WILLIAM C. PORTH ATTORNEY AT LAW P.O. BOX 1791 CHARLESTON. WV 25326 DIRECT DIAL. (304) 347-8340 E-MAIL: wcpk2ramlaw coin August 23,201 8 BY HAND DELIVERY Ingrid Ferreil, Executive Secretary Public Service Commission of West Virginia 201 Brooks Street Charleston, WV 25301 Re: In the Matter of the Effects on Utilities of the 201 7 Tax Cuts and Jobs Act General Order 236.1 Dear Ms. Ferrell: I enclose herewith for filing in the above-referenced proceeding the original and twelve (1 2) copies of an executed Joint Stipulation and Agreement for Settlement. It has been executed by all of the parties to this proceeding interested in the rates of the AEP Companies except for the City of Charleston and the Kanawha County Commission. These last two parties, although they do not join in the Joint Stipulation and Agreement for Settlement, do not oppose it. Very truly yours, illiam C. Porth (W.Va. State Bar #2943) WCP:sr Enclosures cc: Service List Counsel for Appalachian Power Company and Wheeling Power Company { R1364563.1}
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON GENERAL ORDER NO. 236.1 In the matter of the Effects on Utilities of the 2017 Tax Cuts and Jobs Act. JOINT STIPULATION AND AGREEMENT FOR SETTLEMENT Pursuant to W.Va. Code lj24-1-9(f) and Rule 13.4 of Title 150, Series 1, of the Rules of Practice and Procedure of the Public Service Commission of West Virginia ( the Commission ), the following parties to these proceedings (hereinafter the Stipulating Parties ), Appalachian Power Company ( APCo ) and Wheeling Power Company ( WPCo ) (collectively the AEP Companies ), the Staff of the Public Service Commission of West Virginia ( the Staff ), the Consumer Advocate Division of the Public Service Commission of West Virginia ( the CAD ), West Virginia Energy Users Group ( WVEUG ) (members served by the AEP Companies are The Chemours Company, Constellium, Covestro, Marathon Petroleum, Westlake Chemical, and West Virginia Manufacturing), and SWVA, Inc., ( SWVA ), (all of which, together with the City of Charleston ( City ) and the Kanawha County Commission ( County ), constitute all of the Parties to G.O. 236.1 interested in the AEP Companies West Virginia retail *e rates) join in this Joint Stipulation and Agreement for Settlement ( Agreement ), and request that the Commission approve and adopt it as the resolution of the issues in this proceeding, G.O. 236.1, applicable to the AEP Companies and their West Virginia retail customers, in its entirety and without modification. While the City and County do not join in this Agreement, they do not oppose it. If adopted, the Agreement would resolve the disputed issues among the Stipulating IR1364479.1)
Parties in this proceeding. In support of the Agreement, the Stipulating Parties make the following representations: PROCEDURAL HISTORY 1. On December 22,2017, the Tax Cuts and Jobs Act of 2017 ( TCJA ) was signed into law. On January 3, 2018, the Commission issued General Order No. 236.1 ( G.O. 236.1 ) to initiate a proceeding to investigate the effects of the TCJA on the revenue requirements of certain utilities. The Commission directed a large number of identified utilities to track the tax savings resulting from the TCJA on a monthly basis, beginning wit& the January 1, 2018 effective date of the TCJA. 2. On January 26, 2018, the Commission added private solid waste carriers to this proceeding and required that all utilities, subject to this proceeding, effective January 1, 2018, use regulatory accounting treatment to track any impacts of the TCJA, including current and deferred tax impacts. 3. On March 8, 2018, the Commission ruled on certain motions and established a procedural schedule for the filing of the testimony of the utilities, the responses of other interested parties, and the replies of utilities to such responses. 4. As far as the AEP Companies and other parties interested in the West Virginia retail rates of the AEP Companies are concerned (and regardless of whatever other utility rates in which such parties may be interested), the following evidentiary filings were made on the following dates: a. b. C. d. Direct testimony of John J. Scalzo and Alex E. Vaughan May 30,2018 on behalf of the AEP Companies Staff Memoranda July 2,2018 Direct testimony of Ralph C. Smith on behalf of the CAD July 2, 2018 Direct testimony of Stephen J. Baron pertaining to the AEP July 2,2018 (R1363588.1) 2
