Can of Worms: Duke Energy Ohio Seeks Increase in Authorized Capacity Costs

Duke Energy Ohio has filed an application at the Public Utilities Commission of Ohio to increase the level of capacity costs that it is permitted to collect, with the increase deferred for future recovery.

Duke Energy Ohio currently provides capacity for all load within its territory as a Fixed Resource Requirement entity -- an obligation that continues through May 1, 2015. This obligation is met through generating plants currently owned by Duke Energy Ohio but which are to be transferred to a competitive affiliate under a pending corporate separation.

"Duke Energy Ohio is currently receiving, for the capacity it self-supplies as an FRR entity, only the auction-based final zonal capacity price (FZCP) in effect for the rest of the PJM region for the current PJM delivery year," Duke Energy Ohio said [emphasis added].

The FZCP is charged to retail suppliers and wholesale suppliers serving default service load.

Nowhere in the application does Duke Energy Ohio explicitly mention the Electric Service Stability Charge (ESSC) Rider, approved as part of the electric security plan, which set the capacity charge paid to Duke Energy Ohio as the FZCP. The Electric Service Stability Charge allows Duke Energy Ohio to collect, on a nonbypassable basis, $330 million, which, according to the ESP stipulation signed by Duke Energy Ohio and as quoted by PUCO in adopting the ESSC, is an amount intended to, "provide stability and certainty regarding Duke Energy Ohio's provision of retail electric service as an FRR entity while continuing to operate under an ESP." [emphasis added].

In any event, Duke Energy Ohio requested that the Commission determine that the compensatory rate for capacity services associated with its FRR obligations is $224.15/MW-Day, calculated using the formula that the Commission adopted at AEP Ohio. Duke Energy Ohio sought that such charge apply for the duration of the company's commitment as an FRR entity.

Given that Duke Energy Ohio is only authorized to collect the FZCP, Duke Energy Ohio sought to defer the difference between the sought $224.15/MW-Day and the FZCP. Duke Energy Ohio submits that, for the remaining term of its FRR plan, the average FZCP will approximate $66.06/MW-Day. Therefore, reducing the company's capacity cost by the estimated amount charged to retail and wholesale suppliers yields an incremental difference of approximately $158.08/MW-Day.

Duke Energy Ohio does not propose to modify the capacity charge which applies equally to retail suppliers and wholesale suppliers serving default service load, which would continue to be the FZCP for the duration of the FRR plan. Accordingly, existing retail contracts and pricing would not be implicated, and there would not be an impact on the Price to Compare.

The deferred capacity costs, to be collected under Rider Deferred Recovery - Capacity Obligation (Rider DR-CO), would, as proposed by Duke Energy Ohio here, be collected on a nonbypassable basis directly from customers.

Rider DR-CO would initially be set at zero and would be adjusted, initially, through an application filed no later than March 1, 2013. Through such proceeding, the Commission would approve the establishment of a rate that would allow for the collection of $258 million per year for three years, Duke Energy Ohio proposed. As the FZCP and the PJM load for subsequent PJM planning years become known, Duke Energy Ohio proposes to adjust that rate through an annual filing.

Since Duke Energy Ohio arrived at its proposed charge using the formula previously adopted by PUCO for the state compensation mechanism at AEP Ohio, it said that its application should be approved without a hearing.