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PUC Staff Makes Recommendations For New POR Program, Discount Rate

November 17, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Staff of the Public Utility Commission of Ohio have filed consensus recommendations regarding a new purchase of receivables program to be implemented at AEP Ohio

Under the consensus recommendations, using 2014 data, the discount rate by customer class would be 0.5% for residential receivables and "nearly 0%" for commercial and industrial receivables. "These rates are some of the lowest POR rates in the country," Staff noted.

Implementation costs (at least $1.5 million depending on program design as noted below) would be recovered from suppliers outside of the discount rate. Rather, implementation costs would be recovered from all retail suppliers utilizing the consolidated billing program as a customer charge based on the number of consolidated bills. Staff recommended that implemented costs be recovered over a five year period

The discount rates reflect the following components: bad debt, O&M costs, working capital risk, and a credit from base distribution rates.

With respect to working capital risk, in the event that the Day Sales Outstanding (DSO) value increases, AEP Ohio's working capital costs increase. The initial working capital risk would be zero, adjusted annually as needed.

Regarding the credit from base rates, AEP Ohio's distribution base rates contain an amount for bad debt. A percentage of this bad debt in base rates is for shopping customer's generation bad debt. In order to offset this amount of bad debt that AEP Ohio is already recovering from shopping customers, a credit is to be applied to the discount rate until AEP Ohio's distribution base rates are reset in a new rate case. AEP Ohio has created a formula for determining this amount of credit. The formula is based on the test year revenue separated by function (generation, transmission, and distribution) as a percentage of bad debt (approximately $12.2 million) and applied to current shopping load by customer class. The credit would only exist until AEP Ohio establishes a new bad debt amount for base rates in a new rate case. In addition, the credit would not allow the discount rate to go below zero and provide the CRES suppliers with a positive discount rate. Any unused credit would not be available the next year as a true-up.

Additionally, Staff suggested that the existing Bad Debt Rider (BDR) could be used when the economic conditions, "overwhelm the discount rate or the viability of the POR program in general." The Commission previously established a BDR to recover costs of CRES receivables and generation related uncollectible expenses above the amount already being recovered through base distribution rates and set at zero. "As an option of last resort, the BDR could be used to recover CRES receivables when the economic conditions overwhelm the discount rate or the viability of the POR program in general. Such conditions may include: supplier default (bankruptcy), a large customer bad debt that would itself raise the customer class discount rate 10%, or overall economic conditions that would raise the discount rate significantly in a single year (after the first year)," Staff said

Staff is recommending a one year POR term with an evergreen provision.

However, Staff cited a, "significant obstacle," to POR implementation: PUCO's prior directive that participation in the POR program by CRES providers that elect consolidated billing must not be mandatory

Citing AEP Ohio's responses, Staff explained that the absence of an all-in requirement for POR greatly increases implementation costs. "Without an all in approach, AEP will be required to build and operate two processes for consolidated billing suppliers. One process is for POR participants and another for non-POR participants ... The result of these two systems is that implementation costs increased from an estimated $1.5 million to $3 or $4 million," Staff reported.

Moreover, the lack of an all-in approach to the POR increases the POR implementation time for AEP Ohio from 9 months to 2 years, Staff said. The majority of the stakeholders support a "one system approach" (meaning an all-in requirement) to ensure a timely and workable POR program, Staff said.

On a non-consensus issue, Staff contemplates that POR will include only commodity charges, consistent with PUCO's prior order.

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