AEP Ohio Seeks to Deny Customers, Retail Suppliers Discounted Capacity Despite PUCO Order

Notwithstanding a Public Utilities Commission of Ohio order revoking approval of a non-unanimous stipulation governing AEP Ohio's electric security plan (ESP), including terms relating to the capacity charge applicable to retail suppliers, AEP Ohio is seeking to implement the terms of the now rejected stipulation and charge higher capacity prices for competitive load above stipulated volume thresholds.

In a motion for expedited relief, AEP Ohio bizarrely claims that its sought relief would maintain the "status quo," would avoid prejudging the issue of capacity charges to retail suppliers, and would avoid customer confusion.

Specifically, AEP Ohio is proposing that capacity pricing for 2012, until such time as the case is decided, should be RPM-priced capacity for the first 21% of shopping load of each customer class, plus aggregation (excluding mercantile load). Competitive load above the 21% would be charged the higher capacity price of $255/MW-day.

This is, in a way, the capacity charge mechanism adopted under the now revoked ESP stipulation, although with AEP Ohio picking some modifications ordered by PUCO while rejecting others.

AEP Ohio alternatively asked that RPM-priced capacity only be provided to customers that have "shopped to date" (it is unclear if this means customers having completed an enrollment, or those in the queue as well), with the higher capacity charge applicable to any other load moving to competitive supply.

"The current status quo is the Stipulation's two-tiered capacity discount, not the prior state compensation mechanism [under which all competitive load paid the RPM price for capacity]," AEP Ohio claimed.

Matters fails to see how "the Stipulation's two-tiered capacity discount" is the status quo, nor does AEP Ohio support this argument other than through naked assertion.

Prior to the stipulated electric security plan taking effect January 1, the state compensation mechanism governed the cost of capacity provided by AEP Ohio to retail suppliers under the AEP Fixed Resource Requirement. PUCO established the state compensation mechanism as the RPM price, which applied for all competitive load.

On January 1, under the new electric security plan, the capacity cost was increased to $255/MW-day, except that a set-aside (colloquially called a shopping cap) of discounted, RPM-priced capacity was made available to retail suppliers for a period of three years, prior to the move to market-based rates and RPM-priced capacity. This set-aside of RPM-priced capacity was 21% for 2012.

However, as previously reported, PUCO revoked its prior approval of the electric security plan stipulation on February 23. Specifically, PUCO ruled that, "the Stipulation must be rejected and the application, as modified by the Stipulation, must be disapproved."

The only authority AEP Ohio had for charging a two-tier capacity price, with a limit on the amount RPM-priced capacity, was the previously approved stipulation, which has now been rejected and disapproved. With such rejection, the only capacity rate authorized to be charged to retail suppliers, absent further PUCO order, is the RPM capacity price.

While AEP Ohio was given until February 28 to file retail tariffs to reflect disapproval of the ESP stipulation, as AEP Ohio has itself argued, the capacity charge to retail suppliers is not a retail rate. As no tariff filing regarding the capacity charge is required, PUCO's rejection of the electric security plan stipulation immediately removes authority for a two-tier capacity price, and makes the status quo the RPM price for capacity, for all competitive load. It is AEP's requested interim relief which would change this status quo.

AEO Ohio said that providing all competitive supply customers with the RPM-priced rate for capacity would force AEP Ohio to provide access to its capacity at below-cost rates, "causing the majority of AEP Ohio's customers to leave the standard service offer and AEP Ohio to suffer massive revenue loss."

AEP Ohio estimates that if it is required to provide 100% RPM-priced capacity this year, it would cause the company's projected 2012 earnings to drop by 27 percent and produce a return on equity (ROE) of 7.6 percent. Projected earnings for 2013 also would drop by 67 percent and produce an ROE of 2.4 percent.