The socioeconomic impacts of cost increases

The cost of energy is important to customers and to the economic conditions of our service territory and the nation. High electricity prices have particularly severe impacts in the eastern part of our service territory due to the large concentrations of energy-dependent heavy industry. In industrial states, where electricity is a major cost of production, companies need to be able to plan and budget with some certainty if they are to continue operations there. Rapidly increasing energy prices will result in a downward spiral for our regions as manufacturers leave, creating higher unemployment, which drives down household income even further. Our service territory consists of many states in which mean household incomes are already below the national average. These are very real social and economic concerns as the cost of electricity goes up.

Even though our electricity rates are among the lowest in our states, price increases during challenging economic times are difficult for our customers to absorb. This challenge is especially true in regions of double-digit poverty rates, which describes much of our service territory. This situation concerns us, our regulators and the policy makers in our states, especially as we face the prospect of another $6 billion to $7 billion environmental compliance program.

AEP is following several issues at the federal level, including legislation that would allow us to more cost efficiently comply with new EPA regulations, the tax treatment of corporate dividends, and improvements to the inland waterways.

AEP supports legislation, such as the Fair Compliance Act of 2011 introduced in the U.S. Senate late in 2011, to extend the amount of time utilities have to comply with new environmental regulations. We also supported the Transparency in Regulatory Analysis of Impacts on the Nation (TRAIN) Act, which passed the U.S. House last fall, which would require the EPA and other federal agencies to determine the cost of its new regulations on the economy before they would be implemented. And we support legislation that would prohibit the EPA from regulating coal ash as a hazardous waste, which passed the House in October 2011. The EPA’s rule dealing with how coal ash must be treated is expected later this year.

Taxes on corporate dividends is an issue related to the tax cuts first enacted by President George W. Bush. Before the Bush cuts, dividends were treated as ordinary income and taxed at the taxpayer’s marginal rate. Beginning in 2003, the rate was reduced to the same level as for capital gains. Those cuts were temporary but were extended by President Obama during the recession. We support making that change permanent because it stimulates investment in dividend-paying companies such as AEP and the economy overall.

Other environmental regulations that impact cost
New regulations approved by the EPA, notably the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS) Rule, will increase the cost of energy for most of our customers. For some states, this will be a second round of rate increases related to environmental improvements. These increases are in addition to other cost increases caused by fuel prices, inflation, reliability and other costs of maintaining and operating the system.

We will continue to advocate for certainty on EPA compliance deadlines incorporated in the CSAPR and MATS rules. These rules do not provide certainty for receiving extensions in compliance deadlines to complete construction. We continue to support the Fair Compliance Act of 2011, introduced in the U.S. Senate in November, which would coordinate and extend the compliance deadlines by up to three years. We support any efforts to provide more time for preconstruction and construction activities to comply and to spread the costs to our customers over a longer time frame. See the Environmental Performance section for more details about these rules.