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FERC Asks AEP to Justify Rate Differential
The Federal Energy Regulatory Commission (FERC) has agreed to set a hearing on the reasonableness of American Electric Power Co.'s (AEP) nonfirm, offpeak hourly rate for electric transmission service (Docket No. EL95-4-000).Commonwealth Edison Co. (CE) has alleged that Indiana Michigan Power Co., an AEP operating company, overcharges for hourly, nonfirm transmission services provided during offpeak hours. AEP calculates its rates for hourly transmission service based on a 16-hour day, but does not differentiate between peak and offpeak periods when pricing nonfirm service. CE has a large amount of low-cost nuclear capacity that is frequently available for sale during offpeak hours, which requires offpeak hourly transmission service on AEP's system. Under AEP's pricing scheme, CE must pay peak prices for offpeak nonfirm transmission.
The FERC had required AEP to cap the hourly charges billed each day at the daily rate to prevent customers taking service for more than 16 hours from paying more than a 100-percent contribution to fixed costs. The FERC argued that AEP's method would yield just rates in almost all cases, because the hourly market was viewed as an economy energy market that occurred primarily during peak hours when fuel-cost differentials were highest.
In its complaint, CE argues that it was unable to sell its offpeak low-cost nuclear energy because AEP's hourly nonfirm transmission rate made its offpeak power sales unmarketable. AEP opposed any requirement that it offer a discounted rate for hourly offpeak transmission service, and saw no reason to recover less than a full contribution to its fixed costs for offpeak service.
The FERC agreed with AEP regarding hourly customers that take nonfirm service during peak periods, but noted that the same argument may not be valid for customers that take nonfirm service only, or predominantly, during offpeak hours.
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