Ohio Further Defers Collection of Certain AEP Ohio Capacity Costs, Clouding Retail Market; Approves Accelerated Auction for Portion of SSO Load

The Public Utilities Commission of Ohio's order on AEP Ohio's electric security plan issued this afternoon does not fully address the recovery of deferred capacity costs at AEP Ohio, and also includes an accelerated use of auctions to procure a significant portion of default service load.

The ESP covers the period through May 31, 2015. Link to ESP Order (11-0346-EL-SSO)

As previously reported, PUCO has deferred collection of the difference between AEP Ohio's authorized capacity charge of $188.88/MW-day, and the charge that it is allowed to collect from retail suppliers, which is only the RPM-price (currently about $20/MW-day). While the current application of the RPM price supports migration to competitive supply, the collection of future deferrals, and whether such deferrals are solely allocated to shopping customers, remains a cloud over the long-term viability of the competitive retail market at AEP Ohio.

PUCO did not fully resolve this question in today's ESP order.

PUCO did approve a nonbypassable Retail Stability Rider (RSR) for AEP Ohio, which is designed to achieve a level of non-fuel generation revenues similar to the level collected by AEP Ohio in 2011.

As part of the revenues collected under the Retail Stability Rider, PUCO ordered AEP Ohio to pay down a portion of the deferred capacity costs; however, it is contemplated that at the end of the term of the ESP, there will still be capacity deferrals remaining.

Specifically, PUCO ruled that AEP Ohio is authorized to collect a nonbypassable RSR of $3.50/MWh through May 31, 2014, and an RSR of $4/MWh for the period June 1, 2014 to May 31, 2015. The upward adjustment by 50 cents to $4/MWh reflects the Commission's modification to expedite the timing and percentage of the SSO wholesale energy auction beginning on June 1, 2014 (discussed further below).

Of the $3.50/MWh and $4/MWh RSR recovery amounts, AEP Ohio must allocate $1.00 towards AEP Ohio's capacity deferral recovery. "At the conclusion of the modified ESP, the Commission will determine the deferral amount and make appropriate adjustments based on AEP-Ohio's actual shopping statistics and the amount that has been collected towards the deferral through the RSR, as necessary."

"[A]lthough this Commission is generally opposed to the creation of deferrals, the extraordinary circumstances presented before us, which allow for AEP-Ohio to fully participate in the market in two years and nine months as opposed to five years, necessitate that we remain flexible and utilize a deferral to ensure we reach our finish line of a fully-established competitive electric market," PUCO said.

"In order to ensure this order does not create a disincentive to shopping, at the end of the term of the ESP, AEP-Ohio shall file its actual shopping statistics in this docket. To provide complete transparency as well as to allow for accurate deferral calculations, AEP-Ohio should maintain its actual monthly shopping percentages on a month-by-month basis throughout the term of this modified ESP, as well as the months of June and July of 2012," PUCO said.

"All determinations for future recovery of the deferral shall be made following AEP-Ohio's filing of its actual shopping statistics,", PUCO added, meaning there remains no market certainty on which customers -- shopping, non-shopping, or both -- will ultimately be allocated any remaining costs.

While in one sense the instant order, through the nonbypassable RSR, supports the retail market in not assigning the capacity deferral being collected now to retail supply customers alone (preserving headroom created by the use of the RPM price), it should be noted that under the nonbypassable RSR, shopping customers are also supporting frozen base generation rates for Standard Service Offer customers.

Auctions, Purchase of Receivables
PUCO generally endorsed AEP Ohio's contemplated transition to a fully market-based auction to serve non-shopping SSO customers's non-capacity requirements starting January 1, 2015, including the contemplated separation of the current utility-owned generation into a competitive affilate, but adopted an accelerated interim transition plan.

Specifically, while AEP Ohio had suggested conducting an energy-only, slice-of-system auction for 5% of SSO load for delivery prior to January 2015, PUCO increased the percentage to a 10% slice-of-system auction, to facilitate a smoother transition to a full energy auction. This auction shall occur upon the completion of AEP Ohio's pending corporate separation plan.

Furthermore, PUCO found that AEP-Ohio is capable of having an energy auction for delivery commencing on June 1, 2014.

