AEP to Get Another Rate Hike?

On Wednesday, July 15, Appalachian Power asked for a rate hike aggregating $193 million from the Virginia State Corporation Commission to recover its transmission costs.

Appalachian Power is the utility subsidiary of Columbus, Ohio-based public utility holding company, American Electric Power Company, Inc. (AEP - Analyst Report). The utility provides power to Virginia and West Virginia.

The rate hike if approved would raise residential customers' bills by about 19%. As per company estimates, the monthly bill for a customer consuming 1,000 kilowatt hours would jump from $92.97 to $109.89. Overall, combining its residential, commercial and industrial accounts, the company is asking for an average hike of 16%.

Appalachian Power had last asked for a rate hike in May 2008. The case concluded in November 2008, resulting in a $168 million rate increase, and that rate was applied in December 2008.

The company also has another couple of applications pending for approval. Primary among them is the request for a fuel factor increase of $141.7 million for Virginia. Although Appalachian Power has cried foul over its under-recovery of fuel costs in the request, the Virginia Attorney General have asked the company to reflect the recent fall in fuel prices in the request.

With a mildly bullish outlook, modest earnings growth expectations and an attractive dividend yield, we maintain our market-neutral HOLD rating on AEP.

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