Ohio Energy Group Says Proposed AEP-Ohio Capacity Cost Formula May Result in Double Recovery

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November 29, 2010

The new capacity compensation formulas proposed by Columbus Southern Power and Ohio Power "may not be cost-based" and may "result in the double recovery of capacity costs," because they fail to consider capacity equalization payments pursuant to the AEP-East Interconnection Agreement, the Ohio Energy Group said in a protest at FERC (ER11-2034).

As previously reported, the AEP Ohio utilities have sought approval from FERC to transition their compensation from competitive suppliers serving migrated load for capacity provided under the Fixed Resource Requirement from a market-based payment to a cost-based payment set via formula rate, effective January 1, 2011 (11/22).

The Ohio Energy Group said that a capacity equalization mechanism in the AEP-East Interconnection Agreement levelizes capacity investment imbalances among the member utilities, including the two Ohio companies, Appalachian Power, Indiana Michigan Power, and Kentucky Power, and results in the sharing of costs among members.  Each member bears a proportionate share of the system's total capacity and reserves based on its member load ratio, with deficit members making capacity payments, and surplus members receiving capacity revenues.

"Importantly, the [member load ratio] of CSP and OP does not change if end use customers shop competitively for generation from [competitive] suppliers," the Ohio Energy Group said.

Give this fact, the Ohio Energy Group said that the proposed capacity compensation formulas may result in double recovery of costs, because for one megawatt of migrated load, the utility, "will receive cost-based compensation from the [competitive] supplier for the one megawatt while at the same time receiving the same amount of capacity equalization revenue from the deficit Members of the AEP Pool."

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