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PUCO Says Duke Energy Ohio's Filed Default Service Plan Relies Too Heavily On 12-Month Contracts, Adopts Changes; Phases-In Generation Tariff Changes

April 3, 2015

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Copyright 2010-15
Reporting by Karen Abbott •

The Public Utilities Commission of Ohio has adopted an electric security plan for Duke Energy Ohio for the period June 1, 2015 to May 31, 2018 which relies on the competitive procurement of load-following full requirements contracts to serve 100% of default service load.

However, PUCO said that Duke Energy Ohio's proposed auction schedule, "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," and adopted a modified suite of products as noted below. Despite expressing concern regarding 12-month contracts, PUCO's changes appear to reflect more the consolidation of two procurements originally proposed to be held prior to June 2015 into a single procurement (due to the time consumed in adjudicating the case).

Duke Energy Ohio's originally proposed procurement schedule and term lengths were as follows:

Proposed Duke Energy Ohio Default Service Procurement Schedule
Auction    Product Term    Delivery         % of 
Date         Length          Start        SSO Load
Jan. 2015      12        June 1, 2015        16
Jan. 2015      24        June 1, 2015        17
Jan. 2015      36        June 1, 2015        17
Apr. 2015      12        June 1, 2015        16
Apr. 2015      24        June 1, 2015        17
Apr. 2015      36        June 1, 2015        17
Nov. 2015      24        June 1, 2016        16
Feb. 2016      24        June 1, 2016        16
Nov. 2016      12        June 1, 2017        17
Feb. 2017      12        June 1, 2017        17

PUCO however adopted a product mix and procurement schedule in which, "the first auction should occur in advance of the end of the current ESP term on May 31, 2015, and offer a mix of 12-month (34 tranches), 24-month (34 tranches), and 36-month (32 tranches) products, with delivery to commence on June 1, 2015. The second and third auctions should occur in November 2015 and March 2016, respectively, and each offer a 24-month (17 tranches) product. Finally, the fourth and fifth auctions should occur in November 2016 and March 2017, respectively, and each offer a 12-month (17 tranches) product."

In other words, PUCO adopted the following procurement schedule:

Approved Duke Energy Ohio Default Service Procurement Schedule
Auction    Product Term    Delivery         % of 
Date         Length          Start        SSO Load
Spring 2015    12        June 1, 2015        34
Spring 2015    24        June 1, 2015        34
Spring 2015    36        June 1, 2015        32
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

PUCO approved Duke Energy Ohio's proposal to convert its current capacity rider (Rider RC) into a rider recovered on a kWh (energy) basis only, eliminating demand charges for Rates DS, DP, and TS customers. The proposal had been opposed by retail suppliers.

PUCO also approved the use of a 5CP method to allocate costs to Rider RC.

PUCO further accepted, with modification, Duke Energy Ohio's proposal to modify the rate design for Riders RC and RE (generation) to reduce the differences between the current seasonal stepped rates. This rate design change affects customers taking service under Rates Residential Service (RS), Residential Service - Low Income (RSLI), Residential Three-Phase Service (RS3P), Optional Residential Service with Electric Space Heating (ORH), and Secondary Distribution Service - Small (DM).

Specifically, PUCO approved a phase-in of these stepped rate design changes over a two-year period.

Similar to its recent decision at AEP Ohio, PUCO approved in concept the use of a nonbypassable price stability rider at Duke Energy Ohio, which could in the future be used to recover costs (or pass-through credits) associated with Duke Energy Ohio's continued share of the Ohio Valley Electric Corporation power plants, or other power plants and/or long-term contracts with generation. Such generation would not be used to serve default service load, and instead would be sold into the PJM markets.

PUCO's order affirmed that the Commission has the legal authority to adopt such price stability riders.

For Duke Energy Ohio's current ESP, PUCO approved a price stability rider (PSR) as a placeholder, and the set rider to $0, finding that Duke Energy Ohio did not justify the inclusion of any costs in the rider at this time.

"The Commission emphasizes that we are not authorizing, at this time. Duke's recovery of any costs through the placeholder PSR. Rather, Duke will be required, in a future filing, to justify any requested cost recovery. All of the implementation details with respect to the placeholder PSR will be determined by the Commission in that future proceeding. In its filing, Duke should, at a minimum, address the following factors, which the Commission will balance, but not be bound by, in deciding whether to approve Duke's request for cost recovery: financial need of the generating plant; necessity of the generating facility, in light of future reliability concerns, including supply diversity; description of how the generating plant is compliant with all pertinent environmental regulations and its plan for compliance with pending environmental regulations; and the impact that a closure of the generating plant would have on electric prices and the resulting effect on economic development within the state," PUCO said.

"Finally, the Commission notes that our decision not to approve, at this time. Duke's recovery of any costs, including OVEC costs, through the PSR is based solely on the record in these proceedings, and does not preclude Duke from seeking recovery of its OVEC costs in a future filing," PUCO said.

With regards to price stability, PUCO also noted that, "there are already existing means, such as the laddering and staggering of SSO auction products and the availability of fixed-price contracts in the market, that provide a significant hedge against price volatility."

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