PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON At a session of the PUBLIC SERVICE COMMISSION OF WEST VIRGINIA in the City of Charleston on the 19th day of October 201 8. CASE NO. 18-00 16-E-PC AEP WEST VIRGINIA TRANSMISSION COMPANY and APPALACHIAN POWER COMPANY, Petition for Consent and Approval to enter into a new service agreement. COMMISSION ORDER The Commission approves a Joint Stipulation and Agreement for Settlement that establishes a bifurcated mechanism for compensation under a new Service Agreement between Appalachian Power Company and AEP West Virginia Transmission Company, Inc., and grants these parties permission to enter into that new Service Agreement, without approving the terms and conditions thereof. BACKGROUND On January 9, 2018, AEP West Virginia Transmission Company, Inc. (W Transco), and Appalachian Power Company (APCo) (collectively Companies) filed a petition seeking prior Commission consent and approval to enter into a new service agreement. WV Transco and APCo are affiliated companies and subsidiaries owned by American Electric Power Company, Inc. In 2010, WV Transco and APCo filed an application which included a request for Commission consent and approval for the Companies to enter into a service agreement (Case No. 10-0577-E-PC). The current service agreement was approved on December 27, 2012, and an executed copy of the agreement was filed on January 23, 20 13 (20 13 Agreement). According to the Companies, under the 20 13 Agreement, APCo would provide certain services to WV Transco and WV Transco would make payments to APCo, and each party would grant the other party a license to attach to or occupy its property or facilities. The petition also notes that the Petitioners sought approval of the 20 13 Agreement from the Virginia State Corporation Commission, which approved the agreement only for a period of five years. Consequently, the 2013 Agreement expired on April 23, 2018. I
The Companies state that from the beginning of the 2013 Agreement on April 24, 2013, WV Transco has developed and constructed transmission projects in West Virginia. The petition explains that the 2013 Agreement was appropriate and worked well in the early stages of WV Transco s development but indicates that now WV Transco has significant assets and operations in West Virginia, and it is appropriate to revise the relationship between APCo and WV Transco. According to the Companies, the current filing contains a new service agreement to replace the 2013 Agreement. The petition states that the compensation provision included in the proposed service agreement is structured to ensure that each party pays the other party for the rights and obligations it undertakes. Petition at Paragraph 11. The 2013 Agreement only provided for WV Transco to compensate APCo for the services and license that APCo provided to WV Transco. The petition states that because WV Transco has now constructed, owns and operates significant transmission assets in West Virginia and services are provided by both the parties, a revised compensation provision is needed. The Companies state that the revised agreement is necessary for the Companies to fulfill efficiently their public service obligations, the terms and conditions are reasonable, that neither party is given an undue advantage over the other and the new agreement does not adversely affect the public in West Virginia. The Companies also request that the Commission grant a waiver of the requirements of Rule 21 of the Commission Rules of Practice and Procedure, 150 C.S.R. 1, {Procedural Rules) to provide financial information of each Company because the respective financial conditions are well known to the Commission. On March 20, 2018, the Commission granted the companies a waiver of Procedural Rule 2 1 requirements. On April 9, 2018, Commission Staff filed a Final Joint Staff Memorandum. Staff recommended the Commission deny the petition for consent, arguing that WV Transco has not provided sufficient justification to terminate the annual property rental fee payments. On April 19, 2018, the Companies filed a response to the Staff memorandum. The Companies disagreed with the Staff position and requested that the Commission approve the petition for consent and approval to enter into a new service agreement. The Companies also requested that if the Commission was not prepared to approve the petition by April 23, 2018, the expiration date of the 2013 Agreement, then the Commission should approve on a provisional basis, pending resolution of the instant proceeding, a continuation of the licensing agreement between the Companies. The licensing agreement is found at Paragraph 6 in the 20 13 Agreement and is repeated in part in the new service agreement. 2
