Half a Dozen New Nonbypassable Charges Highlight AEP Ohio Electric Security Plan

AEP Ohio has proposed for Ohio Power an electric security plan for the period January 1, 2012 through May 31, 2014, that would include a half dozen new nonbypassable riders, plus the continuation of several existing nonbypassable riders (11-0348-EL-SSO et. al.). The electric security plan presumes that Columbus Southern Power will be merged into Ohio Power by the plan's start date.

Proposed new nonbypassable riders include:

• Environmental Investment Carrying Cost Recovery Rider (EICCR): To recover environmental compliance costs of existing generation dedicated to default service customers
• Generation Resource Rider (GRR): To recover costs of new generation dedicated to default service customers
• Facility Closure Cost Recovery Rider (FCCRR): To recover costs from the retirement of generation which was used to serve default service customers
• Generation NERC Compliance Cost Recovery Rider (NERCR): To recover NERC-related compliance costs for generation used to serve default service customers
• Carbon Capture and Sequestration Rider (CCSR): To recover costs of a front-end engineering and design study on carbon capture and sequestration
• Market Transition Rider (MTR): To mitigate the impact of changes in rate design to move generation rates to, "better reflect today's competitive market pricing structures." The rate re-alignment is essentially lowering commercial rates (the class which has seen the most migration), with corresponding increases in residential and industrial rates. The MTR includes various charges and credits over three years to transition to the desired rate re-alignment while limiting the immediate impact.

As part of this rate re-alignment, AEP Ohio would eliminate demand charges from generation rates.

AEP Ohio would also continue the nonbypassable Provider of Last Resort Rider. The rider would be set at $2.84/MWh. Customers could continue to avoid this rider by agreeing that any return to AEP Ohio supply would be priced at market rates; however, AEP Ohio is proposing that any returning customer be required to take market rates from AEP Ohio beyond the term of the current electric security plan. In other words, once the customer left AEP Ohio, and bypassed the POLR charges, the customer could never return to the standard default rate, even when returning before a new default service plan starts.

AEP Ohio also said that POLR rates do not include capacity charges.

Under the electric security plan, the bypassable generation rate would consist of: (1) Standard Offer Generation Service Rider (base generation); (2) Fuel Adjustment Clause Rider; (3) Alternative Energy Rider; and (4) Transmission Cost Recovery Rider.

Proposed Standard Offer Generation Service Rider rates for 2012 can be found here on page 97 (Original Sheet No. 88-1). Standard Offer Generation Service Rider rates for 2013 and 2014 can be found here on page 95 (Exhibit DIMR-2, Page 2 of 2).

Amounts for the other bypassable riders have not yet been determined. Note that renewable compliance costs have been removed from the FAC and placed in a separate rider, but remain bypassable.

AEP Ohio has also proposed discounted generation rates for commercial and industrial customers agreeing to take supply from AEP-Ohio for five years, which is beyond the end date of the proposed electric security plan. These customers would receive a discount of 15% (later decreasing to 10%, 5% and finally 0% in the final year) off of the non-fuel generation rate. This option would be available to commercial and industrial customers having annual peak demands of greater than 200 kW, and the program is capped at 2,500 GWh of participating load. Discounts would be paid to customers through the bypassable Rate Security Rider (RSR).

AEP Ohio has also proposed offering an optional Green Power Portfolio Rider (GPPR), allowing default service customers to purchase 25%, 50%, 75%, or 100% of their energy usage from renewable resources. The proposal is notable because the RECs voluntarily purchased by these customers would be used to reduce AEP Ohio's renewable compliance obligations, and would result in a reduction in the costs recovered from other customers on a bypassable basis.

AEP Ohio predicated the need for many of the nonbypassable riders cited above due to the "risks" inherent in the Ohio market, and proffered a need for new generation, which it said would not otherwise be constructed without nonbypassable charges.

"[T]here is a distinct risk Ohio could become an importer of electric power ... A [regulatory] framework biased toward current short-term market mechanisms will likely lead to retirement of critical assets, an irreversible course that will leave the State exposed to tighter supplies and the associated increases in market prices," AEP Ohio said.

However, elsewhere in discussion of a potential modification or termination of the AEP generation pool, AEP Ohio concedes that Ohio Power is currently a capacity surplus member of the AEP Pool, and would remain such even with the integration of Columbus Southern Power.

In fact, should the termination of the AEP Pool lead to lost revenues due to fewer opportunities for excess sales of Ohio generation, "the Company would be in a position to consider selling some of its generating assets, since it is in excess of what it needs to meet its non-switching load and other firm capacity obligations," AEP Ohio testified.

Finally, AEP Ohio would also institute a nonbypassable charge to recover deferred fuel expenses from the current electric security plan, which was contemplated under the original plan.