PUC Staff Recommend That Default Service Auctions Be Modified So That Capacity Treated As Pass-Through Charge

March 12, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Public Utilities Commission of Ohio have recommended that the Commission direct the electric utilities and their auction administrators, in consultation with the Commission’s consultant, to modify the Standard Service Offer (SSO) auction products such that the capacity obligation is priced at $0/MW-day and suppliers are made whole for all RPM capacity costs incurred through a "pass-through" charge.

"This charge shall be recovered within each utility’s existing auction cost recovery mechanism, for delivery year 2022/2023 through the end of each utility’s current electric security plan ('ESP')," Staff said

"All Ohio utilities’ ESPs are set to expire by the end of the 2023/2024 delivery year, at which time we are cautiously optimistic a FERC approved capacity construct will be in effect," Staff said

As first reported by EnergyChoiceMatters.com, the Commission had directed Staff to file a proposal for a modified product which contains capacity flow-through provisions for electric utility default service auctions in response to continued delays and uncertainty regarding PJM Interconnection’s capacity construct, known as the Reliability Pricing Model (RPM).

Staff noted that the Commission has already modified the SSO auction schedules for both Duke Energy Ohio and Dayton Power & Light to delay the procurement of generation service for delivery years in which the capacity price is not yet known. AEP Ohio and the FirstEnergy Companies both also have auctions scheduled in fall 2020 that include delivery years for which wholesale capacity rates have not yet been established.

Staff recommended that the capacity pass-through be implemented as soon as is practicable, "so Ohio utility ratepayers can enjoy the benefits of historically low electricity prices currently available in the wholesale market."

Staff recommends that each utility be required to submit a modified auction timeline that clearly identifies which products include capacity as a "pass-through" and catches up on tranches not procured in previous auctions that had been modified by the Commission to exclude the 2022/2023 delivery year. Revised Master Supply Agreements and associated documents should also be submitted that reflect the modified auction product. "To be clear, suppliers would still be responsible for supplying capacity as part of their provision of full requirements service. Sufficient time must be given to auction administrators to implement the pass-through clause and to allow suppliers to understand and gain comfort with their rights and obligations under this proposal," Staff said

Given that allowing a true up for the capacity portion of the product will result in an artificially lower auction price in years where capacity is not known, Staff recommends that procurements going forward separate products where the capacity price is known from products where the capacity cost will be trued up. "This recommendation is necessary to avoid unnecessary confusion although it will admittedly, at least temporarily, eliminate the rate certainty benefits associated with blending procurements of multiple durations," Staff said

"The pass-through option appears to Staff to be the simplest and lowest risk option available to address the continued delays and uncertainty surrounding PJM’s capacity construct. While it certainly is an option to wait for the issues surrounding PJM’s capacity market to resolve at the federal and regional level, this approach would unduly deprive Ohio ratepayers the opportunity to lock in the historically low electricity prices that are currently available in the marketplace. The 'proxy rate' concept espoused by NJBPU makes sense as a mechanism to preserve three-year solicitations in the absence of a FERC-approved capacity price for year three. However, since all the Ohio utilities are nearing the end of their ESPs, this concern is of less relevance here. Using a proxy rate other than zero adds administrative complexity that may outweigh its incremental value. Estimating the appropriate proxy rate is also inherently difficult due to the high levels of volatility in annual capacity prices," Staff said

Staff noted that the proposed change will impact the current process for retail electric suppliers to bid to serve Percentage of Income Payment Plan customers, since the PIPP benchmark rate is based on the SSO auction rate

"One concern that Staff must bring to the Commission’s attention is the effect that this proposal may have on the Percentage of Income Payment Plan ('PIPP') procurement process. Today, the PIPP benchmark price is calculated as a tranche-weighted average price for all procurements for a given delivery year. This sets the 'price to beat' for potential PIPP suppliers. If the price to beat does not include capacity, it may be the case that the PIPP product may also need to be modified to include a capacity pass-through clause, so it can be compared on an apples-to-apples basis with the benchmark price," Staff said

Case No. 17-2391-EL-UNC et al.

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