On April 20, 2018, Staff filed a Second Final Joint Staff Memorandum arguing that the Commission should deny the petition for consent because it is not in the public interest and will cause an adverse impact to the public in West Virginia. Staff took issue with the Companies claim that if the new service agreement is not approved, payments would cease for projects occurring after the expiration of the 2013 Agreement and that would be detrimental to West Virginia ratepayers. Staff argued that without an agreement in place, certificates of necessity filed by WV Transco may not be in the public interest because these projects would be more costly for West Virginia ratepayers. Staff recommended that the Commission revoke its permission, granted in Case No. 15-0832-E-P, to permit WV Transco to stop filing certain applications for a certificate of convenience and necessity because without a property rental fee in place, every WV Transco project would need to be reviewed to determine whether it would cost ratepayers more than if APCo built the project. On April 23, 20 18, the Commission issued an Order recognizing that the Facilities and Property License provision described at paragraph six of the 2013 Agreement continues, as specified in that provision, whether or not the 2013 Agreement is in effect. On May 11, 20 18, the Staff filed the direct testimony of Edwin L. Oxley and the companies filed the direct testimony of John J. Scalzo. Thereafter, the parties engaged in settlement discussions and, on May 29, 2018, submitted a Joint Stipulation and Agreement for Settlement (Joint Stipulation). No rebuttal testimony was filed. On June 1, 2018, the Commission conducted a hearing at which the Staff and the companies offered support for the Joint Stipulation, through the testimony of Mr. Scalzo on behalf of the Companies and through a statement of counsel on behalf of the Staff. On September 14, 2018, the Companies filed a post-hearing exhibit stating the asset balances of APCo and VJV Transco by property category. On October 15, 2018, the parties submitted an agreed Proposed Order. DISCUSSION The Companies and the Staff have arrived at a reasonable compromise of their differing positions. WV Transco will continue to make payments to APCo under the compensation mechanism created in the 20 13 Agreement for transmission projects undertaken through April 30, 2018. For transmission pro-jects undertaken on or after May 1, 2018, the new compensation mechanism proposed by the Companies and included in the 201 8 Agreement will apply. This resolution assures the continuation of significant rental payments to APCo, as Staff advocated, but new projects will be treated under the new compensation mechanism favored by the Companies. 1 3
~ FINDINGS OF FACT 1. The Companies are each transmission-owning electric public utilities subject to the jurisdiction of the Commission. Petition at 1-2, January 9, 2018. 2. The Companies have engaged in the construction of transmission projects in the State of West Virginia, pursuant to a Service Agreement entered into by the Companies and approved by the Commission. Id. at 2-3. 3. The Companies will continue to engage in the construction of transmission projects in West Virginia, pursuant to a new proposed Service Agreement effective May 1,2018. Joint Stipulation at 5. CONCLUSIONS OF LAW 1. The Joint Stipulation is a reasonable compromise of the opposing positions of the parties to this proceeding. 2. The Commission should approve the 2018 Service Agreement, without specifically approving its terms and conditions. The approval should not be deemed to bind the Commission in future rate proceedings. 3. The Commission should give its consent for the Companies to enter into the 2018 Service Agreement because the terms and conditions are reasonable, do not create an unfair advantage to any one affiliate over the other and are not adverse to the public. W.Va. Code 524-2-12. OFtDER IT IS THEREFORE ORDERED that the Joint Stipulation attached to this Order as Exhibit A is adopted as a reasonable resolution of this case. IT IS FURTHER ORDERED that the Petition for consent and approval to enter into the 2018 Service Agreement is granted without approving the specific terms and conditions therein. IT IS FURTHER ORDERED that upon entry of this Order, this case shall be removed from the Commission docket of open cases. 4
IT IS FURTHER ORDERED that the Executive Secretary of the Commission serve a copy of this Order by electronic service on all parties of record who have filed an e-service agreement, and by United States First Class Mail on all parties of record who have not filed an e-service agreement, and on Commission Staff by hand delivery. A True Copy, Teste, Ingrid Ferrell Executive Secretary SMS/sm 1800 16ce.sca 5
