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 driven by the transition to a clean energy future. Advances in technology are creating opportunities for AEP to integrate and modernize the grid – making it smarter, more reliable and more resilient. A smarter grid empowers our customers to actively engage in their energy experience – giving them more choice and control over how and when they use energy.
To meet customers’ evolving expectations, we sometimes must seek to reshape the regulatory compact. AEP’s regulated footprint includes 11 states with varying regulatory frameworks that are primarily governed by state legislatures that 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, affordable and reliable electric power system 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 generation becomes more decentralized and the company adopts more renewable and distributed energy resources, regulations must also evolve to meet the demands of today’s emergent technologies and customer preferences. In managing the transition, it is essential to ensure the reliability of the system while managing the financial risk for our shareholders.
One approach includes identifying flexible or alternative ratemaking models that allow AEP to accelerate our transition to cleaner energy sources while balancing the impacts to both customers and shareholders. Alternative ratemaking models help balance different objectives to provide incentives for cost savings and reinforce investments that provide value to customers while supporting 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. It also provides payment options and flexibility for customers. This is especially important for disadvantaged customers who are most sensitive to fluctuations in their utility bills, as evidenced during the global pandemic.
We continue to cultivate relationships with regulators, private and public organizations and other stakeholders to meet customer demand for new, innovative solutions. We leverage our expertise and experience to inform regulators and key stakeholders about emerging technologies and associated issues.
- Navigating the Regulatory Impacts of COVID-19
Early in the pandemic, AEP’s regulated utilities acted quickly, in recognition that electricity is essential to people’s health, safety and comfort. We temporarily suspended all service disconnections for non-payment for months (otherwise known as disconnection moratoria). This ensured customers had access to electricity at a time when they were navigating remote work and learning. We also proactively reached out to customers with payment options to help them avoid falling behind, and we helped them enroll in federal, state or local energy assistance programs. This included our commercial, industrial and residential customers. In spite of these efforts, the lingering pandemic continues to negatively affect some of our customers.
We continue to work with our regulators and customers on setting up payment arrangements to reduce the financial burden for them and financial risk for our company. Federal financial support such as CARES Act funding is offered in some states to help customers pay their bills.
AEP’s geographic footprint, where many of the customers we serve are located in rural or underserved areas, presented unique challenges during the pandemic. COVID-19 and the switch to remote work and education reinforced the importance of reliable electricity. The pandemic brought the digital divide to the forefront, exposing the need for broadband to support virtual work and school. Broadband also provides important access to healthcare, jobs and other social services. We have a strategy to begin addressing this inequity using our infrastructure to help make it happen.
Broadband technology has proven to be critical to the economic development and well-being of rural America and other underserved areas. Access to the internet and other communication services were a lifeline for many during the COVID-19 pandemic. As local businesses, schools and economies shut down, many were able to continue working and learning remotely. Our service territory includes many unserved or underserved areas. Prior to the pandemic, we began exploring opportunities to leverage our system to support broadband expansion in these areas. Broadband technology improves growth opportunities for rural communities by enhancing such things as work-from-home, telemedicine and educational and workforce-training capabilities. Additionally, broadband technology improves a community's ability to attract and retain large-scale business investments, including data centers and hospitals which create jobs. It also provides a robust communication platform for a modern electric 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 for 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.
- Broadband Initiatives by State
- Ohio: Ohio Broadband Middle Mile Deployment promotes rural middle-mile broadband investment through the establishment of a broadband expansion program. We are advocating for grant funds for utility middle mile that supports the new high-speed internet services in unserved regions of the state while also connecting grid facilities. Pending legislation, we are proposing numerous middle mile projects including a project with the Office of Appalachia within the Ohio Governor’s Office, which supports Athens, Hocking and Perry counties. This would also help open the door to a larger broadband deployment effort associated with AEP Ohio’s grid modernization proposal filed with the Public Utility Commission of Ohio.
- Virginia: Appalachian Power’s inaugural broadband project in Grayson County received approval from the Virginia State Corporation Commission in March 2020. After replacing utility poles with larger, stronger poles where needed, contractors installed the first fiber in December 2020. After the fiber optic lines are installed, an internet service provider will offer the “last mile” connectivity to unserved customers. Construction is scheduled to be completed within 18 to 24 months. We are evaluating the potential for a second project in Bland, Montgomery and Pulaski counties. This three-county initiative would reach roughly 15,000 unserved broadband customers.
- West Virginia: Appalachian Power, along with Wheeling Power, submitted an application to the Public Service Commission of West Virginia for approval of a broadband infrastructure expansion project that will facilitate access in unserved areas of Logan and Mingo counties. Appalachian Power is requesting approval of the project plan and cost recovery for the estimated $61.3 million investment, which includes installing 430 miles of middle-mile fiber optic cable infrastructure needed to expand high-speed broadband access. The project plan calls for an internet service provider to own, install and operate the last-mile infrastructure needed to deliver broadband services to customers in the project area.
- Other Noteworthy Legislative Activity
- Indiana – 21st Century Energy Policy Development Task Force: A task force of legislators and governor-appointed experts was created in 2019 to examine the reliability, resiliency and stability of the grid as energy companies continue to transition generation options and use of emerging technologies. In November 2020, the Task Force released its findings recommending a resource adequacy reporting mechanism by Indiana energy companies, which was enacted into law in 2021 via HEA 1520. Subsequent legislation was also signed into law (in the form of HEA 1220) to extend the 21st Century Energy Policy Development Task Force to further the study.
- Virginia Clean Economy Act (SB851/HB1526): Passed by the General Assembly in 2020, the Virginia Clean Economy Act (VCEA) seeks to end carbon dioxide emissions from the utility industry in Virginia by 2050. In November 2020, Appalachian Power filed its first annual plan detailing how it will meet key targets on its way to becoming 100% carbon-free by 2050. The company intends to meet the VCEA targets primarily through future investments in solar, wind, energy storage, and energy efficiency measures. Short-term plans are to acquire or contract 210 MW of solar resources in Virginia and 200 MW of wind in the next five years. By 2050, the company expects to add 3,400 MW of solar, 2,200 MW of on-shore wind, and 400 MW of energy storage to its current portfolio of wind and hydro resources.
- Virginia Solar (SB966): Passed in 2018, Virginia Senate Bill 966 requires Appalachian Power to construct or acquire 200 MW of solar resources prior to 2028. In February 2021, Appalachian Power issued an RFP for up to 300 megawatts (MWs) of solar and/or wind generation resources. The request for bids is the first in a series of RFPs Appalachian Power will issue in 2021 to comply with provisions of the Virginia Clean Economy Act (VCEA).
- West Virginia Solar (SB583): Appalachian Power issued a request for proposals (RFP) in June 2020 for up to 50 MW of solar energy resources as part of the provisions of Senate Bill 583. The bill allows the company to build up to 200 MW of solar generation in increments of up to 50 MW each. To be eligible, the site has to be in West Virginia and have been previously used in electric generation, industrial, manufacturing or mining operations to include brownfields, closed landfills, hazardous waste sites, former industrial sites and former mining sites.