Ohio Orders Provide Duke with Unfair Competitive Advantage, AEP Ohio Says

Recent PUCO orders concerning electric security plans at Duke Energy Ohio and AEP Ohio provide Duke Energy Ohio with an, "undue preference and advantage," due to the disparate treatment of corporate separation plans addressing the separation of generation from the distribution utilities, AEP Ohio said in a rehearing request.

In a response, Duke Energy Ohio called AEP Ohio's rehearing request, "an unfortunate abuse of process and a blatant misrepresentation of the record."

AEP Ohio's rehearing request was filed in Duke Energy Ohio's electric security plan proceeding. AEP Ohio said that it retained the right to seek rehearing despite not contesting (and stating that it took no position on) a settlement in the case which was approved without modification. As the AEP Ohio electric security plan order is more recent, rehearing requests are not yet due for that order, but presumably AEP Ohio will file a rehearing request on the same issue in that case as well.

In brief, PUCO treated corporate separation at the two utilities differently in two material respects. Duke Energy Ohio says such treatment was warranted by the record of the individual cases.

First, PUCO waived the requirement that Duke Energy Ohio conduct a study of the fair market value of its generation, allowing the transfer to a competitive affiliate to occur at net book value. In contrast, at AEP Ohio, PUCO declined to grant AEP Ohio a similar waiver at this time.

"To AEP Ohio's knowledge, it is unprecedented for the Commission to even require such a market analysis in the first place," AEP Ohio said.

Second, PUCO's order on Duke Energy Ohio's electric security plan stipulation served as final approval for the transfer of the utility's generation to an affiliate. At AEP Ohio, PUCO withheld final approval, and contemplates additional proceedings on the corporate separation plan.

"As a threshold matter, R.C. 4928.17 - the controlling statute regarding corporate separation matters - requires the Commission to ensure that an approved corporate separation plan does not extend an undue advantage or preference in the provision of competitive electric services," AEP Ohio said.

"Granting Duke's affiliate full and final approval for generation divestiture up front and waiving the filing and process rules, while simultaneously deferring approval of AEP Ohio's GenCo and possibly subjecting it to market valuation studies and protracted litigation, serves to extend Duke an undue preference and advantage in violation of this statute," AEP Ohio argued.

"An inconsistent application of the corporate separation provisions and rules is anticompetitive and provides one entity subsidies and a competitive advantage in violation of R.C. 4928.02," AEP Ohio continued. "If Duke is able transfer assets as outlined by the Commission in the Opinion in these proceedings at the net book value and AEP Ohio is subject to greater scrutiny and different valuations levels, then Duke is receiving an unfair benefit or subsidy from the truncated process and avoiding the different costs associated with complying with O.A.C. 4901:l-37-09(C)(4), and potentially the transfer of assets at fair market value. Nowhere is the direct difference more obvious than in the jointly owned utility assets. If Duke is able to transfer those assets at the net book value but AEP Ohio is required to incur a greater cost, over a greater period of time and transfer the same assets under a different methodology, then Duke and its new competitive generation company are receiving an advantage over the entities involved in the AEP Ohio corporate separation."

While AEP Ohio said that the "better approach" to eliminate the undue preference is to harmonize the AEP Ohio electric security plan order with the policy PUCO adopted for Duke Energy Ohio, AEP sought rehearing of the Duke order to preserve its rights to the extent PUCO does not grant AEP Ohio the same treatment.

Noting that, despite AEP Ohio's protests, PUCO did not rule on the substance of AEP Ohio's corporate separation plan in the electric security plan order (and thus no final determination was made which can be called inconsistent), Duke Energy Ohio said that, "AEP Ohio's Application for Rehearing must be interpreted as an attempt to pressure the Commission into prematurely and blindly forming a decision in respect of AEP Ohio's pending request to transfer its generating assets."

Duke Energy Ohio distinguished its case from the AEP Ohio case and said that, "there was no substantive detail provided in the AEP ESP Stipulation regarding asset transfer," unlike Duke Energy Ohio's stipulation which made express provisions regarding, among other things, value of the generating assets upon transfer; Commission audit; Staff access to books and records; and "[r]estrictions upon the generating assets to ensure no competitive advantage was provided to an affiliate that may participate in Duke Energy Ohio's SSO load auctions."

Furthermore, Duke Energy Ohio said that entertaining AEP Ohio's request for rehearing of the Duke order would, "invite[] a significant financial debacle," by introducing significant uncertainty regarding default service after the awarding of Standard Service Offer load to wholesale suppliers through auction.

"Duke Energy Ohio believes that, if the Commission were to grant the Application for Rehearing, subsequent auctions would not likely result in as favorable rates for customers, as suppliers will price additional risk into future bids or even decide not to participate, thereby denying customers the full benefit of the competitive market that the Commission and others have worked so hard to encourage."