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Default Service Utility Proposes Changes To Recover, From Non-shopping Customers, Costs Of Oversupply Of RECs, While Managing Rate Impacts
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Ohio Power Company d/b/a AEP Ohio filed at the Public Utilities Commission of Ohio to modify its Alternative Energy Rider (AER) and Auction Cost
Recovery Rider (ACRR) to recover, on a bypassable basis, an oversupply of RECs, in light of the wind-down of the state's renewable energy mandate, while also managing AER
rate impacts for non-shopping customers.
AEP Ohio explained that, in order to develop a long-term plan for compliance with the alternative
energy portfolio standard in R.C. 4928.64, AEP Ohio previously entered
into three renewable energy purchase agreements (REPAs), which the
Commission has found to be prudent and permitted cost recovery for years
"Increased levels of shopping since initial implementation of the AEP Ohio
REPAs and the recent enactment of HB 6 have caused and will cause the
Company to possess extra RECs beyond ongoing compliance levels and accrue a significant REC inventory over time. Prior to enactment of HB 6, the renewable standard
was perpetual (no expiration or ramp-down date) and the ultimate recovery
of the REC inventory costs was not a concern," AEP Ohio said
"In initially passing R.C. 4928.641 in 2014 as part of SB 310, the General
Assembly provided for ongoing bypassable recovery of the costs of AEP
Ohio’s REPAs. In amending that statute as part of HB 6 in 2019, the
General Assembly again recognized the unique position of AEP Ohio’s
REPAs and provided for continued bypassable cost recovery through 2032
even in light of the planned ramp down and expiration of the renewable
mandate. This statute and its legislative history show that full recovery of
AEP Ohio’s REPAs from its non-shopping customers has always been
intended by the General Assembly and the Company is attempting to
continue achieving that goal within the parameters set forth in the statute
and an evolving set of factual conditions," AEP Ohio said
"In light of the planned expiration of the renewable standard after 2026 and
the 2032 deadline for cost recovery under HB 6, AEP Ohio needs to take
additional action to achieve timely and full recovery of net costs associated
with the REPAs through the bypassable AER. As further described below,
the Company proposes to implement future AER rate adjustments
designed to recover the existing REC inventory while also managing AER
rate impacts for non-shopping customers," AEP Ohio said
"Historical AER rates have shown volatility each quarter based on dynamic
shopping levels (relatively static costs recovered from a changing set of
customers), market prices (the REC price is a residual calculation that is
driven by the revenues yielded from liquidating the capacity and energy
associated with the REPAs) and reconciliation of current costs to prior
quarterly cost projections (driven in part by seasonality of load). This
year, for example, the quarterly AER rates ranged from $1.86/MWh to
$3.90/MWh. In this context, the Company would like to implement
recovery of the REC inventory amortization and costs in a manner that also
helps make AER rates more stable and predictable," AEP Ohio said
"More specifically, the Company proposes to implement a going-forward
AER rate of $4.40/MWh, prior to any voltage adjustments, along with an
enhanced methodology for calculating future AER rate changes: (a) the
AER will introduce a levelized amortization of the REC inventory between
2021 and the end of 2026 of approximately $1.17/MWh, (b) the AER will
reflect a levelized amortization of the 2021 through 2026 estimated costs
of the REPAs netted against the revenues yielded from liquidation of the
capacity and energy associated with the REPAs’ output as well as any
excess RECs that are sold into the market, (c) recovery of the first two
categories would be limited to a rate cap of $5.00/MWh, prior to any
voltage adjustments, absent Commission approval to implement a rate
above $5.00/MWh (with any overage being booked as a regulatory asset),
and (d) recovery of the REC inventory costs can be temporarily suspended
by the Company, in whole or in part, by reducing a quarterly rate adjustment by up to approximately $1.17/MWh (i.e., reducing the rate
down to approximately $3.24/MWh)," AEP Ohio said
"After 2026, the Company proposes
to collect the then-current annual costs of the REPAs similar to the current
AER Calculations but does recommend and [sic] annual adjustment to the rate.
All other aspects of the AER remain unchanged, including but not limited
to the reconciliation and associated over/under regulatory asset/liability
accounting. The rate cap in part (c) above will help mitigate additional
rate impacts on non-shopping customers and the downward rate flexibility
in part (d) above will help the Company balance recovery of the REC
inventory costs with a stabilized level of non-shopping load," AEP Ohio said
"Under the enhanced approach, the Company would no longer provide for a
quarterly true-up in the AER rate. Instead, the Company will manage the
total balance of the estimated REC Inventory and costs annually and adjust
the rate only if necessary ... The rates
mentioned above reflect recovery of the total AER costs from total non-shopping
kWh and do not represent the cap for the voltage-adjusted rates," AEP Ohio said
Case No. 20-1745-EL-RDR
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November 30, 2020
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Copyright 2010-20 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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