in Íunds from operations, which covered 100% of its $503 million
capital invesiment requirements. APCo paid roughly $89 million in dividends.
Rating Outlook
The stable rating outlook primarily reflects an expectation thatAPCowill return to producing more robust financ¡al credit metrics,.including CFO
pre-w/c to debt in the mid to h¡ghteen's range and enjoy relat¡vely t¡mely recovery of costs and investments.
ìM¡at Could Ghange the Rating - Up
Rating upgrades appear unlikelyover lhe near lo intermediate term horizon, primarily due to our expectalion thatAPCo's financial profile will
take some time to fully recover to a range that is more supportive for its Baa2 ratings category. However, assuming the utility remáins vertically
integrated and lhat lhe regulatory authorities in Virginia and West Virginia remain reasonably supportive to credit quality in üèir rate case
decisions, APCo could be upgraded lf it improves lts financial profile to a level where CFO pre-W/C to debt approached 207o and CFO pre-WC
interest coverage approached 5x, on a sustainable basis.
Vlhat Could Change the Rating - Dorlrrn
Ralings could be downgraded if APCo's financial profile deler¡orated - where the ralio of CFO pre-WC to debt approached the.low-teens level
and the ratio of CFO pre-WC interest coverage fell to 3x on a sustainable basis. ln addition, APCo could experience negat¡ve rating pressure
wlth the development of a more contentious regulatory environment in either Virginia or West Virginia.
Appalachian Povrer
Corpany
:actor 1: RequlatorvFralftnDrk {257J
:-ac{or 2:Abllltyto Recover Cos{s and Earn Retums
X
X
l.25"/"1
=acÉor 3: Dlverslfication (107d
r) lvlarket Position (5%)
r) Generation and Fuel Diversitv (5%)
:actor 4: Financial Strengûh, Liquidity & Financial
Metric.s (407d
r) Liquidity (107d
r) CFO preWC + lnterest / lnterest (7.5%) (3yrAvg)
) CFO pre'WC / Debt (7.5%) (3yrAvg)
l) CFO pre-WC - Dividends / Debt (7.5%) (3yrAvg)
r) Debt / Capitalization or Debt / RAV (7.5%) (3yr
X
X
X
X
X
X
X
Avo)
{ating:
l) Grid lmplied Senior Unsecured Rating
r) Actual Senior Unsecured Ralinq
Baa3
Baa?
MogÐv's
INYESTORS SERVICE
@
2011 lt/oody's lnvestors Service, lnc. andior its licensors and affiliates (cotleclively, "I\4OODYS). All rights reserved.
GRED|T.RAnNGSARE MOODì"S IN\ESTORS SER\íCE, |NC.'S (,'MtS.) CURRENT OptNtONS OFTHE
REUÍTNÆ FUTURE CRED¡T RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. MIS DEFINES CREDIT RISKAS THE RISKTHÆ¡¡'¡ ENTITY MAT NOT MEET ITS
CONTRÁCTUAL, FINA¡.¡CIAL OBUGÆIONS ÄS THEY COME DUE A¡,¡D Á¡IY ESTMATED FINA¡{CIÁL LOSS
IN THE EVENT OF DEFAI'LT. CREDIT RIÍNNGS DO NOTÁDDRESSA{Y OTHER RISK, INCLUDING BUT
NOT LIMITED TO: UQUIDITY RISK MARKET VALUE RISK, OR PRICE VOLATTUTY. CREDIT RATINGS ÁRE
CAD 1-4, Attachment
Page 12 of l6
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1
EXHIBIT BLH-2
CAD'l-4, Attachment
Page 13 of 16
Corprrates
l'.itah-flåaflerags
GlobalPower
Appalachian Power Co.
U.S. and Cauada
Full Rating Report
A Subsidiary ofArnerican Blectric Power Co.
I{ating lLationale
Ratinßs
Curront
naflng
Class
(lDR)
Debt
Preferred stock
Securlty
lssuer oefautt Ratlng
Sonlor unsecuted
.
BBBBBB
ls supported by the company's affiliatìon wlth parent, American
Electric Power Co. (AEP; IDR 'BBB' with a Stabte Outlook), regulated etectric utility
operations, and a sotid tiquidtty posltion. White the utility is abte to participate ln
the AEP power pool and AEP money poot, given AEP's highty centratized treasury
and electric operations, any deterioration in the credit quality of the parent
company couid impair the ratings of APCo. Rating concerns primarity reiate to
below average credit metrics through 2013 due to regulatory .tag and a recent
$54 mittion disatlowance in Virginia, a relatively restrlctlve outcome in the
company's most recent rate case ln Virginla, and uncertainty regarding the pending
base rate request in West Virginia.
APCo's rating
BB+
Ratlng Outlook
Stable
Financial l)ata
Appatachian Power Co,
($
rilll.)
LTIil
6130110
Fitch affirmed the ratings of Appalachian Power Co. (APCo) on Sept. 9, 2010. The
Rating Outlook for the company remains Stable,
12t31//09
Recent financial performance was negativety affected by higher operating and
maintenance expenses, and continued elevated balances of under-recovered fuel
costs, currently estimated to be approximatety 5375 miltion, inctuding carrying
costs, As a resutt, the company's ratio of normalized EBITDA to interest and deþt to
EBITDA are below average for the 'BBB-' ratlng category at 3.31x and 5.45x,
respectively, for the LTM period ended June 30, 2010. Fitch Ratings' affirmation of
APCo's ratings and the continuation of the Stable Outlook reftect the expectation
that the company's credit metrics will improve over the next tiiree years, with
EBITDA to interest forecasted to approximate 4.0x and leverage to decline to 3,8x
by 2014, as a resutt of phased-in recovery of under-recovered fuel costs in West
Virginia through 2013.
