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Retail Supplier Auctions To Save Ohio Low-Income Customers Nearly $5 Million

September 6, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Auctions to award all or part of Percentage of Income Payment Plan (PIPP) load to competitive retail electric suppliers in Ohio may save PIPP customers nearly $5 million

As only reported by EnergyChoiceMatters.com, PIPP load was auctioned to retail suppliers at the FirstEnergy EDCs (100% of PIPP load), and Duke Energy Ohio and AEP Ohio (17%, due to existing SSO contracts), for a one-year term beginning June 2016. The auctions set a benchmark price of the tranche-weighted SSO price from the most recent relevant auction and delivery year, which the PIPP clearing price had to beat in order to award load during the initial auction (a contingency plan would allow PIPP prices to exceed the benchmark price if the initial auction did not produce any bids below the benchmark).

The PIPP retail supplier auction price was $3.36/MWh below the SSO auction price at Duke, $1.35/MWh below the SSO auction price at AEP Ohio, and $0.62/MWh below the SSO auction price at the FirstEnergy EDCs.

In a report, Staff of the Public Utilities Commission of Ohio noted that aggregate potential savings to PIPP customers associated with the PIPP retail supplier auctions would be a function of the actual PIPP load to be served and the difference between the SSO auction prices and the PIPP auction prices.

Because the actual PIPP load served by the PIPP RFP auction winners will not be known until June 2017, Staff has used recent full-year PIPP load data as presented on the PIPP RFP auction websites as an estimate of the PIPP load to be served.

Under this methodology, Staff estimated aggregate savings to PIPP customers, via the retail supplier auctions, of $1.3 million at Duke, $2.5 million at AEP Ohio, and $950,000 at the FirstEnergy EDCs.

However, Staff said that, "Staff has concerns that the PIPP auction clearing prices, while initially priced below the blended SSO prices, may only represent illusory savings. It is important to recognize that the PIPP auction product is a one year product and is being compared to an SSO rate that is a blend of prices over two or three years. Over the two or three years in question, the PJM administered capacity price (an important determinant of the cost of serving load) is scheduled to increase from $59.37/MW-day in 2016/2017 to $120.00/MW-day in 2017/2018 and $164.77/MW-day in 2018/2019. The blended action price reflects an average of these prices, while the one year PIPP auction only reflects the first (and lowest) price. In future years, as capacity prices escalate, the results of the one year PIPP auction will increase as well, and will likely exceed the cost of the blended product due to higher capacity prices associated with the one year product. In fact, one of the primary reasons Staff recommends solicitations of multiple products of multiple durations is to prevent rate shock from occurring due to the impact of annual capacity prices, which can often be volatile. By conducting one year auctions for PIPP load, the price of this product is likely to be more volatile that the blended SSO price. The PIPP auction price is likely to be higher than the SSO price in years when capacity prices are above average, and is likely to be lower than the SSO price in year when the capacity price is below average. Additionally, auction prices are impacted by fluctuations in energy prices and the time period for which energy prices are forecasted to meet the auction load. Given these factors, and the additional cost of conducting the PIPP RFP auctions, whether any net savings ultimately accrue to customers is not certain."

Staff also expressed concern with the low participation rate (2-3 suppliers depending on utility service area) for the retail supplier auctions, versus 10-15 suppliers in comparable SSO wholesale auctions

"Potential reasons for this relatively low participation level in the PIPP RFP auctions could include: knowledge of a target price to beat through the auctions; restriction of auction participants to certified CRES [retail supplier]; short time period that was available for preparation to participate in the auctions; smaller load levels available for the auction winners, as compared to load levels obtainable through the SSO auctions: and, (alternatively) the requirement that a single bidder must win 100% of the PIPP load," Staff said

Regarding the use of a benchmark price and its impact on supplier participation, Staff said, "Potential participants could have perceived the price to beat as a price that was below a price that they were willing to accept, and decided not to participate. However, if the RFP auction were not successful in the first round, this price limitation would have been removed, so that participants seeking higher prices could have participated in a second round. It may be that this was not fully understood by potential participants, or that the effort required to become an RFP auction participant was perceived as excessive when compared to the likelihood of the RFP auction going to a second round and being successful in that second round."

Case No. 16-0247-EL-UNC

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