APPALACHIAN POWER PROPOSES RATE CHANGES TO BE EFFECTIVE IN 2012 <br> <br> LIMITS RATE INCREASE TO ABOUT 10 PERCENT<br> APPALACHIAN POWER PROPOSES RATE CHANGES TO BE EFFECTIVE IN 2012 <br> <br> LIMITS RATE INCREASE TO ABOUT 10 PERCENT<br>
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3/31/2011
APPALACHIAN POWER PROPOSES RATE CHANGES TO BE EFFECTIVE IN 2012

LIMITS RATE INCREASE TO ABOUT 10 PERCENT
RICHMOND, Va., March 31, 2011 – Today Appalachian Power presented the Virginia State Corporation Commission (SCC) with four rate requests that reflect the increasing costs of producing and delivering electricity to customers. The total overall rate impact of the cases would be a 9.6 percent increase and would not take effect until early next year under the company’s proposal.

If approved, the total bill for a residential customer using 1,000 kilowatt-hours of electricity in a month would be $104.99, approximately the same amount Appalachian Power customers paid in December 2010. Even with the rate changes, Appalachian Power would remain below the national average and competitive with other utility providers in the state.

“While the cases indeed reflect the increasing costs of electric service, I’m pleased to say that they also reflect extraordinary efforts to mitigate the effects of these expenses in our electric rates,” said Charles Patton, Appalachian Power president and COO.

“The challenge is and will continue to be balancing rate impacts on customers and meeting the need for infrastructure investments,” Patton said. “We think the cases filed today achieve that balance. In the filings you’ll see that Appalachian is integrating renewable energy sources and a new natural gas power plant into our generation mix, while continuing to invest tens of millions of dollars in environmental improvements on existing coal-fueled power plants. We are able to achieve these investments and deal with growing expenses in other areas of the company while limiting the overall impact on rates to about 10 percent.”
 
Appalachian proposes to recover its increasing costs through four cases filed with the SCC today ― a base case, an environmental Rate Adjustment Clause (RAC), a renewable RAC and a generation RAC. The company consolidated the timing of these requests and is attempting to consolidate their implementation next year to help limit the frequency of rate changes. If fuel costs remain constant, the company anticipates no rate changes for Virginia customers in 2011.
 
“Many of the drivers affecting the price of electricity are beyond our control,” said Patton. “Most of the proposed rate changes are related to installing and operating environmental controls to comply with federal environmental mandates for coal-fueled power plants.”
Included in today’s filing are the actual expenses for which the company is seeking recovery and a mitigated amount that reflects the company’s efforts to keep rates as low as possible. Although the total of the rate increases could have been an approximately $300 million annual increase, the company reduced the total requested to $166 million and proposes to implement only $115 million. Details of the company’s proposal include:
  • Biennial Base Case – Approximately $75 million – 6.3 percent increase – Current base rates are based on 2008 and 2009 costs. The Biennial Base Case reflects increased day-to-day costs associated with running the business, including significant increases in environmental expenses necessary to comply with state and federal regulations. The total amount of this case is approximately $126 million; however, the company is seeking to avoid putting into rates at this time approximately $51 million in additional costs related to depreciation rate changes until more certainty develops around environmental regulations. This case also reflects the company’s ongoing efforts to reduce expenses, including significant staffing reductions in 2010, thus limiting the amount of this request. 
 
To help residential customers deal with higher seasonal usage, Appalachian is proposing a seasonal residential rate that slightly lowers the cost of electricity during heating and cooling seasons, and slightly raises them during the spring and fall months. The result for customers is a more manageable electric bill year-round.

Appalachian continues to financially perform below the level the SCC deems reasonable. The SCC has authorized Appalachian to earn up to 10.53 percent Return on Equity (ROE) in its most recent base case. On a Virginia jurisdictional basis, the company earned approximately 4 percent for 2010. If the company earns above the authorized base ROE ultimately authorized by the SCC in this case, rather than keep any additional earnings Appalachian proposes to apply those earnings toward reliability improvements or toward deferred expenses that reduce future rate cases. Appalachian only seeks to earn a return at the SCC approved level.
  • E-RAC – Approximately $38 million – 3.2 percent increase – Appalachian continues to invest in equipment to meet federal and state environmental requirements for such things as sulfur dioxide and nitrogen oxide emissions from its power plants. Although permitted to recover costs through 2011, at this time Appalachian is only seeking recovery of incremental costs incurred through 2010 and is proposing to spread the recovery of these costs over a two-year period, thereby reducing the rate impact on customers.