Analysts
Karen,Anderson
+1 312 368-31ó5
koren, ande¡'sorìOf
ltchr¿tlngs.conr
Sharon Bonelli
+1 212 908-0581
shaf on, b0rìOl[l@f ltChr
åtlngs,com
.
Relateil Research
Appllcable Crlterla
. Corpo¡ate ßat ng
hlethotlotqy
Aug. 16,2010
t Parenl and Subsldiary Rating Llnkage
(Fltch's Approach to Rating Enttties
wlthht the Corporcte Ctroup
structurc), July 14, 2010
. Uttltttes Sector Notchlng and Recovery
Rotlttgs, ìvlarch I (), 20 10
cU,S, Power ond Gas
Comporative
2perating RIsk (COß) Evoluotlon
ond
Flnanclal Guldellnes, AL¡q, 22, 2007
ç
Credlt Ratirrg Guidelines
Regulated
2007
for
Utìllty Componìes, July 3I,
Other Research
ç
American Electt'lc Powet
Fel¡.12,2010
Co,,
Fitch notes that capital spending at the utltity ìs relativety modest, approximately
5450 mil,tion per year in 2010 and2011, APCo's internatly genera[ed cash ftows are
more than sufficient to finance the company's capex program and the company is
projected to be free cash flow positive through the next se.ueral years.
Ifuyltatings Ðrivers
o
'
r
.
.
r
Regutated utitity operatlons,
Affiliation with parent,
AEP.
Low capìtal spending ptans through 2014.
Betow average credit metrics through 2013.
Relatively restrictive outcome in 2010 Virginia rate case.
Pending rate case in West Virginia,
Recerrt Devolopmerrts
ln Juiy 2010, the Virginia State Commerce Commission .(VSCC) issued an order approving
a $ó2 miltion base rate increase for APCo, based on a 10.53% ROE. The order atso
atlowed the deferrat of approximatety $25 miltion of incrementa[ storm expense
incurred in 2009. The order denìed recovery of the Virginia share of the Mountaineer
www,'fitchratiugo. conr
tctober 8, aoto
1
CAD 14, Attachment
Page 14 of16
åråtahffiatåmgs
CænpüH"ätes
Carbon Capture and Storage (CCS) Project in base rates, which resulted ln a pretax
write-off of 554 mittion ìn the second guarter of 2010. APCo initiatty flted a generation
and distribution basg rate reguest f or $154 million, based on a 13.35% ROE in Juty 2009.
The company fited for reconsideration of the order as it retates to the Mountaineer
project, however, i[ was denied on Aug. 5,2010, Through June 30, 2010, the utitity has
recorded a noncurrent regutatory asset of S58 mltlion, consisting of S38 mlttlon in
project costs and $20 mlttlon ln asset retÍrement costs, APCo and Alstom Power lnc,
jointty constructed a CO2 capture vatidation facitity, which was ptaced lnto service in
September 2009. APCo also constructed and owns the necessary facitities to store the
C02. The company has requested regulatory recovery of and a return on its estimated
increased Virginia and West Virginia jurisdictional share of its project costs and
recovery of the retated regutatory asset amortization.
fited a 5156 miltion base rate increase request with the West Vìrginia
Public Service Commission (WVPSC), based on an 11,75% ROE to be effective March
2011, Hearings are scheduted for December 2010. ln Juty 20'10, the WVPSC approved a
settlement agreement for 596 mitlion, including $10 mittion of construction surcharges,
retated to APCo's second-year expanded net energy charge (ENEC) increase, ApCo is
currentty operating under an order that will provide the recovery of under-recovered
fuetexpenses through 2013. The overall increase is for $355 mittion, with the first year
increase of $124 mittion effective October 2009.
ln May 2010, APCo
LiquitlÍty and Ðeìfi Str.nshrr.e
tiquÍdity positlon is strong, with 5600 mlttion of avaitabte capacity under the AEp
money poot, Total AEP avaitable tiquidlty was approximatety 52.9 biltion as of June 30,
2010, including $850 mitlion of cash on hand. AEP's credlt facitities are comprised of a
$1,454 bittion facitity that matures in Aprit 2012, a $1.5 blltion facitity that matures in
APCo's
June 2013, and a $478 facility that matures tn Aprlt 2011. The credit agreements
contain a covenant that requires AEP to maintain a debt to total capitatization at or
below 67.5%, APCo and certain other companies in the AEP system also have a
$478 mÍttion three-year agreement. Under the facitity, LOCs may be issued. As of June
30, 2010, APCo had $232 mittion of LOCs outstanding under this agreement to support
its variable.rate pollution control bonds. The company's borrowing timit is $600 mittion.
Debt maturities over the next five years are considered manageabte and are as fotlows:,
$250 mittion in 2011, $250 mittion in2012, $70 mittion in 2013, and $0 in 2014, Fitch
expects the company to refinance its maturing debt.
Ð
Appatachian Power Co. October B, 2010
1
CAD'1-4, Attachment
Page 15 of16
Fåtahffiatirags
Financial Summary
-Appalachian
Corpürates
Power Ço.
