AEP Sustainability - Regulatory

Regulatory and Public Policy

The energy industry is one of the most highly regulated sectors of the U.S. economy and is in the midst of a technology and innovation revolution. Advances in technology are creating opportunities for AEP to integrate and modernize the grid – making it smarter, more reliable and more resilient. With a smarter grid, our customers are empowered to actively engage in their energy experience – giving them more control over how and when they use energy.

To meet our customers’ evolving expectations, we sometimes must reshape the regulatory compact. AEP’s footprint includes 11 states with varying regulatory frameworks that are primarily governed by state legislatures who set policy goals, which result in regulations created by state regulatory commissions. These state legislative and regulatory environments work in conjunction with federal policies to define the parameters of AEP’s business and planning models. They also affect a utility’s business decisions related to making investments and influence how the utility is able to recover the costs of its investments.

Our priority is to maintain and operate a safe and reliable grid that is resilient and adaptive. Our generation, transmission and distribution system investments directly affect our customers and shareholders. These investments must coexist with regulation and policy considerations, such as environmental requirements and affordability. As our generation portfolio becomes more decentralized and the company transitions to more renewables and distributed energy resources, it is imperative that regulations evolve to meet the demands of today’s emergent technologies and customer preferences. We must perform this transformation in a reliable and deliberate manner for our customers while managing the financial risk for our shareholders.

One approach includes identifying flexible or alternative ratemaking models that allow AEP to accelerate the conversion toward beneficial electrification and the company’s transition to cleaner energy sources while also providing more timely cost recovery of investments. Alternative ratemaking models help balance different objectives to provide both incentives for cost savings and reinforce investments that provide value to customers and support policy objectives. These alternative models can give utilities the ability to explore new and evolving technology solutions as they determine what delivers the best value for our customers today and in the future.

Our partnerships with regulators, private and public organizations and stakeholders are imperative to meeting customer demand for new, innovative solutions. We leverage our expertise and experience to educate regulators and key stakeholders about emerging technologies and associated issues.

Innovative Customer Offerings

  • A Wind, Water and Sunlight (WWS) option in Virginia; WindChoice in Oklahoma; and the IM Green program in Indiana and Michigan, allow customers to purchase the environmental attributes from renewable energy sources.
  • The North Central Wind Energy Facilities project will offer additional opportunities for Southwestern Electric Power Company (SWEPCO) and Public Service Company of Oklahoma (PSO) customers to purchase Renewable Energy Credits (RECs).
  • I&M’s EZ Bill for residential and small commercial customers offers a predetermined, fixed monthly charge for electric service. This makes budgeting and financial planning easier for many of our customers.
  • PSO’s Power Pay offers customers a voluntary prepaid billing option, giving them more control over when and how they pay for their electric service.
  • Appalachian Power (APCo) offers a seasonal rate in West Virginia that applies to electricity sales above a specific threshold during winter months. As a result, customers with higher winter energy use – those with electric heating - will see relatively smaller bill increases during winter months than they otherwise would.
  • Virginia, Indiana and Michigan are implementing demand tariffs and time-of-day rates, including electric vehicle (EV) charging rates. These rates offer customers lower-priced electricity when demand is low, encouraging EV charging best practices and improving grid reliability and performance.

Broadband technology has proven to be critical to the economic development and well-being of rural America and underserved areas where coverage is lacking. It helps communities improve their capabilities for growth by enhancing workforce-training opportunities. It also enhances the communities’ ability to attract large-scale business investments, such as data centers and hospitals. It is also essential for the development of a modernized and integrated grid. We are exploring new options for the dual use of fiber for grid modernization and enabling Internet Service Providers (ISPs) to make the final connection to areas that lack broadband coverage. We are advocating legislation in many of our states that would specifically authorize us to invest in “middle mile” fiber infrastructure that we could then lease to ISPs for the purpose of their broadband service expansion.

In March 2019, Virginia lawmakers took steps to address the geographic disparities in broadband coverage in their state. Lawmakers approved House Bill 2691, giving the state’s two largest electric utilities – including APCo – the green light to pilot “middle mile” broadband projects. This infrastructure connects the networks and core routers on the internet to local service providers and consumers directly. Importantly, the bill allows the companies to recover the cost of the pilot from ratepayers. The final connection, called the “last mile,” would be the responsibility of third-party ISPs. On March 5, 2020, we received approval from the Virginia State Corporation Commission to proceed with the Grayson Broadband Pilot – a six-year program to install approximately 238 miles of fiber optic cable at a cost of at least $17 million.

In West Virginia, with the Broadband Enhancement Council’s support, we have proposed pilot projects to expand broadband access to 31,000 unserved or underserved customers in Mingo and Logan counties. In Ohio, we are working to update the law to allow electric utilities to act as broadband facilitators – a role that would allow us to work with ISPs to provide middle mile fiber to expand broadband offerings to rural areas. We expect Ohio to review a comprehensive broadband package in 2020. We are also working with legislators and regulators in other states to gauge interest, explore options and support additional initiatives, such as Kentucky’s KentuckyWired Program, which will expand access to technology and its benefits.

In addition to delivering modern-day technology to unserved or underserved areas, expanding broadband is a potential new business opportunity for AEP. Providing the means to extend high-speed internet to these areas also creates new opportunities for home-based work and helps to power economic stability for customers and communities.

Similar to other companies, AEP has a public policy strategy that seeks to inform decisions made by Congress, the Federal Energy Regulatory Commission (FERC), North American Electric Reliability Corporation (NERC), state legislatures and regulatory commissions, and Regional Transmission Organizations (RTOs).

AEP’s Policy Advisory Team (PAT), consisting of senior executives across all business functions and departments, considers policy options on issues of relevance to the company and supports internal policy analysis and debate. This approach ensures that AEP is speaking with one voice and that all employees with external contacts are clear on our policy positions and objectives. Since its inception in May 2017, the PAT has reviewed more than two dozen issues, including 13 in 2019.

Climate & Lobbying

Some stakeholders are asking AEP whether our lobbying practices and the policy positions taken by trade organizations to which we belong are in alignment with the Paris Climate Agreement. We believe in transparency and active participation in public policy development, regardless of the issue or position. Moreover, AEP is a respected and sought-after voice when it comes to energy policy-related matters in the U.S.

We report on our public policy positions, annual lobbying and political contributions, policy on political contributions and trade association memberships. We post our political engagement policy online and have consistently acknowledged our intent to participate actively in the political process and in lobbying activities at the national, state and local levels. At AEP, we must consider a number of factors when engaging in this arena, as public policy develops through negotiation and compromise. While many divergent issues are of importance to us, we cannot invest all of our efforts to focus on a single issue. We are obligated to deliver safe, reliable, affordable and secure electricity to all of our customers, and we develop our public policy positions with that in mind.

There are times, however, when the gap between outside organizations’ advocacy and what we believe to be in the best interests of our customers, employees and shareholders causes us to leave those organizations.

Because climate change issues are intertwined with so many other issues, we need to be open to considering all sides and compromising, if appropriate, to arrive at the best overall solutions for all involved. Being part of the dialogue is important to us, because this is how we can ensure our ability to influence and engage on issues that are important to AEP, our customers and our stakeholders.