FERC Orders Hearing to Review AEP Capacity Charge Which May Be "Substantially Excessive"

FERC has set for hearing and settlement judge procedures, suspending for the maximum five-month period, a proposed formula rate to establish the capacity rate charged to competitive service providers at Appalachian Power Company (AEP) in Virginia.

Appalachian Power Company had applied to institute a formula rate template under Section D.8 of Schedule 8.1 to the PJM Interconnection, L.L.C. (PJM) Reliability Assurance Agreement (RAA), to calculate compensation for capacity made available to competitive service providers (CSPs) by APCO in accordance with the Fixed Resource Requirement (FRR) Alternative of the PJM Reliability Pricing Model (RPM).

The PJM tariff allows Fixed Resource Requirement entities to seek a FERC-set capacity compensation rate in cases where a state regulator has not set such a rate (Virginia has not established a state compensation mechanism)

Under Appalachian Power's proposed formula, the capacity charge applied to retail suppliers would currently be $478.53844/MW-day, but would be updated on June 1, 2013 consistent with the formula nature of the rate.

FERC found that the proposed formula rate template, "raises issues of material fact that cannot be resolved based on the record before us and are more appropriately addressed through an evidentiary hearing."

"Based upon a review of this filing, the Commission finds that the proposed tariff language has not been shown to be just and reasonable, and may be unjust, unreasonable, unduly discriminatory, or otherwise unlawful," FERC said.

FERC therefore accepted the rate for filing, suspended the tariff revisions for a five-month period, to be effective July 9, 2013, subject to refund, and to the outcome of hearing and settlement judge proceedings.

FERC said that the maximum suspension period was appropriate because, "preliminary analysis in this proceeding indicates that the proposed rate may be substantially excessive."

In its filing, AEP noted that Virginia's electric choice program is limited to any non-residential customer or group whose peak annual demand is no less than 5 MW but no more than 1 percent of the incumbent utility's load. Statute provides an exception to the 1 percent native load limit for customers with demand of 90 MW or greater, and an exception to the 5 MW threshold for customers who purchase their entire load from renewable energy.

To date, there has been no CSP load in the APCO Virginia service territory, AEP reported.

AEP's filing was protested by Collegiate Clean Energy LLC, which said that AEP's filing would, "frustrate development of Virginia retail competition."

As only reported by Matters, Collegiate Clean Energy is a start-up retail supplier, owned by several companies involved in renewable generation development and ownership, which has been licensed in several states including Virginia and Maryland.

Specifically, Collegiate Clean Energy argued: (1) the RAA does not entitle APCO to a capacity charge based on fully distributed embedded costs; (2) the proposed formula rate contains allocation factors, cost items and cost classifications which are not adequately explained; (3) automatic annual updates do not require a section 205 FPA filing which places the burden of proof on APCO customers; (4) the filing fails to justify allocation of APCO capacity between its retail and wholesale loads within Virginia; and (5) the proposed 10.4 percent ROE may be high given the relative risk between wholesale and retail sales.

Docket No. ER13-539