(5¡r.llt., Flsc¡t Year-End De¿. 31)
6t30t10 LTM
FundamentaI Ratios
FFO/lnterest Expense (x)
7,,6
3.1
2.6
CFO/lnterest Expense (x)
FFO/Debt (ß)
2,5
8.8
4,9
11,6
2.1
10,6
operatlng EBIT/lnte¡est ExÞense (x)
operating EßITDA/lnterest Expense (x)
Debt/0peratlng EBITDA (x)
1,4
1.8
2,8
3.1
Common Dlvldend Payout (ß)
lnternal Cashi Capex (Í)
Capex/Depreciatlon (lt)
ó.5
76,5
5,7
1,4
2.6
5.9
.
2,9
2,9
4,2
10.5
14,4
1.9
3,0
ó.0
2,5
3.9
4,6
3,ó
12.9
50.1
162,4
(e.0)
34.9
40.2
271,2
sã
198,5
378,7
433.5
3,08ó
1,337
2,877
1,280
2,889
1,178
647
590
547.
646
172
570
313
2,607
1,133
524
518
2,395
'507
208
219
Profltability
AdJusted Revenues
Net ReveDues
operating and lrlalntÊnatce Expense
operating EBITDA
ope¡atlng EBIT
6ross lnterest Expense
Net lncome for Common
operatlng and Maintenance Expense $ of Net Revenues
300
211
102
48.4
155
12?
42,J
Openting EBIT S of Net Revenues
27..4
29.1
43.0
26.6
Cash Flow
Cash Flow from Operatlons
Change.fn Worklng Capltat
Funds from Operations
Dlvtdends
Capltal Expendltures
Free Cash Flow
Net Other lnvestment Cash Flow
Ne[ Change ln Debt
Net Equlty Proceeds
315
(28)
(21)
l45e)
244(112)
54
46.2
475
573
367
147
180
41.7
28.3
32,2
326
4ó8
88
380
{893)
(43ó)
' n1
172
33ó
(7e)
356
(21)
(r)
(3)
329
(471',)
(544)
{235)
{5e3)
(6e71
(454)
(26)
(746)
(446)
,!
1
431
1,1!10
(111
(1)
(r)
1
329
2X9
,uo
250
200
230
3,482
3,179
275
2,853
2,603
3,712
3,374
3t128
2,638
280
100
Capltal Structure
ShorþTerm Debt
Long-Term Debt
Totaf Debt
Total Hybrld Egulry and Mlnorlty lnrerest
247
3,56ó
3,81 3
14
14
14
l4
14
Common Equlty
2,743
2,772
2,377
71092
Total Capltal
Toral Debt/Torat Captrat lfi)
Totat Hybrld Equlty and Àllnorlty lnterest/Totat Capltal (ß)
Common Equlty/Totat Capltal (fr)
6,570
6,498
5,765
5,224
2,036
4,688
58.0
0.2
41,8
57,1
58.5
0,2
0,2
42,7
41.2
59,9
0,3
39.9
195
35
5ó,3
0.3
43,4
operâtlng EBIT - operatlng lncome before total reported state and federat lncome tax expense. operatfng EBITDA- operatlng lncome before totat reported state and
federaI lncone tax expense ptus depreclatlon and amortlzatl0n expense. Note: Numbers rnay not adrl due to roundlng.
Source: Company reports, Fltch Railngs,
Appatachian Power Co, OctoberB, 2010
&
1
CAD 1-4, Attachment
Page 16 of 1 6
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4
Appatachian Power Co, October 8,2010
1
EXHIBIT BLH.3
CAD 1-5, Attachment
Page 101 ofl45
I
N
should even continue to operate, whether we should continue to invest in it and then what the replacement capability is and
support the operatíng company pres¡dents as they make their decisions with the commissions
5o again I want to thank you forthe time, and
I'llturn it over to Susan Tomasky now, who's going to talk about the next growth
engine for AEP, the transmission play. 5usan?
Susan
Tomasþ
-
American ElectricPower Co.- President - AEPTransmission
Good morning, everyone. lt's terrifìc to be here this morning to be able to talk about AEP's transmiss¡on strategy. You know
2010 has been a year in which we've been able to put some meaningful points on the board w¡th respect to our transmission
strategy, And of course it is a year as we've talked to you in the past, it's a year in which we've worked very hard to build the
regulatory platform required to grow this business at the pace that we intend to grow it.
I
want to talk today as I have in the past about the progress we've made, of the three legs of our transmission strategy. And
also want to share with you a little bit more information than perhaps we have in the past about some specifics around
I
how
that investment is going to unfold over the coming four or five years and what we can see in terms of earnings contribution.
As you know we have three things that we're - three areas we're pursuing aggressively in order to make this tranEmission
strategy viable in the near term, the midterm and the longer term. Texas, most forward aggressively, it is an operating utility
company with a rate base and we've received CCN approval for one line. I'll talk a little bit more about CREZ in a minute. The
Transco strategy also moves forward as we have a settlement in front of FERC and cont¡nue to plan investment in that area. l'll
update you a bit on some of ourjoint ventures.
ij not the end of thè story. Wè cóntinue to wôrk on new deals all the time and lam very
hopeful, although we have nothing to announce today, that we'll have two very interesting deals to be talking to you about
And lalso wänt io dssurè yôûthat this
verysoon:
about ETT. ETT is an operating utility company. lt has a rate base of 385 million and it's expected to grow every year
significantly over the next several years by 2013 and that's the point at which the CREZ projects come on. We should have a
rate base of that company of 51.4 billion.
So let's talk
The progress on CREZ, of course, is critical to this. And that is where we're moving pretty qu¡ckly. ETT had the only unanimous
settlement on the siting of a line and that settlement has been approved by the Texas Commission, That's the Clear Crossing
to Dermott line and it's 95 miles for $160 million of investment. Engineering work is going forward. We have three more lines
that are also, as you cán see, on a schedule to get the siting and the certificate work done. And we do plan that we will have
the CREZ lines done in the tirneframe that we'vetalked about.