  •   Renewable RAC – $6 million – .5 percent increase – Appalachian is meeting the Commonwealth’s Voluntary Renewable Portfolio Standards for electric utilities primarily through purchased wind power. This RAC will only seek to recover the incremental costs above the cost to generate this power using non-renewable sources.

  • Generation RAC – net decrease of $4 million – Appalachian is seeking to add 580 megawatts of natural gas-fired generation to its fleet. The annual cost of the new plant, located in Dresden, Ohio, is approximately $27 million and will be recovered through this rate adjustment clause. The addition of Dresden will help reduce the costs of buying power to meet higher customer demands. The net result of the addition of Dresden and the reduced power costs is a $4 million a year savings.
 
“Adding the gas-fired Dresden Plant and its lower cost of environmental compliance to Appalachian’s portfolio of generators will help reduce costs for customers,” Patton said.

Appalachian Power currently owns 6,415 MW of generating capacity, most of which is generated by coal-fired power plants in West Virginia and Virginia.
 
Customers can reduce the impact of rate changes by monitoring how they use electricity and making changes to cut their use. Appalachian Power encourages customers to learn more about energy savings and on its website AppalachianPower.com provides useful tools including a home energy audit, appliance energy calculators and lighting calculators to help customers become more informed consumers. In addition to energy savings ideas, the company encourages customers to consider bill payment options that can help manage monthly budgets. The Average Monthly Payment Plan (AMP) bills customers based on a rolling 12-month average use of electricity. This helps eliminate spikes in bills when energy usage increases.           

Appalachian Power provides electricity to 1 million customers in Virginia, West Virginia and Tennessee (as AEP Appalachian Power). It is a unit of American Electric Power (NYSE: AEP), one of the largest electric utilities in the United States, with more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
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Editor’s Note – Video of the Dresden Plant under construction can be downloaded at https://www.appalachianpower.com/global/videoplayer/?id=354. Photos are available by request.
 
This report made by American Electric Power and its Registrant Subsidiaries contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its Registrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: the economic climate and growth in, or contraction within, AEP’s service territory and changes in market demand and demographic patterns; inflationary or deflationary interest rate trends; volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments impairing AEP’s ability to finance new capital projects and refinance existing debt at attractive rates; the availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material; electric load and customer growth; weather conditions, including storms, and AEP’s ability to recover significant storm restoration costs through applicable rate mechanisms; available sources and costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters; availability of necessary generating capacity and the performance of AEP’s generating plants; AEP’s ability to recover Indiana Michigan Power’s Donald C. Cook Nuclear Plant Unit 1 restoration costs through warranty, insurance and the regulatory process; AEP’s ability to recover regulatory assets and stranded costs in connection with deregulation; AEP’s ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; AEP’s ability to build or acquire generating capacity, including the Turk Plant, and transmission line facilities (including the ability to obtain any necessary regulatory approvals and permits) when needed at acceptable prices and terms and to recover those costs (including the costs of projects that are cancelled) through applicable rate cases or competitive rates; new legislation, litigation and government regulation, including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or additional regulation of fly ash and similar combustion products that could impact the continued operation and cost recovery of AEP’s plants; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery of new investments in generation, distribution and transmission service and environmental compliance); resolution of litigation (including AEP’s dispute with Bank of America); AEP’s ability to constrain operation and maintenance costs; AEP’s ability to develop and execute a strategy based on a view regarding prices of electricity, natural gas and other energy-related commodities; changes in the creditworthiness of the counterparties with whom AEP has contractual arrangements, including participants in the energy trading market; actions of rating agencies, including changes in the ratings of debt; volatility and changes in markets for electricity, natural gas, coal, nuclear fuel and other energy-related commodities; changes in utility regulation, including the implementation of electric security plans and related regulation in Ohio and the allocation of costs within regional transmission organizations, including PJM and SPP; accounting pronouncements periodically issued by accounting standard-setting bodies; the impact of volatility in the capital markets on the value of the investments held by AEP’s pension, other postretirement benefit plans and nuclear decommissioning trust and the impact on future funding requirements; prices and demand for power that AEP generates and sells at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation; and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.
 
 
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Todd Burns
Corporate Communications
540-985-2912
tfburns@aep.com

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