AEP Ohio Modified ESP Includes Base Generation Rate Freeze, Limits on Discounted Capacity

On March 30, AEP Ohio submitted a modified electric security plan to govern the pricing and procurement of default service for the period starting June 1, 2012 that would freeze non-fuel base generation rates for three years, and which would limit the amount of capacity provided to retail suppliers at the Reliability Pricing Model (RPM) price (Docket 11-0346-EL-SSO et. al.).

AEP Ohio's modified electric security plan (ESP) would govern the Standard Service Offer (SSO) for a term commencing on June 1, 2012 and ending May 31, 2015. Notably, this contrasts with the prior ESP stipulation which would have covered the period through May 31, 2016, with the final year (June 1, 2015 to May 31, 2016) requiring the use of competitive auctions for default service.

Under the modified electric security plan, AEP Ohio would use a competitive auction to procure default service energy requirements for the period January 1, 2015 through May 31, 2015. While the plan contemplates that auctions would continue to be used to procure default service after May 31, 2015, as the actual term of the ESP would conclude on May 31, 2015, it would not appear that any order in the case would actually authorize the use of such auctions after May 31, 2015.

Under the modified ESP, AEP Ohio proposes to freeze current non-fuel generation rates until January 1, 2015. The frozen generation rates would reflect the level of base generation rates as of December 2011, plus the level of the Environmental Investment Carrying Charge Rider at that time (with the Environmental Investment Carrying Charge Rider rolled into base generation and ceasing to be a separate rider).

The modified ESP proposes to transition AEP Ohio to an energy auction for 100% of SSO load for delivery commencing January 2015, provided that its Corporate Separation Plan (removing generation from the utility to a competitive affiliate) and AEP Pool termination are approved and implemented before that time. As the January 2015 start date for auction-based SSO precedes the date by which AEP Ohio will begin relying on RPM for capacity (June 1, 2015), AEP Ohio would provide capacity to winning suppliers in the SSO auction, at a price of $255/MW-day.

Specific design of the auction would be determined in a later proceeding but AEP Ohio contemplates the auctions being similar to those used elsewhere in Ohio.

Moreover, AEP Ohio said that it is also willing to engage in an energy-only, slice-of-system auction for 5% of SSO load as part of the ESP package prior to January 2015; based on the express condition of financially being made whole. The early energy auction would be for delivery beginning six months after final orders are issued adopting the ESP as proposed and the corporate separation plan, with the delivery period extending through December 31, 2014.

Under the modified ESP, AEP Ohio would continue to limit the amount of capacity provided to retail suppliers at the RPM price, under AEP Ohio's role as the PJM Fixed Resource Requirement (FRR) entity,

Specifically, AEP Ohio is proposing that competitive retail load pay either a Tier 1 capacity chare of $145.79/MW-day or Tier II capacity charge of $255.00/MW-day. These amounts would be fixed through the ESP term, including the Tier I price which reflects 2011/12 RPM pricing and would not be adjusted for future RPM price changes.

AEP Ohio proposes a limited set-aside of Tier 1 priced capacity of 10,066,000 MWh (approximately 21%) of Ohio Power's retail load in 2012 (based on total MWh retail sales); 14,995,000 MWh (approximately 31%) in 2013, and 19,780,000 MWh (approximately 41%) in 2014 continuing through May of 2015.

By customer class, the RPM-priced set-aside would be:

Jun-Dec 2012
Residential: 3,061,000 MWh
Commercial: 2,996,000 MWh
Industrial: 4,009,000 MWh

Jan-Dec 2013
Residential: 4,533,000 MWh
Commercial: 4,461,000 MWh
Industrial: 6,001,000 MWh

Jan 2014-May 2015
Residential: 5,918,000 MWh
Commercial: 5,923,000 MWh
Industrial: 7,939,000 MWh

Non-mercantile customers in communities that approved a governmental aggregation program in the November 8, 2011, election or prior elections shall be awarded additional energy allotments of Tier 1 priced capacity in 2012 even if the level of Tier 1 set-aside has been exceeded. "Throughout the entire modified ESP period, all allotments awarded to customers under these governmental aggregation programs shall be included in the calculation of awarded allotments for purposes of determining whether additional allotments are available under the Set-Aside," AEP Ohio said.

"In 2013 and 2014 the Tier 1 priced capacity set-asides will increase and the load of customers in governmental aggregation initiatives will have the same access to those set-asides as individual shopping customers," AEP Ohio said.

As part of offering a limited amount of discounted capacity to retail suppliers, AEP Ohio is seeking to charge a nonbypassable Retail Stability Rider (RSR), which is designed to achieve a level of non-fuel generation revenues similar to the level collected by AEP Ohio in 2011. The rider would be in place through May 31, 2015.

As an alternative to the two-tiered capacity charge and Retail Stability Rider, AEP Ohio said that a shopping credit mechanism could be established instead. Under this alternative, all capacity provided to retail suppliers would be priced at $355.72/MW-day.

Under this alternative, a limited amount of shopping credits would be provided directly to competitively served customers through December 2014. "This option would allow for Ohio customers to experience the true benefits of shopping and the market, but will directly limit the margins of the CRES [competitive] providers and of AEP Ohio," AEP Ohio said.

Specifically, the alternative would award a shopping credit of $10/MWh to customers on a first come, first served basis by customer class for up to 20% of the load for each customer class from June 2012-May 2013, 30% of the load for each customer class from June 2013-May 2014, and 40% of the load for each customer class from June 2014-December 2014. A cap of $350 million for shopping credits would also apply.

AEP Ohio also proposed a nonbypassable Generation Resource Rider (GRR) for any ratebased generation developed by the utility. The rider would be a placeholder until any such generation is approved; AEP Ohio is seeking approval to build the Turning Point solar facility in a separate proceeding. Aside from Turning Point, "[t]he Company has no plans for additional capacity additions under this provision," AEP Ohio said.

The ESP includes various tariff changes meant to facilitate retail choice including the addition of customer Peak Load Contribution (PLC) and Network Service Peak Load (NSPL) information to the Master Customer List; the elimination of the current 90-day notice requirement that certain customers must provide before enrolling with a CRES provider, the elimination on January 1, 2015 of the current 12-month minimum stay requirement that applies to certain large commercial and industrial customers that return to the SSO; and the elimination on January 1, 2015 of the current requirement for residential and small commercial customers that return during the summer to remain on the SSO until April 15th of the following year.