Companies on behalf of the WVEUG e. Direct testimony of Danny Jones on behalf of the City of Charleston f. Direct testimony of W. Kent Carper on behalf of the County Commission of Kanawha County g. Rebuttal testimony of John J. Scalzo and Alex E. Vaughan on behalf of the AEP Companies h. Rebuttal testimony of Ralph C. Smith on behalf of the CAD July 2,2018 July 2,2018 July 13,2018 July 13,2018 5. The Commission conducted an evidentiary hearing in this proceeding on July 24-25, 2018. Some of the pre-filed testimony and position papers were admitted by stipulation and some were adopted by witnesses and subjected to examination by the Commission and the parties. At the conclusion of the hearing, the Commission adopted a briefing schedule. 6. The AEP Companies and other parties interested in the rates of the AEP Companies have engaged in settlement discussions, as encouraged by the Commission at the close of the hearing on July 25,2018. 7. Those discussions have been fruitful and the following parties -- the AEP Companies, the Staff, the CAD, WVEUG, and SWVA (referred to as the Stipulating Parties Interested in the West Virginia Retail Rates of the AEP Companies or the Stipulating Parties for short) -- have arrived at a comprehensive proposal set forth in this Agreement and in the Exhibits attached hereto, intended to resolve all of the issues in G.O. 236.1 pertaining to the AEP Companies and their West Virginia retail customers. 8. The Stipulating Parties agree that the specific proposals set forth in this Agreement, individually and in the aggregate, were designed to provide the Companies West Virginia retail customers with the benefits of the federal tax savings resulting from the TCJA of 2017. {R1363588.1} 3
SPECIFIC PROVISIONS OF AGlUCEMENT 9. The Stipulating Parties agree that effective September 1, 2018 the AEP Companies should implement a new Tax Reform Rider (TRR) tariff providing for reductions in the rates applicable to their tariff and special contract customers. As shown on Exhibit By the TRR shall consist of different rate credit components that cover three (3) distinct time periods, as follows : a. For the 6-month period from September 1, 2018 through February 28, 2019, the first component of the TRR includes rate credits designed to feedback to all of the AEP Companies West Virginia retail tariff and special contract customers a total of $25.5 million of tax benefits, as shown on Exhibit C to this Stipulation; and b. For a 3-month period from December 1, 2018 through February 28, 2019, the second component of the TRR includes a 2018/2019 Winter Rate Credit as more fully described in numbered paragraph 1l.e of this Agreement, and designed to provide additional rate credits of approximately $1 7.7 million to high-usage residential customers; and c. For a 22-month period from September 1, 2018 through June 30, 2020, the third component of the TRR includes the C&I Subsidy Reduction Credit as more fully described in numbered paragraph 11.g of this Agreement, designed to provide additional rate credits for Tariff Classes GS, LCP, IP, OL, SL and Special Contracts, by the amounts shown on Exhibit B to this Agreement. The Stipulating Parties further agree that the rate credits shown on Exhibit D should be reflected in the AEP Companies TRR tariff. (R1363588.1) 4
10. The Stipulating Parties agree that the AEP Companies West Virginia jurisdictional share of generation and distribution function Unprotected Excess Accumulated Deferred Federal Income Tax, which they agree includes a gross-up component ( Unprotected Excess ADFIT ), totaled approximately $235 million as of August I, 2018 and that this amount should be allocated to the West Virginia retail rate classes and special contract customers of the AEP Companies using the AEP Companies 2017 rate base allocator as described below and shown in Exhibit A to this Agreement. 11. As further shown on Exhibit A to this Agreement, the Stipulating Parties agree to the following, with regard to Unprotected Excess ADFIT: a. In Case No. 18-0503-E-ENEC, the AEP Companies sought to recover from their customers, an Expanded Net Energy Cost (ENEC) under-recovery balance that had accrued as of December 31, 2017. Per the Joint Stipulation and Agreement for Settlement filed in Case Nos. 18-0503-E-ENEC and 18-0504-E-P (the ENECNMP Agreement), $89,955,45 1 of Unprotected Excess ADFIT has been designated for use in eliminating the AEP Companies December 31, 2017 ENEC under-recovery balance, thus avoiding any current increase in ENEC rates for the Companies West Virginia customers; b. In Case No. 18-0504-E-P, the AEP Companies sought to recover from their customers, an under-recovery balance that had accrued as of December 31, 2017 related to their Vegetation Management Program (VMP). Per the ENECNMP Agreement, $18,5 17,000 of Unprotected Excess ADFIT has been designated for use in reducing the VMP under-recovery balance, thus {R1363588.1) 5
