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Ohio Staff Recommend Denial of AEP Ohio's Power Purchase Agreement Rider
Staff of the Public Utilities Commission of Ohio have proposed that the Commission reject AEP Ohio's proposed Power Purchase Agreement Rider, in testimony on AEP Ohio's electric security plan filing.
AEP Ohio had proposed the PPA rider, which would be nonbypassable, to address its retained interest in the Ohio Valley Electric Corporation (OVEC), which was not divested. AEP Ohio's share of OVEC would be sold into PJM with costs or credits allocated to all customers.
While the PPA rider is initially proposed to cover OVEC, AEP Ohio proposed in its ESP that it could petition to include recovery of other future power purchase agreements in the PPA rider.
Staff recommended that the Commission deny AEP Ohio's proposed PPA rider, calling the rider, "a move in the opposite direction," from removing AEP Ohio from the business of selling commodity as contemplated by its use of competitive auctions for default service.
"Since AEP Ohio will no longer be in the business of selling electricity after May 31, 2015, Staff does not see a need for granting a PPA rider that is tied to electric generation. None of the MWs coming out of AEP Ohio's interests in the OVEC generation is being sold to AEP Ohio's distribution customers. It took over a decade for the Commission to transition the four Ohio EDUs to a fully competitive retail electricity market. Granting a PPA rider is a move in the opposite direction," Staff said.
"Given Staff's recommendation to the Commission, it is only fair to shift not only the risks but also the benefits associated with that generation to the investors of AEP. To accomplish this objective, Staff recommends that all expenses and revenues associated with AEP Ohio's interests in the OVEC generating stations be excluded from the Significantly Excessive Earnings Test (SEET) calculation. AEP traders will accordingly be free to develop bidding strategies for the Company's interests in the OVEC generating stations that serve AEP's interests," Staff said.
"The Company claims that a PPA rider will provide a hedge for consumers against market volatility. Staff believes that a more effective approach for mitigating price volatility is the modus operandi that the Commission has adopted in administering past SSO procurement auctions; such as staggering the procurement of the products (twice a year), and laddering multiple products (12 months, 24 months, 36 months, etc…)," Staff said.
Noting that AEP Ohio is proposing under the PPA rider that it may petition the Commission to include recovery of other future power purchase agreements in the PPA rider, Staff said that it, "is opposed to the concept of a PPA rider for the OVEC generation, and even more opposed to including additional PPAs in the PPA rider."
"AEP Ohio's interest in the OVEC generating stations arguably presents a unique circumstance that may need to be addressed," Staff said.
"Staff is concerned that AEP Ohio may use this rider as a venue for other unregulated generation to be contracted and paid for by AEP Ohio distribution customers without it being competitively bid. To mitigate this concern, Staff recommends that the PPA rider, to the extent granted by the Commission, be restricted to only AEP Ohio's interests in the OVEC generating stations, and nothing more," Staff said.
While Staff proposed several conditions to mitigate negative impacts of the PPA Rider should the Commission elect to approve it (such as the condition immediately noted above), Staff said that it has not found any condition which can mitigate the dilemma imposed on default service should the PPA be approved.
Staff noted that under AEP Ohio's proposal, its OVEC share would not participate in the default service auctions.
"Staff is concerned that future SSO auctions in Ohio (post May 31, 2015) could potentially result in higher prices because 438 MWs of economic generation would not participate as competitive supply in these auctions."
"On the other hand, Staff is also concerned that to the extent the Commission disagrees with AEP Ohio's position and allows the 438 MWs of supply to participate in SSO auctions, other suppliers may be discouraged from bidding for tranches because these suppliers would be competing, in one sense, with generation that is 'subsidized' by all of AEP-Ohio's distribution customers."
"Staff is unable at this time to make a recommendation that would resolve this dilemma but thought that the Commission should be aware of it. The only way to avoid the dilemma pertaining to OVEC capacity participating in SSO auctions is to accept Staff's recommendation and deny the PPA rider. The OVEC capacity will then be free to participate or not participate in SSO auctions, just like all other capacity," Staff said.
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May 21, 2014
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Reporting by Karen Abbott • kabbott@energychoicematters.com
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