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To Reduce Volatility, PUCO Replaces 12-Month Contracts With 36-Month Contracts For AEP Ohio 2015-18 Default Service, Reserves Right to Phase-In Charges

February 26, 2015

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Copyright 2010-15
Reporting by Karen Abbott •

The Public Utilities Commission of Ohio has approved an electric security plan for the period June 1, 2015 to May 31, 2018 at AEP Ohio that relies solely on descending clock auctions to procure load-following default service supply, but modified AEP Ohio's proposed procurement schedule to reduce volatility.

Related Story Today: POR Approved at AEP Ohio

In its original proposal, AEP Ohio sought to procure default service for this period entirely through descending clock, slice-of-system full requirements auctions, with a mix of contracts lasting 12 and 24 months. Unlike other Ohio EDCs, AEP Ohio did not seek to include any 36-month contracts in the default service portfolio.

AEP Ohio's originally proposed procurement schedule and term lengths are as follows:

Proposed AEP Ohio Default Service Procurement Schedule
Auction    Product Term    Delivery         % of 
Date         Length          Start        SSO Load
Sep. 2014      12        June 1, 2015        33
Sep. 2014      24        June 1, 2015        17
Mar. 2015      12        June 1, 2015        33
Mar. 2015      24        June 1, 2015        17
Sep. 2015      12        June 1, 2016        33
Mar. 2016      12        June 1, 2016        33
Sep. 2016      12        June 1, 2017        50
Mar. 2017      12        June 1, 2017        50

PUCO, however, ruled that this schedule was too reliant on 12-month contracts.

"The CBP [competitive big plan] process, including the products offered and the timing of the auctions, should be designed to minimize uncertainty and potential rate volatility for SSO customers. AEP Ohio's proposed auction schedule, however, places too much emphasis on 12-month products in the later auctions, which may have the adverse effect of higher prices and greater rate volatility," PUCO said.

"Accordingly, the Commission finds that AEP Ohio's proposed auction schedule should be modified. Specifically, the first and second auctions should occur sufficiently far in advance of the end of the current ESP term on May 31, 2015, and each offer a mix of 12-month (17 tranches), 24-month (17 tranches), and 36-month (16 tranches) products, with delivery to commence on June 1, 2015. The third and fourth auctions should occur in November 2015 and March 2016, respectively, and each offer a 24-month (17 tranches) product. Finally, the fifth and sixth auctions should occur in November 2016 and March 2017, respectively, and each offer a 12-month (17 tranches) product," PUCO said

In other words, PUCO adopted the following procurement schedule:

Approved AEP Ohio Default Service Procurement Schedule
Auction        Product Term    Delivery         % of 
Date             Length          Start        SSO Load
Spring 2015 (1)    12        June 1, 2015        17
Spring 2015 (1)    24        June 1, 2015        17
Spring 2015 (1)    36        June 1, 2015        16
Spring 2015 (2)    12        June 1, 2015        17
Spring 2015 (2)    24        June 1, 2015        17
Spring 2015 (2)    36        June 1, 2015        16
Nov. 2015          24        June 1, 2016        17
Mar. 2016          24        June 1, 2016        17
Nov. 2016          12        June 1, 2017        17
Mar. 2017          12        June 1, 2017        17

Note: "Spring" used as shorthand to denote PUCO's 
direction that auctions occur, "sufficiently far in 
advance of the end of the current ESP term on May 31, 2015."

PUCO approved AEP Ohio's proposal for setting retail rates from the default service auctions, including creation of an energy rider (GENE), capacity rider (GENC), and auction cost reconciliation rider (ACRR), all of which will be bypassable. The bypassable retail supply rate will also include the Alternative Energy Rider (AER), set outside of the auctions.

PUCO noted that the change to fully auction-based generation rates, "may result in an increase in rates for residential customers in the CSP zone with high usage in non-peak months. The amount of this increase will be dependent upon the results of the auctions to be held under the ESP, and other provisions of the ESP."

"We will continue to review the rate impact, including the reasonableness of the impact, on these customers. Accordingly, we reserve our prerogative to phase in any increase we consider necessary to ensure rate stability for these consumers," PUCO said.

PUCO also adopted the nonbypassable Basic Transmission Cost Rider (BTCR), which will recover certain non-market-based transmission costs, with AEP Ohio assuming responsibility for such costs for both default service customers and competitive supply customers. The Basic Transmission Cost Rider will recover Network Integration Transmission Service (NITS), Transmission Enhancement charges, Reactive Supply and Voltage Control, Generation Deactivation charges, Transmission Owner Scheduling, System Control and Dispatch Service and Point-to-Point Revenues

PUCO denied AEP Ohio's request to cease offering interruptible rider Schedule IRP-D (IRP-D), Supplement No. 18, Schedule Standby Service (SBS), and its Standard Time of Use tariffs (for generation). With respect to TOU generation rates, PUCO said that AEP Ohio should continue to offer these rates since competitive TOU offers are not sufficiently developed.

PUCO approved a "placeholder" nonbypassable rider to recover costs of any PPAs subsequently approved by the Commission, with output from the PPAs sold into the market (not used for default service) and costs/benefits allocated to all customers.

PUCO denied the inclusion of any costs/power plants in the PPA rider at this time, citing a lack of evidence of customer benefits (PUCO set the approved rider to zero).

However, we must stress that the ESP case only addressed the issue of including AEP Ohio's share of the Ohio Valley Electric Corporation (OVEC) in the PPA rider.

AEP Ohio has, in a separate proceeding, sought to enter PPAs with affiliated generation totaling 2,700 MW. PUCO did not address such requests as they were not part of the ESP proceeding.

Of note is that PUCO did rule that it had authority to approve a PPA rider.

"[T]e Commission does believe that a PPA rider proposal, if properly conceived, has the potential to supplement the benefits derived from the staggering and laddering of the SSO auctions, and to protect customers from price volatility in the wholesale market. We recognize that there may be value for consumers in a reasonable PPA rider proposal that provides for a significant financial hedge that truly stabilizes rates, particularly during periods of extreme weather. As we have consistently emphasized in AEP Ohio's prior ESP proceedings, rate stability is an essential component of the ESP," PUCO said.

"The Commission emphasizes that we are not authorizing, at this time, AEP Ohio's recovery of any costs through the placeholder PPA rider. Rather, AEP Ohio will be required, in a future filing, to justify any requested cost recovery. All of the implementation details with respect to the placeholder PPA rider will be determined by the Commission in that future proceeding," PUCO said.

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