PUC Directs Utilities To Modify Default Service Procurements To Hold "Dual Auctions"

Utilities To Hold Procurement For New Four-Year Capacity Hedge Product For Default Service Plus Separate Energy-Only Auction; Simultaneously Hold Traditional Full Requirements Auctions

PUC Chair: Won't Be "Captive" To FERC Decision-Making

Take Advantage Of "Buyer's Market" For Default Service Supply

July 15, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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The Public Utilities Commission of Ohio directed that the electricity utilities shall modify their Standard Service Offer (SSO) procurement process as follows, due to uncertainty in the PJM capacity market

The utilities shall:

a. Submit a plan to change the current auction scheduled for Fall 2020 and Spring 2021 to substitute a 12-month product for the current, planned products.

b. Submit a new plan, within 90 days, for dual auctions for a period of four years, commencing with the June 2022 delivery year. "These auctions will run simultaneously, and the Commission will select the bid to be implemented or reject the results of both auctions," PUCO said. The plans for dual auctions may include a laddering or staggering structure and must include the following components:

i. A full requirements product with a proxy price, using the June 2021 capacity price as the proxy, subject to true-up and reconciliation;

ii. An energy-only auction and a capacity-only hedge product. Suppliers will offer capacity hedge at a fixed price for all years included in the auction product, thereby guaranteeing the capacity price to be paid by consumers over the long-term.

"In line with some suggestions we received in the comments, the above method of substituting the current products planned for the Fall 2020 and Spring 2021 auctions with 12-month products allows for these imminent auctions to occur without delay and without significant adjustment to existing auction-related terms and documents," PUCO said

"Further, however, in an effort to quell the possible effects caused by uncertainty surrounding PJM’s BRA, the dual auction method provides the Commission with flexibility in selecting which auction result will be adopted between the two auctions and also provides the option of rejecting the results of both auctions, if need be. This approach and comparisons of the alternative bids may also provide some market insight regarding the bidders’ expectations regarding the forward cost of capacity within the PJM footprint. Although the SSO procurement process outlined above extends beyond the terms of the EDUs’ existing ESPs, such approach will provide stability to customers by taking action to lock-in historically low prices observed in recent auctions and thereby attempt to manage price volatility risks. We also note that the SSO competitive bidding process adopted by the Commission does not benefit any specific generation unit, or supply or demand side technology or any outcome of FERC or PJM process adopted to establish wholesale prices," PUCO said

"We are not persuaded by comments that the dual auction approach will increase administrative costs; we note that it may be the case that one dual auction per EDU will replace multiple auctions over four years. Moreover, several stakeholders criticize Energy Harbor’s proposal to hold an energy-only auction with a capacity-only hedge product for missing details those stakeholders deemed critical. However, we believe that the EDUs, working with their auction managers as well as Staff, are in the best position to propose the details necessary to implement the auctions in the plans to be submitted to the Commission, mindful of the experience with competitive bidding procedures used by other states. We expect that interested stakeholders will have an opportunity to comment on those details after the EDUs have submitted their plans," PUCO said

PUCO Chairman Sam Randazzo stated that the changes mean that PUCO won't be "captive" to FERC decision-making, which has resulted in the lack of a forward capacity price due to suspended capacity auctions in PJM, as previously reported

Randazzo noted that the changes may allow Ohio to take advantage of a "buyer's market" for SSO electricity supply

Case 18-6000-EL-UNC et al.

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