AEP Texas Files Application to Securitize Distribution-Related Costs Associated With Hurricane Harvey and Other Storms

CORPUS CHRISTI, Texas, March 13 -- AEP Texas, a subsidiary of American Electric Power, issued the following news release:

AEP Texas on March 8 submitted an application to the Public Utility Commission of Texas (PUCT) seeking approval to securitize $229 million in distribution-related costs associated with restoration of service following Hurricane Harvey and earlier weather-related events.

The action by AEP Texas marks the second in a two-step regulatory process in the recovery of distribution-related costs following a major event, such as Hurricane Harvey. AEP Texas in August 2018 filed a request with the PUCT for a determination that $415 million in its transmission-and-distribution-related system restoration costs associated with Hurricane Harvey and earlier weather events were reasonable and necessary and eligible for recovery.

In an earlier filing, AEP Texas sought a determination of the reasonableness and necessity of both its distribution-related restoration costs, which the Company now seeks to recover through a securitization process, and its transmission-related costs, which will be recovered through the existing interim Transmission Cost of Service (TCOS) process and a future AEP Texas rate proceeding. In a settlement approved February 28, 2019, the PUCT authorized AEP Texas to apply to securitize distribution-related costs in the amount of $225 million, after accounting for carrying costs, insurance proceeds and tax offsets. When the qualified costs of issuing, servicing, and administering the securitization bond issuance and repayment are considered, the total amount estimated for securitization is $229 million.

AEP Texas' application includes estimated amounts for the carrying charges for the period prior to an estimated date of issuance of the system restoration bonds and for other qualified costs. AEP Texas proposes that the amounts for those items be updated near the time the system restoration bonds are to be issued, in accordance with the financing order issued in this case, and that AEP Texas be authorized to securitize the updated amount.

The purpose of securitization is to lower the carrying costs of the assets relative to the costs that would be incurred using conventional utility financing methods. Because of their secure, dedicated cash flow, the system restoration bonds are expected to carry a triple-A credit rating and correspondingly lower interest rates than traditional term utility debt. AEP Texas estimates that ratepayers will save approximately $52 million on a present value basis as compared to recovery of the balance through conventional utility financing and rate filings.

If approved as requested, AEP Texas estimates that the amount charged to the Retail Electric Providers for a residential customer using 1,000 kilowatt-hours a month would be approximately $1.33 a month over a 10-to-15 year period. The amount charged and number of years will depend on the terms of the system restoration bonds, which will be finally determined in association with the marketing and offering of the bonds, following PUCT approval of the application.

The request will only impact customers in the AEP Texas Central Division service territory (formerly AEP Texas Central Company), which has 240 miles of coastal exposure--the largest of any utility in the state, yet also serves the arid region in and around Laredo. The AEP Texas Central Division territory stretches from the beaches and bays along the Gulf Coast, south to the Rio Grande Valley, along the border with Mexico and westward through Laredo to Eagle Pass and Del Rio.

The recovery of distribution-related restoration costs will not impact consumers living in the AEP Texas North Division. The North Division territory stretches from the northern Texas panhandle to the western Texas panhandle and includes major cities such as Vernon, Abilene, San Angelo and Marfa.

Hurricane Harvey, a Category 4 hurricane that struck large portion of the AEP Texas service territory on August 25, 2017, was the most intense storm to hit the AEP Texas service territory since Hurricane Celia, a high end Category 3 storm, struck the area in 1970. Major areas of the AEP Texas service area impacted by the storm included Corpus Christi, Port Aransas, Aransas Pass, Rockport, Fulton, Refugio, Port Lavaca, Bay City, and Victoria.

AEP Texas provides wires services to approximately one million advanced meters in approximately 400 communities in all or parts of 92 counties in west and south Texas. The AEP Texas service area covers approximately 97,000 square miles. AEP Texas maintains and operates approximately 8,000 miles of transmission lines and approximately 43,000 miles of distribution lines (including overhead and underground primary and secondary line types).