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PUC: Proposal To Reflect Unbundling Of Default-Service Related Costs In Distribution Rates, "Fatally Flawed"

PUC Directs Staff To Investigate Allegations That Utility Changed Retail Supplier Bond Form, Remedy Timing Without PUC Approval

September 27, 2018

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Copyright 2010-17
Reporting by Paul Ring •

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In an order in Dayton Power & Light's rate case, the Public Utilities Commission of Ohio has rejected, as "fatally flawed," a proposal from the Retail Energy Supply Association and IGS Energy to implement a revenue-neutral rider that would make certain costs related to default service (Standard Service Offer, or SSO) bypassable, with revenues collected under the rider refunded to all distribution customers

IGS had presented testimony to remove a specific amount of costs incurred to process and administer the standard service offer (SSO) and allocate those costs to SSO customers directly rather than allocating those costs to all customers including shopping customers. Such costs would be recovered from SSO customers via bypassable rider, and then the amount collected would be refunded to all distribution customers under another rider

In its order, PUCO said that, "the rider mechanism proposed by RESA and IGS is not authorized by R.C. 4909.18 and cannot be adopted in a rate case proceeding."

PUCO noted that under the proposal, the riders would be recalculated every six months to ensure that the riders are not over- or under recovering costs

"The need to periodically adjust the riders is a fatal flaw of IGS's proposal," PUCO said

"We agree that periodic adjustment of the riders would be necessary due to variations in consumption as well as shopping rates; the proposed riders, therefore, would be rate adjustment clauses. However, R.C. 4909.18 does not authorize the creation of rate adjustment clauses. The Commission is a creature of statute and may exercise no jurisdiction beyond that conferred by statute. Unless authorized by statute, rate adjustment clauses cannot be created in a distribution rate case," PUCO said

At AEP Ohio, PUCO has approved (on a placeholder basis only) a substantially similar mechanism; however, such approval was granted in an electric security plan proceeding, which is statutorily exempted from single issue ratemaking, not a distribution rate case. The approval of the mechanism at AEP Ohio left to a rate case the development of the exact amounts for the riders

PUCO also noted that, "although there may be costs recovered through an EDU's distribution rates that are attributable to the SSO, an EDU's distribution rates likewise may include call center costs solely incurred to promote competition or other costs related to a customer choice program. If we are to evaluate whether there are actual distribution costs solely related to providing SSO service, we should also evaluate whether there are actual distribution costs solely related to the customer choice program. Then, the Commission may determine whether it is necessary to reallocate costs between shopping and non-shopping customers in order to ensure an EDU's rates are fair and reasonable to all customers."

PUCO further noted that there is the disagreement among the parties regarding whether Staff has withdrawn its recommendation that the SSO generation revenue percentage of the PUCO/OCC assessment expense shall be recovered through an appropriate bypassable rider.

"Therefore, we will clarify that this recommendation has not been withdrawn. No signatory party filed an objection to this bypassable rider. The Stipulations do not address this issue. Absent extraordinary circumstances, it would be unfair and improper to permit Staff to withdraw a recommendation absent a pending objection or a provision in the stipulation directly addressing the recommendation. We will further clarify that the bypassable rider may recover adjusted test year expenses only and will not be adjustable, for the reasons set forth above. However, our treatment of this issue in this case results from the specific procedural circumstances discussed above and should not bind Staff or the Commission to the same result in future proceedings," PUCO said

A stipulation in DP&L's most recent ESP case provided that, in the instant distribution rate case, "there will be an evaluation of costs contained in distribution rates that may be necessary to provide standard service offer service."

Citing this provision, IGS and RESA had objected to the failure of DP&L and Staff of identifying via the cost of service study costs related to SSO service in distribution rates. DP&L had argued that it complied with conducting an "evaluation" of such costs and concluded that no further unbundling was appropriate, apart from the assessment issue described above. PUCO did not find that either Staff or DP&L failed to comply with the ESP stipulation's provisions regarding an "evaluation" of costs.

PUCO also rejected proposed changes to fees charged to retail suppliers proposed by suppliers in the case

Regarding interval data fees, PUCO said that the amount of the fee was established as part of a settlement approved by the Commission in the DP&L-AES Merger Case. "We will not revisit that decision here. We may, however, revisit this issue through the working groups or proceedings implementing the PowerForward Initiative," PUCO said

With respect to the switching fees, the Commission found that the Supplier Tariff should not be modified as proposed by RESA. PUCO said that, "DP&L correctly notes that the Commission affirmed the switching fees in DP&L's SSO proceeding," and PUCO found that evidence had not been presented to justify any change.

Additionally, PUCO found that the evidence in the record does not support modification of the credit and collateral requirements in the supplier tariff.

Among other things, IGS Energy has argued that the credit and collateral requirements disadvantage privately held suppliers because public companies with investment grade long-term bond ratings are deemed to satisfy their creditworthiness and receive an unsecured credit limit. IGS had said that privately held, unrated companies such as IGS may have little or no business reason to get a credit rating and, in order to meet DP&L's credit requirements, must instead make alternative arrangements, such as posting millions of dollars in collateral.

However, PUCO noted that the Supplier Tariff does not distinguish between public and private companies; the Supplier Tariff provides that companies, public or private, which have established their creditworthiness by obtaining an investment grade credit rating need not post collateral.

"The record demonstrates that there is nothing to stop private companies from obtaining credit ratings. Nonetheless, if any CRES provider believes that the differential treatment is unduly discriminatory, it should seek mediation from the Staff or file a complaint with the Commission," PUCO said

However, PUCO did express concern with IGS's allegations regarding the bond form and remedy timing. As previously reported, a witness for IGS alleged in testimony that, "The bond form Dayton had posted on its website stated a 30-day remedy period. When IGS submitted its collateral payment, Dayton informed us that the required remedy period was now five days. That shortened time period puts a lot of pressure on the bond company to commit to that obligation. It is also my understanding Dayton did not obtain Commission authorization to make this change."

PUCO in its order said that, "With respect to the issue regarding bond form and remedy timing, the Commission is concerned by DP&L's failure to respond to the issues raised by IGS through a witness or on brief. We will not disturb the Stipulations in this case, but we direct Staff to thoroughly investigate IGS's allegations, including whether a change was made without Commission approval, and recommend to the Commission, in a separate proceeding, an appropriate remedy if IGS's allegations are substantiated and an informal resolution is not reached."

PUCO also did not adopt IGS's recommendations regarding the distribution customer charge (approved at $7 for residential customers) and the rate design for demand charges (PUCO approved determining customer demand based upon the non-coincident peak of an individual customer,). IGS had argued that such charge and design discourage distributed generation.

Case No, 15-1832-EL-ATA

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