The PUCT continues to confirm their commitmentto the need for these lines. And we continueto
in territories where sit¡ng is very feasible and that we're going
to produce the results that we've
believethatwe are operating
we would with respect to
said
And we have also identified another Si.6 billion of investment overtime through 2017. These are opportunities that are
now in the hands of ETT transferred from our Texas operating companies, significant new projects that will work their way
through the ERCOT approval process. 5o that we think there is - we have a plan that ETT will be a 53 billion company by the
CREZ.
year 2017.
lf you look at our Transco strategy, again, this is a very ¡mportant part of AEP's transmission strategy in
the near to mid-term.
within our footprint and has dual benefits
boththebenefitofprovidingtransm¡ssion growth and also an opportunÍtyto access capital from differentsources
This is exciting for us because it's 10070 AEP investment. lt draws on opportunities
forAEP. lt has
orderto be able to relieve some capital pressure from our operating companies4nd movefo¡ward
investment strategy under FERC regulated rates,
in
witi thetransmission-only
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Thomon Reut€F logo are rcgislered l.adBmfts of Thomon ReuteF and ils afiliat€d @mpan¡es.
T'{OMSGN .RËUT.ENç
CAD 1-5, Attachment
Page 1O2 ot 145
1
t
Key to that, of course, is getting
the
FERC
rate in place, and this has been something that we've worked on a good part of th¡s
year. And I'm pleased to say that we now have a settlement that's pending in front of the FERC for approval under exactly
the
terms that we hoped that we would get. We were seeking to mirror the settlement terms that we had in place with respect to
our wholesale customers in the East and West and that's pretty much what we have, 1 1.49 return in,the East and the PJM
customers and
1
1.2 in SPP.
That settlement has unanimous support on the ROE issues. The only significant outlier on the policy issue is the'lndiana
Commission who cont¡nues to raise questions at the Commission about whether or not the Transco is a good idea. Everyone
else is in full support. We feel very comfortable on the record that FERC will support ¡t. And we are going to continue to be
working through Paul Chodak and our team in lndiana. And we feel very comfortable that once we get in front of the lndiana
Commission with our specifìc proposal, that they will see the benefits for lndiana and we'll be able to go forward.
Our spending for this year, S50 million, was more modest than we had hoped for this year but we're going to plan to make
up in the coming couple of years. What we've done is focus our investment in Ohio where we have an application pending
that
but
wherethereappears to bestrong receptivitytothe Commission. And in fact it ís effectivelythesame rateeffecton a pass-through
basisas we have undertheOhioTariffnow. So understandably, Ohio's got plentyelsetothinkabout r¡ght nowatthe Commission,
but we do believe that this is just a matter of time of getting it outthe door once the FERC settlement is confirmed.
And of course in Oklahoma and Michigan, we have a lot of we don't actually require regulatory approval for formation of
these Transcos, so we are able to move forward with those investments without going through a regulatory structur¡ng
proceeding ¡n those states. And in factthat's where our focus will be in terms of our investment has been in 2010 and will be
in 201 1. 201 1 will be a year in which we will work to get our Transco filings done in our other states. And you'll see investment
planned in those other states for the Transco in 201 2.
-
want to talk a little bit also about the progress that we're making on our joint ventures. And I want to spend, in particular, a
l¡ttle bit of time with respect to PATH where I think that there is obviously a great deal of interest and a very important part of
AEP's transmission strategy. The PATH project, to remind you, is a 52.1 billion project. AEP's investment is about 5700 mill¡on
I
of that and we have an allowed return
with incentives at
FERC
of '14.3o/o.-Íhis is obviously an extremely ambitious project and
one that will require us to nav¡gate some s¡gnificant challenges in the state Commissions.
The key to that, in our abilityto do that, lies in the support that we have had and continue to have pretty strongly from PJM.
PJM, although they have in recent years moved the date around, they have confirmed consistently over the course ofthis year
that there are very signiflcant reliability issues both from a voltage support perspective and a capacity perspective in the year
2015.
They have been quite emphatic aboutthat. Back in Junetheysent us a letter.lt's public.lt's on the PJM websitethatsays, "Please
do everything possible. Make the investment to meet this 2015 date." ln every discussion that they have had publicly since
then,theyhave confirmed theimportance ofthat date,The affidavits and thefilings thatthey have made as we have reactivated
the regulatory proceedings in the three states continue to be consistent with that. We have re-filed in Virginia w¡th strong
support from PJM. And we have renewed the activity in both Virginia and Maryland where we continue to go forward.
that the RTEP is final with respect to PATH. They continue to do evaluations because itjust seems like that's
And but I do believe-and ltw¡ll be ourjobtotranslate PJM in thesestate proceedings sothatthey do understand
how critical this is. But if you look at the affidavits that have been filed by PJM recently and look to coming Board action that
wethinkwill continuetoconfirm it lfeelvery good aboutour prospectstocompletethis process.lt is challenging to getthrough
these regulatory proceedings and get this deal on the ground by 201 5. But it's urgently needed, and we're going to do it.
PJM has indicated
what
PJM does.
with respect to the Prairie Wind project, This is a project that has been approved
priority project bythe Southwest PowerPool. And it's a projectwhere we are alreadybeginningtheengineering, beginning
the siting process in the state of Kansas. And that, too, is another project that will get into service within the near term.
