Morris: Proposed Ohio ESP Designed to Combat Migration

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January 31, 2011

Ohio Power's proposed electric security plan is designed to eliminate the "free ride" enjoyed by competitive suppliers and decrease migration in the AEP Ohio territories, AEP CEO Michael Morris said during an earnings call Friday.

See related story on rate design of the new ESP

AEP disclosed during the earnings call that it believes recent migration figures from the Public Utilities Commission of Ohio are inaccurate.  PUCO stats show that about 12% of Columbus Southern Power sales were competitively served as of September 30 (mostly commercial).  AEP Ohio said that the figure is closer to its original 2010 forecast of 3% of load.

AEP Ohio forecasts a switch rate of 14% of load at Columbus Southern Power for 2011, representing a negative impact of $53 million year-over-year.  That works out to 6% of total AEP Ohio load.

However, "if in fact the rate design activities that are filed in the ESP [electric security plan], when we get to 2012, I think you'll see a real drop off in the number of shopping customers.  They'll still be there and still have the freedom to do that, but their economic advantage will be to stay on the AEP system as a retail customer," Morris said.

"[W]e're concerned about shopping in the marketplace.  It really has everything to do with mostly our commercial customer class that as I mentioned before has some rate skewing [in] effect.  We think that today the competitive retail electric suppliers are getting a free ride on capacity costs.  We made a filing at the FERC to address that. As you know, the FERC last week decided that they could not make a change because Ohio had in fact, toward the latter part of December, created their own price forecast for the capacity charge.  We think that [price] probably was inadvertently low.  We've addressed that issue both in the ESP, and we will go forward and petition the FERC for re-hearing, and in fact they invited us to file a complaint if we thought that the PUCO's number was too low and we'll do that as well.  And we'll do that with respect toward the commission.  This is not a fight.  This is just an approach," Morris said.

"I do think, however, in the near and longer term, Ohio is going to have to come to the realization that generation will not be built in the state under the current construct," Morris continued.  "And at the end of the day, Ohio, within maybe 24 months, will be a net importer of electricity, and I know that our operating companies in Michigan, Indiana, Kentucky, West Virginia, [and] Virginia would be happy to sell power into a power-short Ohio.  I really don't think that that's in our best interest for the citizens and the businesses here in Ohio, and I expect that the administration and the legislature will come around to that realization soon enough.  When you think about the potential number of megawatt-hours that could be taken off of the board because of the potential of EPA going amok, it could have a very devastating effect on the price of power, particularly here in Ohio.  So I expect that that will get addressed.  I don't know that going after a shopping fix is worth trying to tackle [Senate Bill] 221 again," Morris said.

Morris also said that competitive supplier AEP Retail Energy is, "having some great success in retaining as well as gaining customer share in the other regions within Ohio."  

As exclusively reported in Matters today, AEP is seeking to transition its Texas retail electric provider from an Option 2 REP to an Option 1 REP, in order to serve all sizes of customers.

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