American Electric Power’s (NYSE:AEP) Public Service Company of Oklahoma (PSO) on Sept. 26 said that it has filed its “Grid Modernization and Efficiency Plan,” which includes a request to adjust the company’s rates to recover increased costs related to aging infrastructure, storms, taxes, and other necessary business expenses.
The overall rate increase request is $88m, the company said, noting that for a typical residential customer, the requested increase amounts to about $7 per month.
Beginning with October bills, most PSO customers, including all residential customers, will see a decrease in the amount they pay for purchased power and fuel for power generation, PSO said, adding that the typical residential customer will see lower fuel charges decrease their overall bill by about $5 per month.
In direct testimony on behalf of PSO filed with the commission, Steven Baker, vice president of Distribution Operations for PSO, said that PSO’s multi-year grid modernization plan includes infrastructure improvement, system automation, comprehensive system monitoring and analytics, enhanced power quality and reliability, as well as grid security.
PSO’s infrastructure program, for instance, would target the replacement and upgrade of such aging grid components as poles, cross arms, overhead and underground conductors, as well as pole and pad-mounted transformers. That equipment must be replaced and upgraded to take advantage of technological improvements to materials and equipment, improve reliability and power quality for customers, and enable customer-owned distributed energy resources (DER) interconnections to the grid, Baker said.
He also noted that the first component of PSO’s grid automation program, for instance, involves the installation of automated recovery schemes in substations with multiple transformers. That control scheme would allow PSO to restore service to customers within cycles by automatically transferring load from one substation transformer to another if a substation transformer faults or trips from service, he said.
The second component of PSO’s grid automation program is the installation of distribution automation and circuit reconfiguration schemes (DA/CR) on looped distribution circuits, Baker said. The DA/CR scheme functions by monitoring electric current levels at multiple points along the circuit and would automatically communicate between switching points via radio communications and distributed control equipment to “self-heal” the grid when a fault is detected within the switching points, he said.
In direct testimony on behalf of PSO filed with the Oklahoma Corporation Commission, PSO President and COO Peggy Simmons said that the requested base rate increase is due primarily to a revenue deficiency based on a test year ending March 31, 2018, adjusted for known and measurable changes to test year levels. The total rate impact results in an average increase to PSO customers’ rate of about 6.5%, Simmons said.
The industry is rapidly changing, as is the nature and function of the grid, Simmons said, adding that customers increasingly expect reliable service, as well as a safe and secure electric grid.
The age of PSO distribution facilities and the increasing need for maintenance and replacement of those facilities is also a primary concern, Simmons said, noting that those facts require PSO to invest capital in its increasingly aged distribution and transmission systems to enhance the performance and resilience of the grid. At the same time, growing numbers of distributed generation installations around the country are requiring utilities to manage increasingly two-way power flows, necessitating that utilities be aware of those flows and manage them without compromising system integrity, Simmons said.
Although PSO provides reliable service to customers and maintains its operational performance, it is experiencing poor financial results, Simmons said, adding that poor financial metrics restrict the company’s ability to make the investments, as well as spend the operations and maintenance dollars necessary to sustain current levels of customer service and operational performance.
In addition to the requested rate relief, PSO is proposing a performance based rate (PBR) to address regulatory lag and provide the stability and certainty necessary to enable the company to make the needed investments in the system, Simmons said.
In direct testimony on behalf of PSO filed with the commission, Steven Fate, vice president, Regulatory and Finance for PSO, said that the company’s PBR combines a formula rate with a set of key customer-focused performance incentive measures (PIMs) related to reliability, safety, and overall customer satisfaction. The PBR would require an annual review of PSO’s expenses and investments to determine if PSO’s earnings fall within an approved range and whether or not an adjustment to rates is needed between base rate cases, Fate said.
The annual review would also consider PSO’s performance and achievement of the customer-focused PIMs, Fate said, adding that those periodic adjustments would mitigate the impact of rate increases due to greater generation, transmission, and distribution investment by smoothing out the relatively larger increases that could occur under traditional ratemaking. After three years of annual PBR filings, the company would file a Chapter 70 base rate case, Fate said.
The proposed PBR uses a formula for developing PSO’s earned return on equity (ROE) based on actual financial performance during a test year, which would be the 12 months ending Dec. 31 for each year the PBR is in effect, Fate said.
PSO proposes to populate the formula using annual and year-end financial data that would be included in FERC Form 1 data, audited by independent certified public accountants, with limited pro forma adjustments, Fate said. Using that data, the PBR formula would determine if the test year earned ROE was above or below the allowed ROE established in this case, Fate noted. In the event the earned ROE falls outside an earnings band that extends 50 basis points below and 50 basis points above the target ROE, the calculated revenue deficiency or credit would be used to adjust rates prospectively to the target ROE, Fate said.