The second important step forward has been
as a
22
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CAD 1-5, Attachment
Page 103 of 145
1
TINAL TRANSCRIPT
With respect to Tallgrass which was another piece that we have been pursu¡ng, the future ofthat project does rest on future
deliberations in the Southwest Power Pool with respect to the voltage at which that will be built. That could well be a long-term
process. We are continuing to support the SPP in their deliberations on that issue.
We do believe that, as a techn¡cal matter, the right thing to do with respect to SPP is to continue to pursue an overlay at the
765 level. But as l've told you in the pasL we intend to be ready to build the kinds of projects that will be approved. And we will
continue to see, I thinlç either through PSO or our other ut¡lities, we're going to see significant opportunit¡es either through
theTransco in otherjointventures with respectto SPP.
The other point I want to make
with respect to future projects
is
that the Pioneer project which, as I'm sure rnany of you know
has been lingering for a while.lt's a project proposed by Duke, has been identifìed by MISO as an important part of their RGOS
study.This is notobviouslya decision to build but an importantstepforward in understanding as MISO goesforward identifying
the projects that they would like to see developed for purposes of wind integration of MISO and PJM.
forthat project is that it sits on the seams between MISO and PJM and the RTOs have not done a very
good job of figuring out how to do that. I'm going to talk in a minute about the efforts that FERC is making in order to make
the necessity of that a little more apparent to the RTOs and hopefully even to make it a little easier for them.
The challenge, of course,
The last thing that you should watch is the results of our Smart Study. We understood the need for a significant analysis to
underpin the development of a system to bring to harvest the wind from the upper Midwest, and we talked to other utilities
in the area. We all agreed to support a comprehensive study. We did that with the full participation of the RTOs. And we now
have two phases ofthat study public. One are the design features and the other is the cost benefit analysis that does show
significant benefit to moving forward, The next phase will be commercialization of specific projects around smart grid, and
that's something that we are actively working on with other partners.
So
lwanttotalka little b¡t about what allthis capital investmentmeans and howyou can lookat¡t,whatto expect in the coming
years. And obviously our capital investment is subjectto a number of variables, lt's subjectto regulatory approvals. lt's subject
to RTO review in some cases. But what I hope this slide does is illustrate for you how this investrnent builds up, what we feel
comfortable putting in our base case, and what will be the things that will deterrnine our abilityto realize those higher levels
in investment and the higher levels of earning.
thought that was the pointer but it wasn't. We failed on pointing today,
ETT, and the ETI ¡nvestment that I've described is very much in line with
what's been approved through CREZ that comes online in 201 3. And the rest ofthat growth is the - are the additional projects,
the $1.6 billion that as I suggested, will work its waythrough ERCOT over a period of time.
So if you look at the blue down at the bottom
-
I
apparently.,lf you look atthe blue atthe bottom that is
lookthen next atthe green, those aretheJV projects with which we have a fairly high level of confidence. As I said, Prairie
already approved. That's the smaller part of that green, but the other is PATH, an approved project, one for which we
have a rate in place. The job there is to get it through the state and get it online by 201 5,
lf you
Wind
is
When you then get to the grey, what you see is the Transco investment. And what we've done is to reflect our very specifìc
projections for the year 201 1 and 2012 which, as I mentioned, is 5160 million, 350 respectfully. And we continue to see the
opportunity assuming thatwecan moveforward with theTranscos in our otherjurisdictions. We continueto see the opportunity
for comparable ¡nvestment.
The Transco investment is investment to enhance and
to extend the current transmission system. There
is
great need across
our system for transmission investment. We have a lot of old facilities, I know you hear that from other utilities. But what the
Transco does is give us the opportunity to direct capital specifically to this investment under the FERC formula rates.
23
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Thomon R€uleG logo are regislered trademrks of Thomson Reuleß and ils s[tilialed ømpanies.
TilOMgON *fIJT€fts
CAD l-5, Attachment
Page 104 of 145
1
t
that with the Transco filings up and r,unning - Transco companies up and running -- we're going to be in a
position to realize that ¡nvestment. And as you see, it has the potential to be quite significant as you get to the post-201.3 era.
And we beliève
the box that has the dotted line around i! really are the future investments. And we have
things like the projects
that w¡ll come out of the Smart Study. They include future SPP development. They include Pioneer, other projects very much
in the work. Things we're actively involved in and things we will continuê to pursue with partners around the country.
And then the high case box which
is
not chosen to try to put too much around that in terms of dollars with any specificity. But these include
And I do emphasize that there continues to be a huge amount of excitement in this space. This is way more lîke baseball than
basketball. And the
conseguence
-
to move in steps. And as a
don't understand when we attach so much significance to these steps but they are
which is good because I like baseball and it is something that requires us
it is hard to
-
perhaps you
verysignificant. PATH is very well poised.TheTransco opportunity is very well poised.And ldo believe you're going to see some
pretty significant and very interesting announcements ¡n the near future.
I'd like to conclude by spending a couple of minutes talking about where regulatory policy is going. We have talked a lot about
the importance of regulatorychangeto our strategy, even as we've been very vigorous in pushing through projects within the
regulatory framework that we currently have.
notto be on the horizon in the immediate future, I wantto make
the regulatory progress that has been made, some of the policy evolution
that's going to complement what we and others in the transmissiori sector are trying to accomplish, because 2010 really was
a year in which a number of importantthings moved forward.
