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Ohio Power Seeks Nonbypassable Charge to Collect Plant Retirement Costs Email This
Story October 4, 2010
Ohio Power Company has petitioned the Public Utilities Commission
of Ohio to impose a new nonbypassable charge on all distribution customers to recover
costs related to the earlier than expected retirement of Unit 5 at the Philip Sporn
Plant (Case 10-1454-EL-RDR).
In the AEP utilities' electric security plan (ESP), PUCO granted the utilities the
ability to come before the Commission during the ESP term to determine the treatment
for accelerated depreciation and other net early closure costs should it became necessary
to close a generation plant earlier than otherwise expected.
Ohio Power said that Sporn 5 was expected to remain in the AEP Pool and be available
to produce power for the PJM energy market through the end of 2013. During the period
leading up to Ohio Power's electric security plan application, PJM energy revenues
from Sporn 5, less all operating and maintenance expenses during this period, resulted
in approximately $36.3 million contribution to other Sporn and Ohio Power fixed costs
and carrying costs.
At the time Ohio Power agreed to the retail pricing plan reflected in its electric
security plan, Ohio Power said that it, "had a reasonable basis to expect that Sporn
5 would continue to be available to produce such contributions during the full ESP
However, current projections show substantial operating losses for Sporn 5 of $8.4
million and $6.8 million for 2011 and 2012, respectively. As such, Ohio Power plans
to retire the plant earlier than anticipated.
"Because the planned retirement of Sporn 5 is earlier than previously anticipated
and because the costs associated with the closure were not reflected in OPCo's current
ESP rate plan, OPCo now seeks Commission approval to establish a new non-bypassable
distribution rider, outside the rate caps to recover these early closure costs. Specifically,
the early closure cost requested for recovery through the rider would include both
incurred closure costs as of December 2010 ('incurred costs') as well as future closure
costs to be incurred after December 2010 ('future costs'). The incurred costs include
(1) the unamortized plant balance remaining on OPCo's books (approximately $56.1
million); and (2) the materials and supplies on hand that are unique to Sporn 5 that
cannot be used at other AEP plants (approximately $2.6 million). The future costs
include: (1) any legally required asset retirement obligations, including asbestos
removal, the fly ash pond closure and the disposal of transformer-rectifier set fluids;
and (2) any net salvage to be incurred (received) related to the Sporn 5 assets including
the unique materials and supplies," Ohio Power said.
"Sporn 5 has served OPCo's ratepayers during the life of the asset. It would not
be reasonable to expect shareholders to absorb early closure costs when Sporn 5 has
benefited ratepayers for its entire productive life," Ohio Power said.
Furthermore, "[h]ad OPCo been permitted to transition to market rates by 2006 as
originally envisioned when SB 3 was passed, it would have absorbed such early closure
costs as part of transitioning to fully market-based generation pricing. OPCo was
not permitted to charge market prices for generation. Thus, in addition to being
specifically contemplated under the Commission's order in OPCo's ESP case, OPCo submits
that it is reasonable under the current circumstances for OPCo to recover early closure
costs," Ohio Power said.
The nonbypassable surcharge would vary by rate class, but, for the major classes
(excluding lighting, etc.), the Plant Closure Cost Recovery Rider would range from
1.8 mills per kWh to 3.5 mills per kWh.
Ohio Power proposes charging the rider for the calendar year 2011, but alternatively
proposed a 36-month recovery period if PUCO is concerned about rate impacts.