eliminating an equivalent amount of increase in current VMP rates for the AEP Companies West Virginia customers; c. Per the ENECn7MP Agreement, $1,650,000 of Unprotected Excess ADFIT has been designated to recover the AEP Companies construction surcharge revenue deficiency by amortizing $275,000 per month of Unprotected Excess ADFIT from September 1, 2018 through February 28, 2019. This provision avoids an increase in current Construction Surcharge rates for the AEP Companies West Virginia customers; d. $15,000,000 of Unprotected Excess ADFIT, apportioned as shown on Exhibit A to the AEP Companies rate classes using the Staffs proposed distribution plant allocators, should be used to provide the AEP Companies low-income West Virginia residential customers with assistance on their electric bills. The Stipulating Parties understand and agree that the eligibility requirements for such bill assistance, as well as the process for providing such assistance, will be developed prior to January 1, 2019, through a collaborative effort among the AEP Companies, the Staff, and the CAD; e. Approximately $17.7 million of the AEP Companies West Virginia residential class s Unprotected Excess ADFIT should be used to fund a temporary winter rate discount for residential customers with high monthly energy consumption. For purposes of this provision, residential energy use occurring in any of the three (3) months of December 2018, January 2019 and February 2019 in excess of a 1,350 KWh per month threshold, will receive a credit of 3.826 cents per kwh. This credit will be reflected through the 2018- IR1363588.1) 6
2019 Winter Rate component of the new TRR as previously described in paragraph 9; f. A total of $1,000,000 of Unprotected ADFIT will be set aside for future use in promoting economic development in the AEP Companies West Virginia service territories. The AEP Companies, in cooperation with the West Virginia Department of Commerce, will develop a plan for use of the hnds designed to maximize the value of these funds. Such plan shall be filed with the Commission as a closed entry in the TCJA case on or before December 31, 2018. If no plan is developed, the $1 million will become part of the Remaining Balance described below; g. Approximately $10.04 million of Unprotected Excess ADFIT allocable to the AEP Companies West Virginia retail Tariff Classes RS, SWS, SGS and SS should be reallocated to Tariff Classes GS, LCP, IP, OL, SL and Special Contracts for the purpose of mitigating a portion of current inter-class subsidies. In addition, approximately $10.04 million of Tariff Classes GS, LCP, IP, OL, SL, and Special Contracts allocable shares of Unprotected Excess ADFIT should be used to further mitigate the inter-class subsidy paid by those classes. The approximate total of $20.08 million should be credited to Tariff Classes GS, LCP, IP, OL, SL and Special Contracts over the 22- month period from September 1, 2018 through June 30, 2020, through the C&I Subsidy Reduction Credit component of the TRR; and h. The balance of Unprotected Excess ADFIT, estimated at approximately $71.2 million ( Remaining Balance ) should be held in reserve and will remain on (R1363588.1) 7
the AEP Companies books for future use in offsetting potential post 2017 ENEC under-recoveries, to mitigate other rate increases, or for other purposes to be determined by the Commission in 2019. Regardless of the final disposition of Unprotected Excess ADFIT Remaining Balance, the Remaining Balance will reflect the allocated share for each class. 12. The Stipulating Parties agree that the AEP Companies Unprotected Excess ADFIT balances related to the transmission function should be amortized over ten-years, in accordance with the FERC-approved settlement in Docket No. EL 17-13-000, with the West Virginia jurisdictional share returned to customers through the ENEC, beginning September 1, 2018. 