Ohio Staff Recommend Faster Transition to Fully Auction-Based SSO at Dayton Power & Light

Staff of the Public Utilities Commission of Ohio have recommended a three-year electric security plan at Dayton Power & Light, with an accelerated transition to fully auction-based default service.

Specifically, Staff's three-year ESP would cover the period June 2013 to May 2016, with 100% of SSO supplies procured via an auction for the period beginning June 1, 2015.

For the period June 2013 to May 2014, SSO would be a blend of 40% auction and 60% tariffed rates, and for the period June 2014 to May 2015, SSO would be a blend of 60% auction and 40% tariffed rates.

Staff would procure a mix of 12, 24 and 36-month contracts in the SSO auctions. The specific portion of SSO load served by each contract type can be found here (page 9).

In contrast, DP&L had proposed an ESP covering the period through December 31, 2017, with 100% auction-based SSO starting in June 2016. DP&L's transition to fully auction-based SSO included an initial auction to serve 10% of SSO load starting in early 2013, with the auction-based portion of SSO increasing to 40% in June 2014, 70% in June 2015, and 100% in June 2016.

Staff said that its revised auction schedule, "has a benefit of accelerating the move toward market pricing, with higher percentages of market pricing at earlier times during the term of the ESP."

"This will help assure that SSO ratepayers will receive a greater proportion of the benefits of the lower market pricing earlier in the ESP than under the schedule proposed by the Company," Staff said.

Staff said that all costs from the competitive bid auction process should be bypassable, including all administrative costs of the auction. DP&L had proposed making such administrative costs nonbypassable

"Staff recommends that the CBP auction cost should be recoverable in a new proposed bypassable reconciliation rider, because the CBP auction is intended to procure generation cost for SSO service. Shopping customers do not receive any benefit or services from the auction process and thus should not have to pay for those costs," Staff said.

DP&L had also proposed to make nonbypassable remaining balances, that exceed 10%, of currently bypassable riders that will be phased out with the move to fully auction-based SSO (FUEL, RPM, TCRR-B, AER and CBT). Staff opposed granting nonbypassable status to such costs at this time, but did say that the company should be allowed to petition the Commission at the end of the ESP term to true-up any over or under recovery of those riders at that time. "If at the end of the SSO the Company has a significant balance in the stated riders and/or they are experiencing the 'death spiral', the Company should be able to apply for recovery of those costs, as determined by the Commission, at that time," Staff said.

Regarding the auction process, Staff said that DP&L should not be allowed to participate in the auctions during the period in which the nonbypassable Service Stability Rider is in place. The Service Stability Rider is a nonbypassable rider sought by DP&L which it said is necessary to ensure its financial integrity during the transition to market-based SSO. Staff recommends that the nonbypassable SSR be in place through May 2016, at an annual charge of $133 million.

Staff said that DP&L's participation in the auction while the SSR is in place could chill participation by competitors, "because of the potential perception by other bidders that they would be bidding against subsidized generation resources, because of revenue that DP&L would receive through the Service Stability Rider (SSR)."

Additionally, Staff recommended that any SSR revenues be required to remain with DP&L, and not transferred to any of DP&L's current, or future-formed, affiliates or subsidiaries.

While Staff recommends approval of a three-year ESP, Staff noted that such approval will need to be based on an evaluation of qualitative benefits or additional modifications, because its analyses found that a variety of ESPs with different lengths and terms are not more favorable than a Market Rate Offer on a quantitative basis. "To change the outcome in order to ensure that the ESP is more favorable in the aggregate than an MRO, the Commission can either reduce the SSR rate proposed by Staff, conclude that the Staff-projected market rates are too high, and/or consider other qualitative benefits of the ESP."

Staff opposed DP&L's proposed switching tracker mechanism, which was to be rolled into the SSR and compensate DP&L for lost revenue for customer switching above a baseline of 62%.

"The concept of a switching tracker mechanism, in Staff's opinion, is anticompetitive, and violates the spirit of several of the state policy goals set forth in R.C. 4928.02," Staff said. "The Company is asking the Commission to grant them a recovery mechanism for losses in retail generation sales to CRES providers. Retail generation service has been deemed competitive for more than ten years in Ohio. For the Company to be asking for relief from the Commission for a service that has been deemed competitive for more than a decade in Ohio is, in Staff's opinion, based on flawed logic."

Moreover, "DP&L's unregulated affiliate, DPL Energy Resources (DPLER), is a significant CRES provider in DP&L's service area. A request for relief by DP&L for lost retail sales to its unregulated affiliate, DPLER, is an unreasonable request at best," Staff said.

Staff also sought to end certain treatment currently granted under DP&L's fuel rider (which will remain in place during the blending of auction and tariffed rates).

DP&L has proposed that the fuel rider be calculated on a system average cost methodology rather than the current least cost methodology. Staff opposed this request, saying that it would raise costs for SSO customers.

The system average cost methodology essentially develops an average fuel cost across the entire DP&L energy supply, including SSO (jurisdictional) and non-SSO (non-jurisdictional) load. The least cost approach starts with the same supply, but assigns the lowest cost supply sources to the retail load. "[T]he system average cost methodology will result in higher than necessary rates to SSO customers as a result of SSO customers subsidizing non-SSO customers," Staff said.

Additionally, Staff sought to exclude the load of DPL Energy Resources (DPLER), DP&L's retail supplier affiliate, from the least cost bucket. Such load is included in the least cost bucket under the current ESP.

"Staff recommends not continuing this provision on a going-forward basis due to the cross-subsidization concerns mentioned earlier."

Staff said that the costs of certain competitive retail market enhancements proposed by DP&L (largely related to EDI, billing, and customer information, see prior story for more detail, notably the enhancements do not include POR) should be chiefly assigned to retail suppliers, with additional costs recovered from DP&L and customers (on a nonbypassable basis). Specifically, Staff said that retail suppliers should be assigned 60% of such costs, with 15% assigned to DP&L, and 25% to customers.

Costs have been estimated at $2.5 million, meaning retail suppliers' share would be $1.5 million. At 29 currently active suppliers, that would be about $52,000 per supplier.

Staff did not take a position on what, if any, competitive enhancements should be adopted.