Ohio Industrials Propose Use of Average RPM Rate for Capacity at AEP Ohio

The Ohio Energy Group, composed of several large industrial customers, has proposed in AEP Ohio's electric security plan proceeding that the capacity charge applicable to competitive retail suppliers taking capacity from AEP Ohio under the Fixed Resource Requirement should equal the average price of RPM over the nearly three-year term remaining in the FRR.

The Ohio Energy Group includes AK Steel Corporation, Aleris International, Inc., Amsted Rail Company, Inc., ArcelorMittal, USA, BP-Husky Refining, LLC, E.I. DuPont de Nemours & Company, Ford Motor Company, GE Aviation, Procter & Gamble Co., Linde, Inc., Praxair Inc., RG-Steel, The Timken Company and Worthington Industries.

In testimony in the ESP case (11-346-EL-SSO), the Ohio Energy Group recommended that the Commission use a three year average of the RPM capacity rates over the next three PJM planning years as the basis for the capacity charge applicable to retail suppliers, rather than using the annual RPM rates, "in order to mitigate any financial harm to the Company [AEP Ohio] during the next two planning years."

The blended capacity rate using a simple average over the next three planning years is $69.20/MW-day. This is more than triple the RPM capacity rate for the 2012/2013 planning year, nearly double the rate for the 2013/2014 planning year, and less than half of the rate for the 2014/2015 year.

For comparison, the actual annual RPM capacity prices are $20.01/MW-day for 2012/2013, $33.71/MW-day for 2013/2014, and $153.89/MW-day for 2014/2015. AEP Ohio is seeking a fixed Tier 1 capacity charge of $145.79/MW-day (available to a limited amount of load) and Tier II capacity charge of $255.00/MW-day over the term of the ESP.

See prior story for the limited amount of load eligible for the Tier 1 capacity charge

Most commercial and industrial customers filing testimony, however, supported using the actual RPM price for capacity provided to retail suppliers.

The OMA Energy Group [Ohio Manufacturers' Association] said that AEP Ohio should revert back to using the PJM market rate as the state capacity cost compensation mechanism. The OMA Energy Group presented testimony from several individual customers, including Whirlpool, which said, "After facing years of increased rates from AEP-Ohio, the latest ESP seems designed to force customers like Whirlpool to continue purchasing electricity from AEP-Ohio."

"[W]hen AEP-Ohio’s proposal is viewed in the larger context, we feel like AEP-Ohio used the PJM RPM to price capacity when the PJM rates were above AEP-Ohio's costs but, now, when the PJM RPM auction prices are at historic lows, AEP-Ohio is using 'costs' to justify rate increases," Belden Brick Company said in testimony on behalf of the OMA Energy Group.

Industrial Energy Users-Ohio also opposed the two-tier capacity structure, stating, "it also appears that the proposed two-tiered CRES capacity price is designed to allow AEP-Ohio to capture most of the generation service bill reduction benefits that consumers would see by switching to a competitive supplier, including the affiliated CRES provider AEP Retail Energy Partners LLC."

IEU-Ohio also said that, "charging CRES providers the proposed two-tiered price for capacity would not result in the generation capacity service and price applied to CRES providers being comparable to the charge for capacity embedded in the default generation supply price embedded in the SSO."

"There is no explicit capacity charge in the SSO rates. Further, as shown on Exhibit KMM-14, when specifically requested in Case No. 10-2929-EL-UNC to identify the capacity component of its SSO rates, AEP-Ohio could not or chose not to do so. Thus, it is impossible to identify whether the proposed capacity charges that AEP-Ohio wants to impose on CRES providers is comparable to the capacity-related charge embedded in the default generation supply portion of the SSO prices," IEU-Ohio said.

The Ohio Consumers' Counsel opposed tiered capacity pricing, but did not endorse a price in the ESP case, instead stating that the capacity charge should be the price as determined in the capacity charge case. However, to the extent the capacity charge is set at the embedded cost of capacity in the capacity charge case, OCC did support the issuance of shopping credits to competitive supply customers. "In that event, the shopping credit should be set at the expected margin from wholesale sales of energy from the Company's generating resources freed up by the migration of SSO customers to competitive retail supply," OCC said.

OCC, industrials, and others also said that AEP Ohio's electric security plan (ESP) fails the statutory test to be more favorable in the aggregate than a Market Rate Offer (MRO), and therefore must be rejected.

OCC said that, using a $145.79/MW-Day capacity charge, AEP Ohio's Modified ESP is less favorable than the MRO price by $50.0 million.

IEU-Ohio presented an analysis showing that the modified ESP is less favorable than an MRO by $330 million between June 2012 and December 2014 for SSO customers. During the period between January 2015 and May 2015 when AEP-Ohio proposes to conduct an energy-only auction to secure SSO generation supply, the modified ESP is less favorable than an MRO by an additional $77 million for SSO customers, IEU-Ohio said.

FirstEnergy Solutions said that the modified ESP would result in excess costs to the AEP Ohio zone as compared to an MRO -- ranging from $400 million to $1.3 billion under a range of reasonable assumptions

In particular, FES noted that AEP Ohio continues to claim $989 million of "quantifiable benefits" from "discounted, tiered capacity pricing" in the Aggregate MRO Test, "even though it is inappropriate to do so and the Commission has stated that this cannot be considered a benefit of the proposed ESP."

"Correcting for this one error alone would reverse the Company's overall conclusion and demonstrate that, according to the Company's own analysis, there are no net 'quantifiable benefits' under the Aggregate MRO Test," FES said.

FES also said that AEP Ohio overstates the Competitive Benchmark Price component of the MRO Price by failing to use a market-based capacity price, and that AEP Ohio also understates the Modified ESP price by ignoring the costs associated with the proposed non-bypassable riders.

Retail suppliers, including Direct Energy, Constellation NewEnergy, IGS Energy, and the Retail Energy Supply Association separately presented testimony seeking various retail market enhancements, including POR, and other enhancements sought in prior testimony.