13. The Stipulating Parties agree that following the filing of the 2017 consolidated tax return in which the AEP Companies participate, the Companies Unprotected Excess ADFIT deferral Remaining Balance should be trued-up to the actual Remaining Balance. 14. The Stipulating Parties agree that the $20.08 million of credits associated with the C&I Subsidy Reduction component of the TRR, and the approximate $17.7 million of credits associated with the Residential 2018-2019 Winter Rate component of the TRR, shall be offset by the Unprotected Excess ADFIT in the actual amounts produced by the credit rates, for that period of time over which the credits are in effect, from the applicable classes Unprotected Excess ADFIT balance. The Stipulating Parties further agree that there will be no true up for the $25.5 million rate credit portion of the TRR and that the $25.5 million credit has been allocated to the AEP Companies West Virginia retail rate classes, as shown on Exhibit C to this Agreement, based upon a 50% energy and 50% production demand allocation method. (R1363588.1) 8
15. The Stipulating Parties agree that the AEP Companies should cease all TCJA deferrals related to reduced federal income tax rates and Protected Excess ADFIT, effective August 31, 2018. 16. In recognition of the AEP Companies tax savings from the TCJA, as reflected in deferrals related to reduced federal income tax rates since January 1, 2018 and Protected Excess ADFIT accruing for the period January 1, 2018 through August 3 1, 2018, the Stipulating Parties agree that the current regulatory asset balances related to the IGCC, CCS and Storm Damage deferrals, approximately $3 1 million at August 31, 20 18, should be extinguished and the TCJA deferrals on the AEP Companies books should be reversed. This would fully resolve the issue of the Companies regulatory liability for the period January 1, 2018 through August 31, 2018. 17. The Stipulating Parties understand and agree that the result of numbered paragraph 16 would reduce the AEP Companies pending base rate request by approximately $17 million. 18. The Stipulating Parties agree that the TCJA s current tax rates, and the treatment of the AEP Companies protected Excess ADFIT, after February 28, 2019, have been accounted for in the AEP Companies pending base rate case, and will be resolved in that case, and reflected in new base rates implemented in March of 2019. GENERAL PROVISIONS 19. This Agreement is entered into subject to the acceptance and approval of the Commission. It results from a review of any and all relevant filings in this proceeding, the prefiled testimony and submissions of the Stipulating Parties, and thorough discovery and discussion. It reflects substantial compromises by the Stipulating Parties and the withdrawal of their respective positions asserted in this case, and is being proposed to expedite and simplify the (R1364479.1) 9
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 compromise positions set forth herein as ratemaking principles applicable to future proceedings, except as expressly provided herein. The Stipulating Parties acknowledge that it is the C,ommission 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, on the basis of all the foregoing, respecthlly request that the Commission make appropriate Findings of Fact and Conclusions of Law adopting and approving this Agreement in its entirety. Respectfully submitted this 23 d day of August, 2018. APPALACHIAN POWER COMPANY and WHEELING POWER COMPANY By: Name: Their: (R1364479.1) 10
STAFF OF THE PUBLIC SERVICE COM~ISSIO~ OF WEST VIRGINIA Its: C ~ N S U ADVOCATE ~ E ~ DIVISION OF THE PUBLIC SERVICE COMMISSION OF WES IFIA / WEST VIRGINIA EN~RGY USERS GROUP By: Name: Its: (R1363588.1) 11
STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CONSUMER ADVOCATE DIVISION OF TI-IE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA (R1363588.1) 11
(fl1363588.1) 12
Settlement Exhibit A sws SGS ss GS LCP IP OL SL Special Contracts 0.76% 1.74% 2.09% 17.73% 19.37% 2.83% 0.54% 0.17% 3.89% 1,787,407 4,089,917 4,922,886 41,689,108 45,542,933 6,652,829 1,265,624 408,467 9,154,531 (802,052) (1,634,873) (3,186,310) (14,685,439) (13,088,118) (5,356,524) (8,993) 118,671 (5,820,108) (210,602) (379,926) (510,949) (3,437,141) (1,273,715) (96,044) (65.700) (21,204) (83,389) (10,689) (21,973) (33,680) (281,693) (395,988) (64,876) (97) (38) (111,033) - P (165,822) (471,638) (364,522) (2,534,382) (779,392) (47,179) (294,309) (118,281) (19,008) (7,603) (17,397) (20,940) (177,325) (193,717) (28,298) (5,383) (1,737) (38,939) (90,723) (68,651) (47,150) 3,160,123 5,405,235 457,923 212,917 140,387 665,872 (6,320,245) (10,810,470) (915,846) (425,834) (280,775) (1,331,745) 499,916 1,495,459 759,336 17,413,006 24,406,767 601,985 678,224 245,490 2,416,181 2 (612) (1) (611) 235,100,000 (89,955,242) (18,517,557) (1,650,000) (ls,wo,wo) (l,ooo,ooo) (17,696,000) (1) (20,084,915) 71,196,285 -
