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DP&L Proposes Revised Default Service Plan, Would Change SSO Rate Methodology, Include New Bypassable Costs

Plan Would Use Contracts Up to 43 Months Long To Procure Default Service

October 13, 2016

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

Dayton Power & Light has filed a revised electric security plan for the period beginning January, 1, 2017, which would now govern the procurement and pricing of the Standard Service Offer (SSO) through December 31, 2023 (rather than 2026 as proposed earlier this year).

Notable changes from the current SSO include a change in how SSO costs would be recovered, and the introduction of cash working capital costs as a bypassable cost in SSO rates.

DP&L would rely exclusively on descending clock, slice-of-system, full requirements auctions to procure 100% of SSO supplies.

Generally, one-third of the SSO portfolio would be served under 12-month contracts, one-third under 24 month contracts, and one-third under 36-month contracts. However, at the end of the SSO term, varying contract term lengths would be used to align with the December 31, 2023 end date, including 43 months contracts (as well as 31 month, 19 month, and 7-month contracts).

Two SSO auctions (in February and May) will be conducted for procurement in the first period, June 1, 2017 to May 31, 2018. One auction will be held per year thereafter, held during the February prior to the June 1 start of delivery for that year.

Click here for the specific SSO contract term lengths, number of tranches, and procurement dates

The load-following, full requirements SSO products would include energy, capacity, market-based transmission charges, market-based ancillary services and renewable energy requirements.

More specifically, in a change from current practice, DP&L would require winning bidders to supply Renewable Energy Credits (RECs) to meet the renewable energy requirements contained in ORC §4928.64

Firm NITS and non-market based ancillary services will continue to be recovered via a nonbypassable charge

DP&L is proposing to combine all supply-related costs into a single bypassable SSO rate. This includes reconciliation, which is currently recovered via a separate bypassable rider (CBT). Additionally, as renewable compliance will now be included in the SSO product, the separate bypassable alternative energy rider will be eliminated.

The Standard Offer Rate will be the tariff representing DP&L's retail generation charge as a result of its competitive bid process (CBP) auctions. The Standard Offer Rate will also include any over- or under-recovery of supply costs associated with the competitive bid process and recovery of costs to administer and implement the auction that were previously recovered through the CBT Rider.

Furthermore, DP&L is proposing to transition to an all-energy rate design for SSO rates, for all tariff classes.

This design will better align the cost recovery from SSO customers with how the energy is procured for those customers through the SSO auctions as power is procured from winning auction suppliers on a $/MWh basis.

DP&L is also proposing to include a cash working capital component to be in the SSO rate derived from the resulting auction clearing prices. "A cash working capital component is appropriate to compensate the company for the revenue lag and expense leads associated with providing SSO service," DP&L said

To determine cash working capital for SSO, DP&L used the revenue calculation and payment lags from DP&L Case No. 15-1830-EL-AIR and applied them to the estimated average daily cost of generation supply. DP&L multiplied cost of capital by cash working capital to calculate the revenue requirement for cash working capital. DP&L divided this requirement by sales, resulting in the cash working capital component of the Standard Offer Rate.

The cash working capital rate would be $0.0001115/kWh for June 2017 to May 2018

The Standard Offer Rate will be updated on an annual basis. DP&L's annual filing will include the rate change as a result of the SSO auctions, but will also include a true-up for the previous 12 months over/under recovery and recovery of costs to administer and implement the auction.

To summarize, the Standard Offer Rate will include: 1) auction supply costs, 2) administrative costs, 3) reconciliation costs, and 4) cash working capital. Auction supply costs will compensate auction winners for delivery to serve SSO load. Administrative costs include CBP auction costs, CBP consultant fees, PUCO consultant fees, audit costs, and supplier default costs (if any). Reconciliation costs are any over- or under-recovery of auction supply costs and administrative costs.

DP&L will then adjust the Standard Offer Rate for the commercial activities tax ("CAT"), and will adjust it for distribution losses based on tariff class. The rates will be on a standalone Standard Offer Rate (Tariff Sheet No. G10), and charged on a $ per kWh basis for all SSO load based on tariff class.

DP&L noted that, with the changes and elimination of separately charged bypassable riders, the Standard Offer Rate will be equal to the Price-to-Compare (PTC), "creating a bill that is more understandable for customers."

"Also, given that the Standard Offer Rate will be the PTC, and the Standard Offer Rate is updated annually, the PTC will be known and constant for 12-month periods," DP&L noted.

Currently, the bypassable reconciliations under Rider CBT change quarterly. Elimination of these quarterly reconciliations in favor of annual reconciliations recovered through the SSO rate itself, "will avoid seasonal variances that are inherent in quarterly true-up schedules," DP&L said

"This adjustment has the effect of smoothing out the generation rate and eliminating potential rate shifts based on weather-related factors," DP&L said

DP&L will continue to make a heating discount available during winter months for residential heating customers.

All residential customers, non-heating and heating, will be charged the same rate for all kWh during the summer months.

Residential heating customers will be charged a discounted rate for all kWh during the winter months. A discount of 15.27% to the Standard Offer Rate will be applied to the winter usage of residential heating customers.

Winter months continue to be the billing months of January, February, March, April, May, November, and December.

DP&L is also proposing a change in the methodology for how the maximum charge provision applicable to certain non-residential classes is calculated. The maximum charge provisions are applicable to tariffs with demand charges, and as noted above DP&L proposes to move SSO charges to an energy-based charge only; therefore, the SSO charges would be removed from the maximum charge calculation

DP&L is proposing that the ESP period begin on January 1, 2017. However, the company's current auction schedule ends on May 31, 2017, with the proposed auction schedule beginning delivery on June 1, 2017. During this five-month overlap period, DP&L is proposing to implement the Standard Offer Rate proposed in this case, including the associated rate design, in place of the CB Rate and CBT Rider. The Standard Offer Rate for this five-month period will be calculated using the current tranche-weighted average auction price of winning bids found in PUCO Case No. 13-2120-EL-UNC, including any projected over/under recovery in the current CBT Rider. Thus, the CB and the CBT Rider will be terminated on December 31, 2016. DP&L will continue the current Alternative Energy Rider (AER) during this interim five-month period. Starting on June 1, 2017, the Standard Offer Rate will begin as proposed in the new ESP and the AER will be terminated.

In the SSO auctions, DP&L proposes a load cap of 80 percent on an aggregated load basis across all auction products for each auction date such that no bidder may bid on and win more tranches than the load cap.

DP&L is seeking approval of a nonbypassable Clean Energy Rider, "that will facilitate future investment in renewable and advanced technologies consistent with state and federal policies."

"The Clean Energy Rider will recover currently unknown environmental compliance costs, including but not limited to green energy initiatives, environmental expenses, and decommissioning costs," DP&L said

The Clean Energy Rider will initially be set at zero, and the company will file a separate proceeding to recover those costs.

DP&L would also recover on a nonbypassable basis costs/benefits from the sale of its share in the Ohio Valley Electric Corporation ("OVEC") into the PJM market.

Case 16-0395-EL-SSO

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