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PUC Sets Rules For New POR Program: Addresses Whether POR Is Mandatory For UCB, Implementation Cost Recovery, Discount Components

PUC Adopts Provisions Which Utility Has Said Will Raise POR Costs, May Hinder Participation Given Concurrent Supplier Consolidated Billing Pilot

PUC: Desired Market Is For Suppliers To Rely On Supplier Consolidated Billing And Dual Billing; POR A "Short-Term Fix"

September 28, 2017

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Reporting by Paul Ring • ring@energychoicematters.com

The Public Utilities Commission of Ohio issued an order on implementation issues related to a purchase of receivables program at AEP Ohio whose implementation had been ordered as part of a 2015 order

Of non-consensus items, a significant dispute concerned PUCO's prior direction that participation in the POR program by CRES providers that elect utility consolidated billing (UCB) must not be mandatory

In a 2015 report on an implementation working group, PUCO Staff had reported, based on AEP Ohio responses, that, without an all-in POR requirement for suppliers using UCB, 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. As estimated in 2015, the result of these two systems is that POR implementation costs increased from an estimated $1.5 million to $3 or $4 million, Staff reported in 2015

Additionally, Staff had further reported, citing AEP responses, that the lack of an all-in approach to the POR increases the POR implementation time for AEP Ohio from 9 months to 2 years

AEP Ohio further raised a concern about the lack of an all-in requirement due to the implementation of a supplier consolidated billing pilot. AEP Ohio said that a supplier consolidated billing program is more attractive than a POR program to some suppliers, because, with supplier consolidated billing, suppliers have direct contact with the customer and are able to place non-commodity charges on the bill. AEP Ohio noted that a smaller number of suppliers may be left to pay a larger share of the costs of the POR program, making the program unviable

However, PUCO affirmed its original mandate that suppliers should be able to opt out of participating in AEP Ohio's POR program

PUCO held that those suppliers that participate in the POR program, and who do not opt out, will need to pay for the additional costs of allowing UCB without POR, and PUCO reiterated that AEP Ohio should recover both the implementation and maintenance costs associated with the program.

PUCO directed AEP Ohio to meet with the suppliers, Staff, and any other interested parties to discuss the costs and process for implementing an "opt-out" POR program (e.g. allowing UCB without POR).

"Following the parties' discussions and determination of which suppliers will participate, AEP Ohio should then file, in a new docket, a full cost estimate for implementation of the non-mandatory POR program, along with the list of suppliers that have agreed to participate in the program and compensate the Company for the implementation costs," PUCO said

In light of the decision to allow UCB without POR, PUCO directed AEP, "to employ its best efforts to complete the implementation within the projected two-year period, or sooner, if practicable."

Concerning the recovery mechanism for implementation costs, PUCO said that AEP Ohio's implementation costs of the POR program should be recovered from all CRES providers that elect to participate in the program. Specifically, such suppliers should be assessed AEP Ohio's implementation costs, including carrying charges calculated based on the utility's long-term debt rate, through a monthly per-bill fee collected over a five-year period.

POR implementation costs recovered from participating suppliers will also include programming costs to enhance AEP's billing system to differentiate between commodity and non-commodity items (as PUCO will allow non-commodity costs on UCB but will exclude such costs from POR as discussed below)

A POR discount rate will be applied, consisting of the following components: bad debt, O&M costs, working capital risk, and a credit from base distribution rates.

The bad debt component of the discount rate shall be calculated separately for the residential, commercial, and industrial customer classes, with each class assigned a single discount rate consisting of the bad debt component, the O&M costs, the working capital risk, and the credit to account for the amount that AEP Ohio already collects for shopping customers' bad debt through its base rates.

Although initially the working capital risk component shall be set at zero, it shall be adjusted on an annual basis to account for any change in AEP Ohio's working capital costs.

For reference only, using 2014 data, the discount rate by customer class would have been 0.5% for residential receivables and "nearly 0%" for commercial and industrial receivables. Actual discount rates will reflect updated data.

PUCO reiterated that only commodity-related charges may be included in the POR program, "which means charges that are directly tied to the actual cost of generation and does not include charges such as early termination fees, which are not a necessary component of generation service."

"Although the Commission agrees with RESA that items like marketing costs and overhead incorporated in a CRES provider's generation-only product should be included in the POR program, we find that non-commodity product offerings, even if they are related to the consumption of electricity or part of the generation price, should not be considered eligible receivables," PUCO said

Consistent with its directive that only commodity-related charges should be included in the POR program, the Commission directed AEP Ohio to modify its billing system such that it is able to differentiate between commodity and non-commodity items.

PUCO found that the POR program term should be one year, with an evergreen provision under which the program shall automatically renew for a subsequent term from year to year, unless AEP Ohio or Staff files a request with the Commission to review or terminate the program not less than 60 days before the end of the current term.

PUCO ruled that AEP's nonbypassable Bad Debt Rider (BDR) should be utilized as a recovery mechanism of last resort, as well as to facilitate the utility's recovery of CRES receivables when economic conditions overwhelm the discount rate or the viability of the POR program in general. The Commission previously established Rider 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

Opining on its view for the market, PUCO said that POR is a "short-term fix" and envisioned suppliers using supplier consolidated billing or dual billing as facilitating PUCO's desire for innovative products and services

"[T]he Commission notes that, as the marketplace is currently situated, the Commission's desired course for competitive suppliers is to ultimately partake in supplier consolidated billing and dual billing. This wou1d facilitate the innovative marketplace that we envision for the state of Ohio, and would easily resolve how suppliers can bill for non-commodity goods and services that they wish to market and then bill to their customers," PUCO said

"A POR program is a short-term fix, and it does not represent, in this Commission's opinion, a large leap in the competitive marketplace that we hope to continue to foster in this state-a marketplace based not only upon pricing options, but one based upon the delivery of innovative products and services," PUCO said

Case 15-1507-EL-EDI

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