"Therefore, we direct AEP-Ohio to conduct an energy auction for delivery commencing on June 1, 2014, for 60 percent of its load, and delivery commencing on January 1, 2015, for the remainder of AEP-Ohio's energy load," PUCO said.

In other words, 60% of SSO load will be sourced from auction starting June 1, 2014, and 100% of SSO load will be sourced from auction starting January 1, 2015.

Auction structure details will be addressed in a future proceeding, but PUCO encouraged AEP Ohio to review the mechanism at Duke Energy Ohio.

Regarding Purchase of Receivables, since AEP-Ohio explained that it neither supports nor is opposed to the idea of a POR program, PUCO encouraged interested stakeholders to attend the previously reported workshop in conjunction with the five year rule review of Chapter 4901:1-10, O.A.C., as established in Case No. 12-2050-EL-ORD et al, to be held on August 31, 2012.

"[W]e believe this workshop would also provide stakeholders in this proceeding an opportunity to further discuss the merits of establishing POR programs for other Ohio EDUs that are not currently using them," PUCO said.

PUCO also directed AEP Ohio to develop an electronic system to provide retail electric providers with access to pertinent customer data, including, but not limited to, PLC and NSPL values and historical usage and interval data no later than May 31, 2014. PUCO further directed AEP Ohio to work with stakeholders to develop a roadmap towards developing an EDI that will more effectively serve customers, and promote state policies in accordance with Section 4928.02, Revised Code.

Other Issues
Under PUCO's order, AEP Ohio's non-fuel base generation rates will be frozen at the December 2011 level, plus the level of the Environmental Investment Carrying Charge Rider at that time, until all rates are established through a competitive bidding process.

Furthermore, PUCO invited proposals to mitigate any potential adverse rate impacts for customers upon SSO rates being set by auction, due to concerns about disproportionate rate impacts on customers when class rates are set by auction. The Commission reserved the right to implement a new base generation rate design on a revenue neutral basis for all customer classes at any time during the term of the modified ESP.

Additionally, "[i]n order to ensure no customers are unduly burdened by any unexpected rate impacts, as well as to mitigate any customer rate changes, we direct AEP-Ohio to cap customer rate increases at 12 percent over their current ESP I rate plan bill schedules for the entire term of the modified ESP, pursuant to our authority as set forth in Section 4928.144, Revised Code. The 12 percent limit shall be determined not by overall customer rate classes, but on an individual customer by customer basis. The customer rate impact cap applies to items approved within this modified ESP. Any rate changes that arise as a result of past proceedings, including any distribution proceedings, or in subsequent proceedings are not factored into the 12 percent cap. Further, the 12 percent cap shall be normalized for equivalent usage to ensure that at no point any individual customer's bill impacts shall exceed 12 percent. On May 31, 2013, AEP-Ohio should file, in a separate docket, a detailed accounting of its deferral impact created by the 12 percent rate cap. Upon AEP-Ohio's filing of its deferral calculations, the attorney examiners shall establish a procedural schedule, to consider, among other things, the deferral costs created, and the Commission will maintain the discretion to adjust the 12 percent limit, as necessary, throughout the term of the ESP," PUCO said.

Bypassable FAC (fuel) rates will continue to be adjusted under the current mechanism, and shall continue on a separate rate zone (OP, CSP) basis. A new bypassable alternative energy rider will recover REC costs previously included in the FAC.

PUCO adopted a Pool Termination Rider, set at zero, for certain costs associated with AEP Ohio exiting the AEP pool as part of its generation separation. AEP Ohio proposed the rider as nonbypassable, and PUCO's order was silent regarding the bypassability of the rider. PUCO did not authorize any costs under the rider at this time, and any costs would only arise if PUCO modifies or rejects AEP Ohio's corporate separation plan as filed.

PUCO also approved a nonbypassable Generation Resource Rider (GRR), set at zero until costs are authorized, for any new ratebased generation developed by AEP Ohio (specifically with an eye towards the Turning Point solar facility).

The statute allowing the nonbypassable rider provides that the electric utility must dedicate the energy and capacity from the generation to Ohio consumers. "AEP-Ohio has represented that any renewable energy credits will be shared with CRES providers proportionate with such providers' share of the load. Accordingly, as long as AEP-Ohio takes steps to share the benefits of the project's energy and capacity, as well as the renewable energy credits, with all customers, we find that the GRR should be nonbypassable," PUCO said.