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Ohio Staff Proposes 'Significant' Changes to AEP Ohio Purchase of Receivables Proposal, Including Use of Supplier-Specific Discounts
Staff of the Public Utilities Commission of Ohio have recommended "significant" changes to AEP Ohio's proposed purchase of receivables program, in testimony filed in AEP Ohio's electric security plan proceeding.
As first reported by EnergyChoiceMatters.com, AEP Ohio had proposed a POR program without recourse with no discount for uncollectibles, and no initial discount for administrative costs (but with an annual charge on suppliers for certain implementation and administrative costs)
Staff recommended that a discount be applied to a supplier's receivables for uncollectibles, and opposed AEP Ohio's proposed use of a nonbypassable bad debt rider in this instant proceeding. Staff is "open" to considering a bad debt rider if AEP Ohio files a distribution rate case.
"[H]owever at this time it is more appropriate in this hearing to provide the Company with a discount rate for the purchase of receivables for each CRES provider to accurately capture the incremental cost of collections for the uncollectible amount of the purchased receivables," Staff said.
While certain Ohio utilities currently purchase receivables with zero discount, Staff noted that in each instance, the utilities first applied a discount rate to suppliers, but it was eventually removed. Staff said that starting a POR program with a discount is important because such a design, "allows the utility and the Commission to gain experience regarding the impact of the uncollectible charges attributable to suppliers on the company's bad debt expense and therefore the potential impact on the rate payers."
Furthermore, Staff said that the discount rate for POR should be supplier-specific.
"[T]he Company would calculate a separate discount rate for each CRES provider. The reason for this is to ensure that each CRES provider assumes the appropriate amount of risk for uncollectibles associated with their customers," Staff said.
Staff specifically proposed three components for the discount rate: (1) the Percent of Specific CRES Provider's Uncollectible; (2) Uncollectible Percentage; and (3) Credit & Collections Adder.
The Percent of Specific CRES Provider's Uncollectible determines the percentage of accounts uncollectible by each individual CRES provider that is participating in the POR program. The calculation includes the total amount of uncollectible from each specific CRES provider in the prior year divided by the total amount of uncollectible by AEP Ohio. The first year's discount rate will require that the uncollectible be forecasted and the full amount included in AEP Ohio's total uncollectible, Staff said.
Staff said that the calculation of the Percent of Specific CRES Provider's Uncollectible, "is to develop a method to allocate the collection cost, and uncollectible expenses."
"Calculating this by each specific CRES provider allows the CRES providers to pay only their incremental share of expenses. Additionally, this will create an incentive for CRES providers to properly vet their potential customers or assume the increased risk of soliciting to higher risk customers," Staff said.
The Uncollectible Percentage calculates the discount rate based off the CRES provider's prior year's uncollectible accounts. To calculate this percentage, AEP Ohio will take the total specific CRES provider's uncollectible accounts from the prior year and divide it by 100% of the purchased commodity from the specific CRES providers. In the first year, the total uncollectible accounts for the prior year would need to be a forecasted amount for the specific CRES providers.
"The calculation is to determine the portion of the discount rate that is associated with the amount of uncollectible revenue that the Company will experience from purchasing the receivables from each specific CRES provider," Staff said.
The Credit and Collection Adder is calculated by taking the collection cost divided by the annual sales in kWh to get a cost per kWh. AEP Ohio will forecast their sales including the POR sales, which is to be multiplied by the cost per kWh, resulting in forecasted collection costs. The forecasted collection cost is then multiplied by the percent of specific CRES billed POR, divided by the specific CRES provider's billed POR.
Staff proposed that the POR discount for each supplier be capped at 5%.
With the discount, Staff said that estimated incremental O&M support costs should be assigned through the credit and collection adder, rather than the annual fee proposed by AEP Ohio. However, Staff does agree with AEP Ohio's proposal to assess a yearly per-consolidated bill fee to the CRES providers for the implementation cost for a fully automated POR program.
Staff also said that large industrial and large commercial customers should be excluded from the POR program, even if they participate in consolidated billing.
"[A]ll other rate classes, if participating in consolidated billing, should be mandated to participate in the POR program," Staff said.
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May 21, 2014
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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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