Settlement Exhibit B APCo/WPCo Tax Reform Rider (TRR) Credits by Class Residential sws SGS ss GS LC P IP OL SL Special Contracts Total Credit Amt $25.5 M Rate Credit 2018/2019 Winter Rate Credit C&l Subsidv Reduction Credit Total Credit $ (9,896,110) $ (17,696,000) $ - $ (27,592,110) $ (147,891) $ - $ - $ (147,891) $ (345,420) $ - $ - $ (345,420) 5 (506,299) $ - $ - $ (506,299) $ (4,452,729) $ - $ (6,320,245) $ (10,772,974) $ (7,063,643) $ - $ (10,810,470) $ (17,874,113) $ (1,198,484) $ - $ (915,846) $ (2,114,330) $ (69,937) $ - $ (425,834) $ (495,771) $ (25,457) $ - $ (280,775) $ (306,232) $ (1,794,032) $ - $ (1,331,745) $ (3,125,777) $ (25,500,000) $ (17,696,000) $ (20,084,915) $ (63,280,915) Effective Dates Sept 1,2018 - Feb 28,2019 Dec 1,2018 - Feb 28,2019 Sept 1,2018 -June 30,2020
Settlement Exhibit C $25.5 M Credit Allocation Residential sws SGS ss GS LC P IP OL SL Special Contracts $ (12,750,000) $ (12,750,000) Energy Demand Energy Demand Allocator Allocator Credit Allocation Credit Allocation Total Credit % Reduction 0.3295387 0.44662678 $ (4,201,618) $ (5,694,491) $ (9,896,110) 3.48% 0.00509709 0.00650218 $ (64,988) $ (82,903) $ (147,891) 0.01363341 0.01345834 $ (173,826) $ (171,594) $ (345,420) 0.0187796 0.02093010 $ (239,440) $ (266,859) $ (506,299) 0.17840207 0.17083159 $ (2,274,626) $ (2,178,103) $ (4,452,729) 0.31000327 0.24400795 $ (3,952,542) $ (3,111,101) $ (7,063,643) 0.05558314 0.03841557 $ (708,685) $ (489,799) $ (1,198,484) 0.00486223 0.00062300 $ (61,993) $ (7,943) $ (69,9 3 7) 0.00176977 0.00022683 $ (22,565) $ (2,892) $ (25,457) 0.08233072 0.05837766 $ (1,049,717) $ (744,315) $ (1,794,032) 1 1 $ (12,750,000) $ (12,750,000) $ (25,500,000) 3.48% 2.79% 3.84% 3.56% 4.37% 4.49% 1.38% 1.65% 4.79% 3.80%
Settlement Exhibit D APCoMlPCo W TRR Credit Rates $/kwh Rate Class $25.5 M Rate Credit 2018/2019 Winter Rate Credit I C&l Subsidv Reduction Credit. I 1 RS I ($0.00356)] ($0.03826)1 $0.00000 sws ($0.00356) $0.00000 $0.00000 SGS ($0.00309) $0.ooooo $0.00000 ss GS LCP IP OL SL sc ($0.00320) $0.ooooo $0.00000 ($0.00313) $0.00000 ($0.00123) ($0.00265) $0.00000 ($0.00116) ($0.00295) $0.00000 ($0.00051) f$0.00159) s0.00000 1$0.002971 ($0.00159) $0.00000 ($0.00540) ($0.00217) $0.00000 ($0.00045) i Start Date End Date September 1,2018 December 1,2018 September 1,2018 Februarv 28.2019 Februarv 28.2019 June 30.2020
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON GENERAL ORDER NO. 236.1 In the matter of the Effects on Utilities of the 2017 Tax Cuts and Jobs Act. CERTIFICATE OF SERVICE I, William C. Porth, counsel for Appalachian Power Company and Wheeling Power Company, do hereby certify that true copies of the foregoing filing were served by hand delivery or U.S. mail on this 23'd day of August, 2018, addressed to the following: John Auville, Esquire Public Service Commission 201 Brooks Street Charleston, West Virginia 25301 Counsel for Staff of West Virginia Public Service Commission Derrick P. Williamson, Esquire Barry A. Naum, Esquire Spilman Thomas & Battle, PLLC 1100 Bent Creek Blvd., Suite 101 Mechanicsburg, PA 17050 Counsel for WEUG Susan J. Eggs, Esquire Jason C. Pizatella, Esquire Spilman Thomas & Battle, PLLC 300 Kanawha Blvd., East Charleston, WV 25301 Counsel for WVEUG Thomas E. Scan-, Esquire Charles K. Gould, Esquire Jenkins Fenstermaker PLLC 325 Sth Street, 2"d Floor Huntington, WV 25701 Counsel for SWVA Jacqueline Lake Roberts, Esquire Heather Osborne, Esquire Thomas White, Esquire Consumer Advocate Division 700 Union Building, 723 Kanawha Blvd. East Charleston, West Virginia 25301 Counsel for Consumer Advocate Division Andrew T. Gunnoe, Esquire Kanawha County Commission PO Box 3627 Charleston, WV 25336 Counsel for the Kanawha County Commission Paul D. Ellis, Esquire Mandi Carter, Esquire City of Charleston PO Box 2749 Charleston, WV 25330 Counsel for the City of Charleston Damon E. Xenopoulos, Esquire Stone Mattheis Xenopoulos & Brew, PC 1025 Thomas Jefferson Street, NW Suite 800 West Washington, DC 20007 Counsel for SWVA, Inc. William C. Porth (WV State Bar ID No. 2943) (R1364590.1)