AEP appreciates the opportunity of providing this brief comment on the issue of an incumbent electric utility being able to discount the capped generation portion of its bundled electric rates.
In general, AEP believes that it would be inappropriate for incumbent electric utilities to be able to discount the capped generation portion of its bundled electric service rates during the period that the capped bundled rates are in effect. The company further believes that it is appropriate to permit any electric service provider (or ESP), whether affiliated or not with the incumbent utility, to offer generation supply to customers based upon its independent assessment of the market and overall business and pricing policies.
SB 1269 seeks to establish effective competition for the generation and supply of electrical energy to customers within the Commonwealth. Capped rates are established in order to provide customers the availability of a cost based rate for bundled electric service during the period of transition and until effective competition is established within the service territory of a utility. The generation portion of this capped rate is established for the purpose of effecting customer choice for retail customers, and as seen in § 56-583 capped generation rates are a critical component in determining wires charges for those customers who choose.
The capped bundled rate and the capped generation portion of such rates are based upon the application of cost of service principles, and they serve as a primary factor in determining the 'bench mark' price for generation services against which customers will evaluate their choice of the supply proposals of alternative ESPs. As a result, the incumbent utility should generally not be permitted unilaterally to discount such rates. Any such discounting - - and by discounting I mean a simple reduction in rates - - would, in most circumstances, result in a disincentive to alternative ESPs who would otherwise seek to enter and create a more robust competitive energy services market for the Commonwealth. Further, any changes in the capped generation rate would directly affect the level of wires charges applicable for a utility. Notwithstanding the concerns for the appropriateness of this as a policy, there could be many administrative and operational issues created by discounting.
In contrast, all Energy Service Providers, since they are operating in a competitive, market-based environment for the supply of generation should be permitted to establish their price offerings for such service based upon their operations and assessment of market conditions.
AEP believes that the provisions of § 56-235.2 relating to the ability of the utility to seek and the Commission to approve special contract rates should not be affected by a limitation on discounting from capped rates. It is AEP's view that the concept of establishing a special contract rate does not necessarily mean a simple discounting from existing rates. We support the concept that any such special rates would have to be supported by a showing that they would be in the public interest.