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PUCO Requires FirstEnergy EDCs To File Application To Unbundle Default-Service Related Costs From Distribution Rates, In Accepting Default Service Procurement Plan, PPA Proposal

April 1, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

The Public Utilities Commission of Ohio has accepted with modification several non-unanimous stipulations which establish the process governing the FirstEnergy utilities' procurement of default service for the period June 1, 2016 to May 31, 2024, and accepted as part of such electricity security plan (ESP) certain PPAs between the utilities and affiliated FirstEnergy Solutions generation

Of most note to the retail market is that PUCO modified the stipulations to accept the recommendation of IGS Energy to establish a zero-based rider to unbundle from distribution rates the costs that the FirstEnergy EDCs incur to support Standard Service Offer (SSO) service and to reflect those costs in the SSO price

"[T]his proposal may enhance competition in the Companies' service territories," PUCO said

In order to implement this rider, the FirstEnergy EDCs were directed to file an application in a separate proceeding. PUCO noted that, in such proceeding, the FirstEnergy EDCs will bear the burden of demonstrating that the application is just and reasonable, and any interested party may raise any issues regarding the rider.

Importantly, PUCO will determine whether to approve any such application based solely upon the record of that future proceeding

The EDCs had agreed, via a side-agreement with IGS Energy, to pursue certain other retail market enhancements. As the side-agreement was not part of the stipulations, PUCO did not approve the side-agreement nor will PUCO enforce its terms

Among other things, the EDCs in the side-agreement have agreed to make a filing to implement a customer referral program

Furthermore, under the side-agreement, the EDCs agreed to include in their next energy efficiency plan $1 million in rebates for residential smart thermostat rebates under a program for which IGS Energy would serve as the exclusive provider

Regarding default service procurement, PUCO approved the continued reliance on a mix of 12, 24, and 36-month contracts to serve all default service classes under an electric security plan covering the period June 1, 2016 to May 31, 2024. Essentially, one-third of the SSO portfolio for any year would be served under contracts lasting 12 months, one-third would be served under contracts lasting 24 months, and one-third would be served under contracts lasting 36 months (except for the period June 2018 to May 2019 where 36 month contracts, with differing start dates, would make-up 2/3 of the portfolio)

The adopted procurement schedule and term lengths are below:

Bid Date   Tranches   Years       Delivery Term
TBD           17        3     June 2016-May 2019
TBD           17        2     June 2016-May 2018
TBD           16        1     June 2016-May 2017
TBD           17        3     June 2016-May 2019
TBD           17        2     June 2016-May 2018
TBD           16        1     June 2016-May 2017
Oct 2016      16        1     June 2017-May 2018
Jan 2017      16        1     June 2017-May 2018
Oct 2017      17        3     June 2018-May 2021
Oct 2017      16        2     June 2018-May 2020
Jan 2018      17        3     June 2018-May 2021
Jan 2018      16        2     June 2018-May 2020
Oct 2018      17        1     June 2019-May 2020
Jan 2019      17        1     June 2019-May 2020
Oct 2019      17        2     June 2020-May 2022
Oct 2019      16        1     June 2020-May 2021
Jan 2020      17        2     June 2020-May 2022
Jan 2020      16        1     June 2020-May 2021
Oct 2020      17        3     June 2021-May 2024
Oct 2020      16        1     June 2021-May 2022
Jan 2021      17        3     June 2021-May 2024
Jan 2021      16        1     June 2021-May 2022
Oct 2021      17        2     June 2022-May 2024
Oct 2021      16        1     June 2022-May 2023
Jan 2022      17        2     June 2022-May 2024
Jan 2022      16        1     June 2022-May 2023
Oct 2022      16        1     June 2023-May 2024
Jan 2023      16        1     June 2023-May 2024

A stipulation provides that the default service Generation Cost Reconciliation Rider (Rider GCR) shall be recovered via a bypassable charge unless the Rider balance exceeds 10% of the applicable generation expense in two consecutive quarters, at which point the rider will become nonbypassable. Currently, the rider becomes nonbypassable if the deferral balance exceeds 5% for a given calculation period

PUCO modified this provision such that Rider GCR may only become nonbypassable upon approval of the Commission, stating that if the EDCs wish to make the charge nonbypassable once the threshold is met, the EDCs must seek approval from the Commission to do so.

Additionally, PUCO rejected changes to the FirstEnergy EDCs' supplier coordination tariffs which would have limited suppliers to collecting only "generation" charges under bill ready utility consolidated billing. The Retail Energy Supply Association had noted that the proposed language appeared to limit the ability of retail suppliers to include charges on the consolidated bill for demand response or energy efficiency offerings. RESA had called such proposed treatment discriminatory, given that the EDCs currently bill on the utility bill for protection and repair plans, disaster protection plans, surge protection services, and other unregulated non-commodity charges that are offered by service providers who are not retail suppliers.

PUCO also rejected the EDCs' proposal to eliminate the ability of retail supplier providers to request non-summary customer usage data.

Furthermore, PUCO rejected changes to the supplier tariff related to unaccounted for energy, finding that such changes were not adequately supported. The EDCs' had proposed making retail suppliers solely responsible for unaccounted for energy

PUCO adopted expansion of the pilot, by five additional customers not otherwise eligible under the existing program, that allows certain large customers to avoid paying Rider NMB (Non-Market-Based Rider, which collects on a nonbypassable basis certain non-market-based PJM charges) and to instead assign such costs to the customer's retail supplier, with suppliers charging customers for such costs.

In the most controversial aspect of the plan, PUCO adopted with modifications PPAs between the EDCs and FirstEnergy Solutions to support operation of the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio, the W.H. Sammis Plant in Stratton, Ohio, and a portion of the output of Ohio Valley Electric Corporation (OVEC) units in Gallipolis, Ohio, and Madison, Ind.

PUCO noted that the EDCs have said that the output of such plants will be sold into the PJM market, and will not be used in the default service auctions. As such, any costs/credits from the PPAs will be allocated on a nonbypassable basis

PUCO said that concerns that the EDCs may provide the products procured under the PPAs to an affiliated retail supplier are addressed by prudency and other reviews that PUCO will undertake

Notably, to address rate impact concerns, PUCO's order, "directs the Companies to ensure for the period of June 1, 2016, through May 31, 2017, that average customer bills do not increase as compared to average customer bills for the period of June 1, 2015, through May 31, 2016, the last year of FirstEnergy's ESP III, taking into account any seasonal rate differential and any over and under recoveries of Rider RRS for prior periods. Further, the Commission directs the Companies to ensure for the period of June 1, 2017 through May 31, 2018, that average customer bills do not increase as compared to average customer bills for the period of June 1, 2015, through May 31, 2016, taking into account any seasonal rate differential and any over and under recoveries of Rider RRS for prior periods. FirstEnergy is authorized to defer expenses for future recovery in an amount equivalent to the revenue reduction resulting from the implementation of the mechanism for the period of June 1, 2017 through May 31, 2018."

While this rate mitigation provision was contained in a discussion of cost recovery for the PPAs, we see no language limiting any rate mitigation designed to limit any rate increases to the levels described above as only relating to the level of PPA rider, and we see nothing which explicitly states that other components which make up the bill (namely, bypassable generation) could not also be subject to mitigation to achieve the rate increase limits described above

In adopting the PPAs, PUCO stressed that the ESP, "will protect consumers against rate volatility and price fluctuations by promoting rate stability for all ratepayers in this state."

PUCO's decision is likely to be appealed by generators who claim the PPAs impermissibly interfere with wholesale markets.

Case No. 14-1297-EL-SSO

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