AEP Ohio Claims PUCO Lacks Authority to Set Capacity Rate for Fixed Resource Requirement Plan

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January 12, 2011

AEP Ohio sought rehearing of the Public Utilities Commission of Ohio's order establishing a state compensation mechanism for capacity under the AEP Ohio Fixed Resource Requirement (FRR) plan, arguing that PUCO lacks such authority, and that PUCO's order infringes upon FERC's exclusive jurisdiction (10-2929-EL-UNC).

As previously reported (12/9), PUCO's December order 1) affirmed that POLR charges under the Ohio Power and Columbus Southern Power electric security plan include charges to compensate the utilities for capacity and 2) established the PJM market capacity price as the state-established compensation level that competitive suppliers are to pay AEP Ohio for capacity under the Fixed Resource Requirement.

AEP Ohio is seeking to institute higher, cost-based capacity compensation rates at FERC.

AEP Ohio argued that PUCO's action is invalid, "because the Commission failed to provide the Companies any semblance of due process by summarily purporting to establish a rate to be paid by CRES [competitive retail electric service] providers without any record basis to do so or any opportunity for the Companies to be heard on this issue."

AEP Ohio, repeating arguments made at FERC, claimed that it retains the right under the PJM Reliability Assurance Agreement to seek a FERC-established compensation rate even where a state-established mechanism exists.

AEP Ohio attempted to argue that while the Reliability Assurance Agreement, "recites that a state compensation mechanism may be established and may [emphasis added] 'prevail,' it does not provide or suggest that the existence of a state mechanism, let alone the prospect of a someday-to-be state mechanism, abrogates FERC's plenary authority to review and determine whether charges within its jurisdiction are just and reasonable or waives the Companies' statutory right to petition the FERC to authorize changes in the methods by which the Companies are compensated for service subject to the FERC's jurisdiction."

However, AEP Ohio does not directly address the actual language of the Reliability Assurance Agreement, which reads, "where the state regulatory jurisdiction requires switching customers or the LSE to compensate the FRR Entity for its FRR capacity obligations, such state compensation mechanism will prevail." [emphasis added].  AEP Ohio does not explain in its pleading why the state compensation mechanism only "may" prevail.

True, the Reliability Assurance Agreement does continue that, "In the absence of [emphasis added] a state compensation mechanism, the applicable alternative retail LSE shall compensate the FRR Entity at the capacity price in the unconstrained portions of the PJM Region, as determined in accordance with Attachment DD to the PJM Tariff, provided that the FRR Entity may, at any time, make a filing with FERC under Sections 205 of the Federal Power Act proposing to change the basis for compensation to a method based on the FRR Entity's cost or such other basis shown to be just and reasonable, and a retail LSE may at any time exercise its rights under Section 206 of the FPA."  This ability to seek an alternative rate from FERC, however, is only mentioned in the sentence addressing compensation in the absence of a state-established rate.

In any event, regardless of whether PUCO action is pre-empted by federal jurisdiction, AEP Ohio argued that PUCO lacks statutory authority to establish a capacity compensation rate.  "Ohio law does not confer upon the Commission - even assuming that doing so would be permitted under Federal law (which it is not) - the authority to regulate wholesale transactions.  No provision of Title 49, Ohio Rev. Code, authorizes the Commission to establish wholesale prices for the Companies provision of capacity that CRES providers require in order to serve their retail electric generation service customers," AEP Ohio said.

Large commercial and industrial customers as well as retail suppliers and consumer advocates filed comments in support of PUCO's action, mainly reiterating the same arguments contained in earlier protests at FERC which will not be repeated here (see 12/13).

However, now that PUCO has explicitly held that the POLR charges compensate AEP Ohio for capacity, retail suppliers and industrials questioned why AEP Ohio should receive both POLR charges, and the PJM Reliability Pricing Model market rate for capacity from retail suppliers.

"AEP-Ohio has to date been recovering both its state capacity compensation (the POLR Rider and other retail mechanisms) and wholesale compensation, based on RTO clearing prices.  This is double-recovery, and it has been in error," FirstEnergy Solutions said.

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