AEP Ohio Files Proposal to Recover Default Service Auction Prices, Costs Through Retail Rates

Ohio Power Company (AEP Ohio) submitted a proposal to PUCO to recover costs from its forthcoming default service energy auctions through retail rates.

While AEP Ohio previously proposed the format and framework for the auction, it deferred a proposal for recovering auction prices and costs through retail rates pending a rehearing order on its electric security plan.

See prior story for format of auction, transition to full auction-based SSO, and blending

Specifically, AEP Ohio said that there are two categories of auction-related costs that AEP Ohio seeks to fully recovery through retail SSO rates: (i) auction clearing prices for all of the tranches purchased under auctions resulting in delivery of 10%, 60% and 100% of SSO energy mandated by the ESP II Opinion and Order and Rehearing Order, and (ii) prudently-incurred costs of conducting the energy auctions, including but not limited to the auction manager/consultant fees, stakeholder process incidental expenses, costs of default and contingency plans associated with the energy supply contracts, balancing charges incurred in administering the energy supply contracts, and incremental internal costs incurred by AEP Ohio in conducting the auctions.

Additionally, in order to blend the auction-clearing energy prices with AEP Ohio's generation rates, AEP Ohio said that it is necessary and appropriate to first unbundle the FAC (Fuel Adjustment Clause) into fixed/non-energy and variable/energy rate components.

Both unbundled FAC components would continue to be computed on a rate zone basis and adjusted quarterly, consistent with the current FAC practice. The rates would also continue to be different by rate zone and service voltage.

Once the FAC is unbundled into separate rate components (for each FAC rate zone), the unbundled Energy (Variable) component would be blended with the clearing prices from the energy auctions in order to produce a retail SSO energy rate that reflects the appropriate combination of energy costs of AEP Ohio. The unbundled Non-Energy (Fixed) component of the FAC will be included in a new Fixed Cost Rider and includes FAC costs not otherwise comparable to elements of the default service energy auction (including certain capacity costs).

The Fixed Cost Rider would apply through May 31, 2015. The Fixed Cost Rider should continue to be charged throughout the ESP term, as those costs are not diminished or otherwise affected by procurement of energy through the CBP auction process, AEP Ohio said.

In short, the total SSO rates paid by non-shopping customers will include three basic rate components during the transition period: base (non-fuel) generation rates, the Fixed Cost Rider, and the Auction Phase-In Rider (with the Auction Phase-In Rider reflecting a blend of auction energy prices, auction costs, and the energy-based FAC charges).

During the delivery period for both the 10% and 60% energy auctions (i.e., through December 31, 2014), current base generation rates would continue to be charged. In accordance with the ESP II Rehearing Order, base generation rates during the 100% energy auction delivery period (i.e., January through May 2015) would be adjusted to reflect capacity costs of $188.88/MW-day.

Regarding recovery of the prudently incurred costs from conducting the energy auctions other than the auction clearing prices, those costs would also be recovered (on a levelized basis during the delivery period of all three energy auctions) through the Auction Phase-In Rider. Such costs are estimated at $2.3 million.