EXHIBIT A PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON CASE NO. 18-0016-E-PC AEP WEST VIRGINIA TRANSMISSION COMPANY, INC. and APPALACHIAN POWER COMPANY, public utilities Petition for Consent and Approval to Enter into a New Service Agreement, pursuant to W. Va. Code $24-2-12. JOINT STIPULATION AND AGREEMENT FOR SETTLEMENT Pursuant to W.Va. Code $24-1-9(f) and Rule 13.4 of Title 150, Series I, of the Public Service Commission of West Virginia s Rules of Practice and Procedure, the following parties to this proceeding (hereinafter the Stipulating Parties ), Appalachian Power Company ( APCo ) and AEP West Virginia Transmission Company, Inc. ( WV Transco ) (collectivety, the Companies ), and the Staff of the Public Service Commission of West Virginia ( the Staff ) join in this Joint Stipulation and Agreement for Settlement ( Agreement ) and request that the Public Service Commission of West Virginia (the Commission ) approve and adopt it, in its entirety and without modification. If adopted, the Agreement would enable the above-referenced proceeding to be resolved efficiently. In support of the Agreement, the Stipulating Parties make the following representations: 1. On April 23, 2010, the Companies filed an Application with the Commission pursuant to W.Va. Code $24-2-1 2 requesting, among other things, the Commission s consent and approval for APCo and WV Transco, which was then a newly-formed entity without substantial physical assets, to enter into a service agreement. That Application was docketed as Case No. (R1343S26. I)
10-0577-E-PC. 2. Ultimately, the April 23, 2010 Application was resolved by a December 27, 2012 Commission Order that, among other things, granted the Commission s consent and approval, subject to certain conditions, for the Companies to enter into a modified version of the originally- proposed service agreement. An executed copy of the final Service Agreement was filed on 4 January 23,2013 (the 2013 Service Agreement ). 3. The 2013 Service Agreement specified, among other things, that APCo would provide certain services to WV Transco, WV Transco would make certain payments to APCo, and each party granted the other party a license to attach to or occupy its property or facilities. 4. Owing to the relationship of APCo and WV Transco within the AEP system and APCo s role as a public utility subject to regulation by the Virginia State Corporation Commission ( VSCC ), APCo sought authority from the VSCC to enter into the 2013 Service Agreement, On April 24, 2013, in an Order Granting Motion, the VSCC granted this authority, subject to certain requirements. Among these requirements was a provision that the approval granted was for a set period of five years from the date of the Order Granting Motion. On July 23, 2013, an executed copy of the 2013 Service Agreement, effective as of April 24,2013, was filed with the VSCC. Accordingly, the 2013 Service Agreement expired on April 23, 2018, except for certain provisions which survive termination. 5. Since April 24, 2013, WV Transco has developed and constructed transmission projects in West Virginia. Initially, according to the requirements of the Commission s December 27, 2012 Commission Order, WV Transco applied for certificates of public convenience and necessity from the Commission for these projects. In a series of proceedings, WV Transco received certificates from the Commission to construct several transmission (R1343S26.1) 2
projects, most of which have been completed and placed into service, Since the issuance of a Commission Order on September 9,2015 in Case No. 15-0832-E-P, WV Transco has continued to develop and construct transmission projects in compliance with the terms of that Commission Order with respect to invoking the statutory ordinary extension exemption, notifling the Commission and its Staff about planned transmission projects, and seeking certificates of public convenience and necessity. 6. On January 9, 2018, the Companies filed a petition seeking prior Commission consent and approval of a new service agreement ( 2018 Service Agreement ). One of the features of the 2018 Service Agreement was a modification of the compensation provisions of the 2013 Service Agreement. 7. The Staff filed its initial Staff memoranda on February 13, 2018, conducted discovery, and filed its final Staff memoranda on April 9, 2018. The Staff took issue with the Companies proposal to change the compensation provisions and recommended that the Companies petition be denied. memoranda. 8. On April 19, 2018, the Companies filed a response to the Staffs final 9. 10. On April 20,2018, the Staff filed a Second Final Joint Staff Memorandum. On April 23,201 8, the Commission issued an Order authorizing the Companies to continue to rely on the licensing provisions of the 2013 Service Agreement while Case No. 18-0016-E-PC is pending. 11. On April 27, 2018, the Commission issued an order setting a procedural schedule, including deadlines for simultaneous direct and rebuttal testimony, scheduling an evidentiary (RI 343526. I ) 3
