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PUCO Enlarges Discounted Capacity Made Available to Retail Suppliers Under AEP Ohio Electric Security Plan

December 14, 2011

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Copyright 2010-11 Energy Choice Matters

The Public Utilities Commission of Ohio approved a modified stipulation establishing the AEP Ohio companies' electric security plan governing default service for the period 2012 through May 31, 2016, which revises the amount of "discounted" capacity made available to competitive retail suppliers (11-346-EL-SSO).

Such capacity "set asides" reflect the amount of capacity AEP Ohio will make available to retail suppliers at the Reliability Pricing Model clearing price. In the original stipulation, this amount was limited to 21% of AEP Ohio retail sales in 2012, gradually increasing to 41% in 2014, prior to AEP Ohio's transition to full RPM pricing June 1, 2015. Any capacity provided to retail suppliers above these set asides would be priced at the higher, cost-based rate for AEP Ohio capacity.

PUCO made two modifications regarding the set asides. As the stipulation has been modified, parties retain the right to withdraw per the stipulation, and AEP Ohio also retains the right to withdraw the electric security plan since it was modified by PUCO.

The Commission said that it was, "greatly concerned that governmental aggregations approved by communities across the state in the November 2011 election will be foreclosed from [choice] participation by the September 7, 2011 Stipulation [and its caps on discounted capacity]. It is the state policy to ensure the availability of unbundled and comparable retail electric service to all customer classes, including residential customers, and governmental aggregation programs have proven to be the most likely means to get substantial numbers of residential customers to become the customer of a CRES [competitive] provider. For these reasons, we find it necessary to modify the proposed Stipulation to adjust the RPM set-aside levels to accommodate the load of any community that approved a governmental aggregation program in the November 8, 2011, election to ensure that any customer located in a governmental aggregation community will qualify for the RPM set aside, so long as the community or its CRES provider completes the necessary process to take service in the AEP-Ohio service territory by December 31, 2012."

"The RPM set-aside level shall be adjusted to accommodate such governmental aggregation programs for each subsequent year of the Stipulated ESP, to the extent, and only, if necessary. We note that customers in a non-governmental aggregation communities still have the ability to pursue a shopping rate within the RPM set aside to the extent it is available," [sic] PUCO added.

Furthermore, PUCO noted that most, if not all, of the capacity set-aside available for 2012 has already been assigned, and that the set aside for the commercial and industrial classes had been surpassed such that the commercial and industrial customer classes were cutting into the residential class pro-rata share of the RPM set-asides.

Accordingly, PUCO also found it necessary, "to modify the Stipulation to ensure that residential customers are not foreclosed from their share of the capacity at RPM rates." The Commission noted that the Stipulation provides "any kWhs of RPM-priced capacity that have not been consumed by a customer class will be available for customers in any customer class based upon the priority as set forth in Appendix C"

"We are modifying the Stipulation such that [the] RPM-priced capacity allocation determined for each customer class is only available for customers in [that] particular customer class, no RPM-priced capacity can be allocated to a customer in another customer class," the Commission held.

Another major modification by PUCO was the reduction in automatic base generation rate increases during the period prior to the use of a competitive bidding process to set default service rates (with PUCO approving the start date of June 1, 2015 for auction-based default service rates).

Specifically, average base generation rates will be 2.27 cents/kilowatt hour (kWh) in 2012, 2.33 cents/kWh 2013, and 2.41 cents/kWh in 2014. The reduction was required in order for PUCO to find that the rates under the electric security plan were more favorable than expected rates under a market rate offer.

"These gradual increases from the current base rate of 2.1 cents/kWh allow for a smooth transition to market-based pricing in 2015," PUCO said.

PUCO endorsed the separation of AEP Ohio's generating assets from the distribution company, but said such separation must still be approved by PUCO apart from the electric security plan stipulation, as there is still the need for additional analysis of the corporate separation plan's terms and conditions surrounding the sale.

PUCO said that it would address the generation separation expeditiously, and directed AEP Ohio to notify PJM that it intends to enter PJM's RPM capacity auction process for the delivery year 2015-2016, as the stipulation provides.

The Commission declined to accelerate the June 1, 2015 start of a competitively bid default service procurement process, finding a transition process for AEP Ohio to complete corporate separation is reasonable.

PUCO also declined to modify the schedule for eliminating the 12-month minimum stay (which will be retained until 2015) and declined to modify the current switching fee in AEP Ohio's tariffs.

PUCO further modified the stipulation's $10/MWh shopping credit for GS-1 and GS-2 schools who are currently shopping and GS-2 customers that switch, as PUCO found the proposed level of the shopping credit to be, "too small and has the potential to exclude many eligible customers with the 1,000,000 annual MWh limit."

"Accordingly, the Commission finds that the customer credit should be modified to $10/MWh for the first 2,000,000 MWh of usage per calendar year, with any unused MWh to carry over to the next calendar year."

PUCO approved a placeholder nonbypassable rider for any new generation to be built by AEP Ohio, but said that a determination on whether such generation is required shall be made in future cases.

"Although we will first look to the market to build needed capacity, the proposed GRR [nonbypassable generation rider] provides a lifeline in the event that market-based solutions do not emerge for this state's generation needs."

Other retail market terms of the stipulation were adopted without modification. As noted, this includes the proposed use of a laddered competitive bidding process for default service, and use of RPM to source capacity, starting June 1, 2015. Specifics on the bidding process and other non-modified terms can be found in our 9/7 story

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