But ldo
wantto make sure, particularly
as legislation appears
sure that you understand the importance of some of
From our perspective, I think I could probably say maybe the single most important thing that happened was the approval of
the cost allocation methodology in the Southwest Power Pool. That was important because it provided the basis for approval
of priority projects that includes Prairie Wind as well as a project that we will be developing through our Oklahoma Transco
primarily. And these are really- sothis is a very significantstep forward to addressthis.lt was supported by 5PP on a consensus
irhportantly pointed to by FERC not only as something they were prepared to prove but as a model for other regions.
excited about the progress that was made with respect to SPP and also, related to that, the approval of the
priority projeas that will serve as the basis forfuture development in that area.
basis and
So we are very
to po¡nt your attention to the work that has been done in the Midwest l5O. ln looking more broadly at transmission
that transmission planning
has been tracked by a bright line test where the solution is to solve yesterday's reliability problem.
I
also want
needs, this is something that has been very important to us for a long period of time. We believe
thatthe v¡sion required tothinkabout reliability, congestion relief and theintegration of resources has been
And
a
very difficult
thing forthe RTOs to embrace. MISO stepped out of that mold both with respectto the RGOS study and their identification of
multi-value projects, And this is a really important step forward, and I think was important in feeding FERC initiative with respect
to the NOPR.
And so I'll close by touching on that briefly. What FERC is attempting to do is explore the limits of its authority. And I think it's
quite clear that it intends to push as far as it can to facilitate precisely the kind of transmission development that AEP has been
talking about for the last couple of years.
They have proposed and asked for proposals on how
to mandate the
RTOs
to move and to address these issues, to deal with
cost allocation more broadly both within the RTOs as well as on a seams basis, to require other RTOs beyond the ones who are
attempt¡ng to explore multi-value projects,
to
have them look at those as well.5o it's a very exciting step
forward from that
perspective, FERC also recognized that cost allocation and planning are part ofthe same puzzle. And they've also begun to ask
the
RTOs
and they asked signifìcant questions in this NOPR about what can be done to try to identify projects that serve this
broad range of policy purposes.
24
THOMSON REUTERS STREETEVENTS I www.streetevents.com lContact Us
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These are very exc¡ting stepsforward. lt is obviouslytricky ground forthe FERC and not everybody loves it quite as muçh as.we
do. But I w¡ll tell you that I think theyire passionate about it and I believe that it has changed the scope
ofthe pol¡cy debate and
created momentum that weÏe going to do everything possible that we can to build on.
So with that, I'm going to conclude my remarks and, with pleasure, turn it over to Brian Tierney who
third quarter results and give you a financial update. Thank you.
Brian Tierney - American Electric Power
is
going to talk to you about
Co, - EVP, CFO
Thankyou, Susan. Before we get started, we've held yourattention for nearlytwo hours and are very grateful forthat but would
like to reward people with a humanitarian break if we can go ahead and do that.lthinkthat might be in order at this time. We'll
still have plenty of time to answer questions, go over third quarter results and forecasts for 201 1. lf we could be back here at 5
past i 0.00 sharply, that would be great. And we'll get started again at that time.
Thank you everybody.
(BREAK)
PRESENTATION
Brian 'lierney - Amerìcan Electric Power
Co. - EVP, CFO
Okay, good morning, everyone and thank you again for being here, We appreciate the
timethat you've put into this and the
attention, and thank you for your quick break and getting back in place to get going again.
to be quarterly and year-to-date earnings, guidance for 2011 with some
detail on capital allocation and expenditures, an overview of AEP's dividend policy and record with management's
The topics that l'm going to cover today are going
recommendation for a dividend increase and the overview of AEP's liquidity andfinancing and a view of AEP's long term earnings
per share growth rate.
Let's start by lookìng on Page24 atthe third quarter 2010 performance where AEP earned 5552 rnillion forthe quarter or S1.15
per share versus $443 million or $0,93 per share in 2009. We have listed for you some of the detail on the right-hand side of the
slide and let me go through some of the major reconciliations,
On the positive side rate changes accounted for $0.1 0 per share for 574 million. Weather accounted
$13i million and this reflects the fact that this was the third hottest summer in the
for
a
full $0.18 per share
system and the fourth
hottest summer in the West part of AEP's system in the last 30 years. Off system sales were a positive $0.06 per share or $42
million.
or
East part of AEP3
On the negative side of the ledger, fìrm wholesale margins were down $0.03 or S21 million per -- or $21 m¡ll¡on. O&M net of
offsets accounted for negative 50.02 per share or S1 2 million due to employee-related expenses in the third quarter. And other
util¡ty operat¡ons net accounted for negative 50.09 per share or $83 million and were mostly related to the loss of the Cook
accidental-outage insurance policy.
Turning to Slide five we'll take a look at the September year-to-date numbers where you'll see that year-to-date AEP has earned
51.272billion or 52.65 a share versus 51.124 billion or 52.49 a share for the year-to-date period in 2009. At this time we're
providing 2010 full-year guidance to the range of 52.95 to $3.05, which is the narrowed midpoint range of the previously
announced guidance of 52.80 to $3.20 per share.
25
THOMSON REUTERS STREETEVENTS Iwww.streetevents.com I Contact Us
Thoruon RoutoF. Alrights reseryBd. Republ¡Ét¡on orred¡stribulion of Thoroon ReuleF øntenl, includ¡ng by
trâming o¡ s¡milar ruans, ¡s pph¡bited wilhoul lhe priot wilte¡ Ønsent of Thoruon Reuleß. Thoßon RguteF and lhe
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f¡:
CASE NO. 1O-0577-E.PC
APPALACHIAN POWER COMPANY and WHEELING POWER COMPANY,
both dba AMERICAN ELECTRIC POWER and AEP WEST VIRGINIA
TRANSMISSION COMPANY, INC.