hearing, and requiring the parties to engage in settlement discussions and to submit a written report on the result of such discussions. 12. 13. 14. On May 11,2018, the Stipulating Parties filed their direct testimony. The Stipulating Parties engaged in settlement discussions, ELS directed. On May 18, 2018, the Companies submitted, with the concurrence of the Staff, that the Stipulating Parties had reached a settlement in principle, combined with a motion for a continuance of the dates for rebuttal testimony and the evidentiary hearing. 15. On May 2 I, 20 18, the Commission issued an order requiring the parties to submit, by 4:OO p.m. on May 25, 2018, either a proposed Joint Stipulation and Agreement for Settlement or rebuttal testimony, and rescheduling the hearing for May 29,2018. 16. The Stipulating Parties have made it clear in the record of this proceeding of the differing positions they take with respect to compensation under the 2018 Service Agreement. 17. The Stipulating Parties have reached a compromise which provides for the continuation of rental payments in accordance with the 2013 Service Agreement for transmission projects undertaken through April 30, 2018, and the implementation of a new compensation arrangement for transmission projects undertaken on or after May 1,2018. The following are the compromise provisions agreed to by the Stipulating Parties: a. Staff, APCo, and WV Transco acknowledge that the 2013 Service Agreement compensation provisions survive the termination of the 2013 Service Agreement, which occurred April 23,2018. b. The parties agree that for the calculation of the Client s Investment the effective date of demarcation shall be April 30, 2018, and that the amount of the Client s (R 1343526.1 ) 4
Investment will be treated as if April 30,2018 was the date of termination as that term is defined in paragraph 4 of the 2013 Service Agreement. c. That Client s Investment amount as of the effective date of demarcation effectively caps the amount to be paid annually by WV Transco to APCo for compensation under the 2013 Service Agreement. The parties acknowledge that WV Transco may be able to petition the Commission for the modification of these payments and other remedies that the Commission may consider if the costs of these payment are determined not to be recoverable through WV Transco s rates. d. The effective date of the 2018 Service Agreement will be May 1, 2018. For WV Transco investments made on or after May 1,2018, WV Transco and APCo will compensate APCo and WV Transco, respectively, for licenses and services under the terms of the 2018 Service Agreement (Le., at cost). e. Staff will consent to the approval of the 2018 Service Agreement, with the new compensation provisions in the 20 18 Service Agreement applicable only to WV Transco or APCo projects undertaken on or after May 1, 20 18, as reflected in the calculation of the Client s Investment as of the effective date of demarcation in Subparagraph b. (in which projects undertaken on or after May 1,2018 are not included). f. The Stipulating Parties agree, if and when the agreement between WV Transco and Wheeling Power Company ( WPCo ) (the 2013 WPCoW Transco Service Agreement) is presented to the Commission for modification along the lines of the 2018 Service Agreement between APCo and WV Transco, that they will agree to such modification under terms consistent with the APCoW Transco Agreement, including the use of April 30, 2018 as the date of demarcation, but without a specified termination date. (R1343526.1) 5
18. This Agreement is entered into subject to the acceptance and approval of the Commission. It results from a review of any and all filings in this proceeding, the Stipulating Parties testimony and exhibits, and thorough discovery and discussion. It is being proposed to expedite and simplify the resolution of this proceeding. It is made without any admission or prejudice to any positions which any party might adopt during subsequent litigation. The Stipulating Parties adopt this Agreement as being in the public interest, without adopting any of the positions set forth herein as principles applicable to future proceedings, except as expressly provided herein. The Stipulating Parties acknowledge that it is the Commission s prerogative to accept, reject, or modify any stipulation; however, in the event that this Agreement is rejected or modified by the Commission, it is expressly understood by the Stipulating Parties that they are not bound to accept this Agreement as modified, and the Stipulating Parties may avail themselves of whatever rights are available to them under law and the Commission s Rules of Practice and Procedure. WHEREFORE, the Stipulating Parties respectfully request that the Commission make appropriate Findings of Fact and Conclusions of Law adopting and approving this Agreement in its entirety. Respectfully submitted this 29* day of May, 201 8. (Remainder of Page Intentionally Left Blank) 6
APPALACHIAN POWER COMPANY ;INIA T W.NY, INC. STAFF OF THE PUBLIC SERVICE COMMISSION (R1343S26.I 1 7