Ohio Commission: Non-shopping Customers "Entitled" to "Price Stability," Adopts 36-Month Laddering of Default Service Contracts at FirstEnergy EDCs

The Public Utilities Commission of Ohio adopted, without substantive modification to provisions related to the retail market, a non-unanimous stipulation to extend the current FirstEnergy Ohio utilities' electric security plan for an additional two years, from June 1, 2014 to May 31, 2016 (ESP 3).

As previously reported, the contested stipulation now adopted by PUCO would maintain a mix of 12, 24 and 36 month contracts to serve all default service customer classes, excluding Percentage of Income Payment Plan customers (each contract term length would make up about one-third of the SSO portfolio). As done currently, descending clock auctions for full requirements service will be held twice annually for SSO supply of varying term lengths to create the staggered portfolio.

Specifically, 36-month contracts are to be procured in October 2012 and January 2013 to supply about one-third of default service load during the period June 1, 2013 through May 31, 2016 (the final year of the current ESP and then the term of ESP 3).

The Commission adopted the 36-month laddering, agreeing that, "the laddering of products in order to smooth out generation prices, mitigating the risk of price volatility, will benefit ratepayers and the public interest."

"[T]he Commission believes that future price uncertainty makes laddering of products in order to mitigate volatility an even greater benefit for ratepayers," PUCO said.

While the Ohio Consumers' Counsel and Citizen Power noted that customers could achieve price stability by purchasing power in the market from a competitive provider, "the Commission believes that non-shopping customers are also entitled to receive the benefit of price stability."

PUCO said that the adopted ESP would provide for, "stable and predictable rates, established by a competitive procurement process and use of laddered auction products to lower the volatility of prices for customers during both the last year of ESP 2 and the period of the ESP 3."

Furthermore, PUCO considered the ESP superior to a market-rate offer due to, among other things, "modification of the bid schedule to provide for a three-year product in order to capture current lower market-based generation prices and blend them with potentially higher prices in order to provide rate stability."

However, the most dangerous conclusion in PUCO's order, for the retail market, is its decision to mitigate the FirstEnergy Ohio utilities' renewable energy compliance costs for default service customers. While rate mitigation for default service customers is nothing new in Ohio, in this instance it is specifically the conclusion by PUCO that its mitigation is "competitively neutral" that is disturbing, if such conclusion is applied as precedent in the future.

Specifically, the adopted ESP extends the recovery period for renewable energy credit costs over the life of the ESP 3 plan, "in order to lower the [bypassable] rider charge that otherwise would have been in place for customers related to compliance with the statutory benchmarks for renewable energy resources."

PUCO said that this extended recovery (or deferral) of default service renewable compliance costs, "is an appropriate method to mitigate rate impacts on customers related to the costs for the Companies' compliance with statutory renewable energy requirements."

"As stated in our discussion of the proposed changes to the competitive bid process, the Commission believes that mitigating the risks of price volatility and smoothing of prices is a benefit for ratepayers and is in the public interest. Further, the Commission finds that the mitigating effects of this benefit outweigh the potential carrying costs," PUCO said.

With respect to arguments from retail suppliers that extension of the renewable compliance costs recovery period will artificially lower the utilities' price-to-compare and inhibit shopping, "the Commission finds that, as argued by FirstEnergy, CRES [competitive] providers are not prohibited from seeking to extend the period for recovery of alternative energy compliance costs to lower their own prices. Consequently, the Commission finds that the extension of the recovery period for renewable energy credits is competitively neutral."

Of course, unlike a default service provider, a retail supplier deferring renewable energy costs has no guarantee that it will be able to collect such costs in the future.

In a news release, FirstEnergy Corp. said that stretching out the recovery period for costs associated with purchasing renewable energy credits mandated by Senate Bill 221, "will reduce the monthly renewable energy charge for all FirstEnergy Ohio utility customers by spreading out the costs over the entire ESP period." [emphasis added]

As customers on competitive supply are also FirstEnergy Ohio utility customers as they take distribution service from the utility, it was not clear on what basis the statement can be made that the renewable energy charge will be reduced for all FirstEnergy Ohio utility customers.

Additional Coverage of the ESP order:
Ohio Commissioner Roberto Urges Review of Adequacy of FirstEnergy Corporate Separation

Ohio to Review Payment Priority for Competitive Supply, Utility Receivables

Ohio Commission Continues to Be Concerned with RPM Capacity Market