.A
'r,
,|
DIRECT TESTIMONY
t
THOMAS D. SPRINKLE
UTILITIES ANALYST 5
UTILITIES DIVISION
ON BEHALF OF THE STAFF OF TI{E
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
**<*t<*
April 6, 2011
g
201 Brooks Street, P. O. Box 812, Charleston, WV 25323
EXHIBIT
$ffiu
CASE NUMBER. 10-0577 -E-PC
DIRECT TESTIMONY OF: THOMAS D. SPRINKLE
1
A.
PAGE NUMBER:
1
WOULD YOU STATE YOUR NAME, BUSINESS ADDRESS AND
OCCUPATION?
2
3
4
A.
My name is Thomas D. Sprinkle and my
business address
5
Charleston, 'West Virginia 25323.
6
Division of the Public Service Commission of West Virginia.
I
is P. O. Box
812,
am a Utilities Analyst 5 for the Utilities
7
I
A.
PLEASE STATE YOUR EDUCATIONAL AND PROFESSIONAL
BACKGROUND.
9
10
1t_
A.
I attended Marshall University and received a Bachelor of Business Administration
in
with a major in Accounting and a minor in Finance. I was first
L2
Degree
13
employed by the Public Service Commission as a Rate Analyst
T4
I
1_5
Utilities
1978,
was promoted
I in 1978. In
1980
to a Rate Analyst II, and in 1981 I was promoted to a Senior
t6
Analyst. During January of 2001, I left the Commission to take an
appointment with the West Virginia Division of Motor Vehicles as Deputy
T7
Commissioner, and in 2004I returned to work for the Commission.
t-8
1,9
A.
MR. SPRINKLE, HAVE YOU PREVIOUSLY PROVIDED TESTIMONY
BEFORE THIS COMMISSION?
20
2I
22
A.
Yes. I have provided testimony on accounting and rate issues in rate cases of
23
Appalachian Power Company, Monongahela Power Company, The Potomac
24
Edison Company, Wheeling Power Company, West Virginia Power Electric,
CASE NUMBERT 10-0577 -E-PC
PAGE NUMBER:
2
1
C & P Telephone Company of West Virginia, General Telephone Company of the
2
Southeast, Telephone
3
Corporation, Hope Gas Inc., Mountaineer Gas Company, Shenandoah
4
Company, West Virginia Power Gas, Bluefield Gas Company, Conçumers Gas
5
Utility Company, Southern Public Service Company, Oceana Gas, Inc., Wyoming
6
Natural Gas, Inc., Town Gas Inc., City of Wheeling, City of Clarksburg, City of
7
Fairmont, and numerous other smaller utilities.
Utilities of Pennsylvania, Consolidated Gas
Supply
Gas
8
9
a.
WHAT rs THE PURPOSE OF YOUR TESTTMONY?
A.
The purpose of my testimony is to explain why Staff is recommending that the
t_0
11
L2
1_3
Commission deny the petition
'Wheeling
of
Appalachian Power Company ("APCo"),
Power Company ("'WPCo") (collectively "the Companies") and AEP
I4
West Virginia Transmission Company ("'WVTCo" or "West Virginia Transco")
15
(all collectively "Petitioners') for approval of a joint petition to the Commission
L6
for consent and approval of certain affangements and agreements among aff,rliates
T7
related to the operation of a new public service corporation (WVTCo) that will
t_8
own transmission facilities and provide transmission services in \Mest Virginia.
1,9
20
Staff is recommending the Commission deny the Petitioner's requests because by
2L
allowing 'West Virginia Transco to invest in transmission facilities instead of the
22
Companies making the transmission facilities investments, the costs and rates for
23
APCo's and WPCo's customers will be higher.
24
CASE NUMBER.. IO.O577 -E.PC
PAGE NUMBER:
3
2
WOULD YOU PLEASE VERY BRIEFLY DESCRIBE THE
AGREEMENTS THE PETITIONERS HAVE REQUESTED THIS
3
COMMISSION TO APPROVE?
1
a.
4
5
6
A.
Yes.
The Petitioners have requested consent and approval for five affiliate
agreements. The requested agreements are as follows:
7
8
1) A service agreement
9
provide certain transmission related services
10
l-
between APCo and West Virginia Transco for APCo to
to West Virginia
Transco (See
Petitioner's Exhibit C- I ).
1_
I2
2)
l_3
provide certain transmission related services to West Virginia Transco
1-4
Petitioner's Exhibit C-2).
A service agreement between WPCo and West Virginia Transco for'WPCo to
(See
15
16
3) A service agreement between American
T7
("AEPSC") and 'West Virginia Transco
18
managerial, technical, engineering, financial, and transmission system expertise
T9
services to West Virginia Transco (See Petitioner's Exhibits D and E).
Electric Power Service Corporation
for
AEPSC
to
provide necessary
20
2L
4) A service agreement
22
Company ("AEP Appalachian") for APCo to provide certain transmission related
23
services to AEP Appalachian (See Petitioner's Exhibit G).
24
between APCo and AEP Appalachian Transmission
CASE NUMBER I 10-0577 -E-PC
5) An amended AEP Utility Money Pool Agreement
1_
PAGE NUMBER:
4
between AEP and its
2
participating affiliates which will allow West Virginia Transco to contribute to and
3
borrow from the AEP short term money pool (See Petitioner's Exhibits F-1 and
4
F-2).
5
6
A.
WHAT CONFIRMATION DOES STAFF HAVE THAT CUSTOMER
8
WILL BE HIGHER IF TRANSMISSION INVESTMENTS ARE
MADE BY WEST VIRGINIA TRANSCO INSTEAD OF BY THE
9
COMPANIES?
COSTS
7
10
l_ t_
A.
Upon reviewing the Petitioner's direct testimony and exhibits, the analysis
in his direct testimony on page 11 of 13,Table
L2
sponsored by witness Potter
13
reflects higher costs
L4
transmission investments are made by West Virginia Transco instead of by APCo.
1_5
Witness Potter summarizes two build scenarios. In scenario one APCo makes a
L6
$40 million transmission investment, and in scenario two, West Virginia Transco
L7
makes a $40 million transmission investment.
18
West Virginia retail customers is $6,162,211. In scenario two the total cost to
T9
West Virginia retail customers is 56,646,167. This represents an increase in costs
20
of $483,956, which reflects a 7.86Yo increase, if West Virginia Transco made the
2L
transmission investments instead of
22
significantly when other factors are taken into consideration such as increased
23
transmission investments and
aÁ
z2
Commission's rates of return versus the FERC's rates of
25
pointed out that
26
Petitioner's calculated a return on equity
for APCo's
\Mest Virginia retail customers
if
2
new
In scenario one the total cost to
APCo. The increase in costs will
increase
a larger differential between the West Virginia
return. It
should be
in the two different scenarios presented by witness Poffer, the
of
10.5% for investments made under
of
PAGE NUMBER:
5
.49% for investments made under West
1
APCo, and a return on equity
2
Virginia Transco. The 10.5% return on equity embedded in witness Potter's
3
analysis
4
Commission authorized return on equity for the Companies is l0% (Case No. 10-
5
0699-E-42T). This would make the cost differential between APCo and West
6
Virginia Transco an even higher amount. Additionally, a higher FERC return on
7
equity rate above lL49% would cause an even higher level of a cost differential.
11
is currently too high for investments made by APCo since the current
I
9
Since West Virginia Transco
will
will
charge APCo and
'WPCo
for transmission
l_0
services through a rate which
t_1
Commission ("FERC"), the costs and rates
T2
retum are almost always, if not always, higher than the West Virginia Commission
l_3
authorized rates of
l4
the Petitioner's exhibits was 1L49% for West Virginia Transco, while the most
15
current Commission authorized return on equity for the Companies is 10% (Case
t6
No. 10-0699-E-42T). Additionally, there are other components within a utility
T7
capital structure where the authorized FERC rate of return most likely will be even
t_8
higher because the FERC has a much more liberal approach toward utility capital
19
structures, such as not including short term debt which is usually a company's least
20
expensive source of capital, along with the inclusion of various incentives.
2L
Staff reviewed a final transcript from an AEP Investor Meeting (and Q3 2010
22
Earnings Results) dated October 19,2010 which was provided by the Companies
23
in
24
President and Chief Operating Officer of AEP stated (see attachment 1, page 110
25
of
26
earnings per share at an average growth rate between 5o/o andTo/o.
response
return. For
be approved by the Federal Energy Regulatory
will be higher since FERC's
rates
example, the FERC return on equity included in
to data request CAD No. 1-5. Brian Tierney, Executive
145, paragraphs 5
of
& 6), "For the period
Vice
after 2014 we believe we can grow
'We
can do this
PAGE NUMBER:
6
by continuing to invest in our underlying utilities while investing incremental
l_
3
at the relativity higher blended ROE's that our Transcos and
Transmission JVs allow for. We will not waiver in our focus on capital
4
allocation. 'We're going to continue to focus where we can earn higher ROE's in
5
places where our ROE's are
6
operating company presidents that they're acutely focused on getting those ROE's
7
improved so we can continue to invest for the benefit of our customers and our
I
shareholders. In the end, the higher end of our gro\ryth rate is going to be
capital
2
lagging. I think you got a sense from listening to the
1_0
driven by earnings from our Transmission story, which we expect to
significantly juice our earnings growth rate." Since senior management of
11
AEP is focused on a higher end growth rate which is going to be driven by
L2
earnings
l_3
juice their earnings growth rale,it is clear to Staff that the Petitioners are expecting
l4
to earn higher returns and profits frorn West Virginia Transco along with their
15
other new transmission companies. The higher returns and profits from West
T6
Virginia Transco equates to obviously higher costs and rates for APCo and WPCo
L7
customers.
9
from their "Transmission Story" in which AEP expects to signiJìcantly
18
I9
A.
PLEASE SUMMARIZE STAFF'S RECOMMENDATION.
A.
The Petitioner's proposal to allow West Virginia Transco to invest in transmission
20
2I
22
facilities and projects will result in higher costs and rates for both APCo and
23
WPCo customers. Since the Companies rates
24
proposals are approved,
25
part test established under West Virginia Code 24-2-12 that (1) the terms and
26
conditions thereof are reasonable, (2) that neither party thereto is given an undue
will be higher if the Petitioner's
it's Staff s position that the Petitioner's do not meet the 3
CASE NUMBER. L0-0577 -E-PC
PAGE NUMBER: 7
t_
advantage over the other, and (3) they do not adversely affect the public in this
2
state. By costs and customer rates being higher if new transmission investments
3
for facilities are allowed to be on the books of West Virginia Transco instead of on
4
the books of the Companies, the Petitioners request is not reasonable and
5
an adverse affect on the public in this
6
joint petition to this Commission for consent and approval of certain arrangements
7
and agreements among affiliates related to the operation of a new public service
8
corporation (WVTCo) that
9
transmission services in West Virginia be denied.
state.
Staff recommends the Petitioner's
will own transmission facilities and provide
10
t_
1_
A.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
A.
Yes.
L2
13
will have

Sargent`s Court Reporting Service, Inc.

Transcription

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