AEP Ohio Seeks to Suspend Supplier Agreement with Retail Supplier, Supplier Files Complaint Over AEP Ohio's "Unreasonable" Credit Policies

AEP Ohio has filed a request at the Public Utilities Commission of Ohio to suspend its Electric Distribution Company/Competitive Retail Electric Service Provider Agreement (supplier agreement) with FirstEnergy Solutions Corp., as AEP Ohio alleged that FirstEnergy Solutions has failed to post additional collateral required after exceeding an unsecured credit limit.

FirstEnergy Solutions countered by filing a complaint at PUCO arguing that AEP Ohio's credit policies are unjust and unreasonable, and asking that AEP Ohio be enjoined from suspending FES' supplier agreement.

Specifically, AEP Ohio requested that, should FirstEnergy Solutions not provide the additional collateral within 10 days, the Commission should authorize AEP Ohio to immediately suspend the EDU/CRES Agreement with FES until FES fulfills its collateral obligations.

During the suspension, AEP Ohio said that the Commission should order FES to continue providing all services it is obligated to provide under contract to its existing customers, but order FES, "not advertise to, offer, or contract to provide any new CRES to existing customers nor advertise, offer, or contract to provide any CRES to potential customers within AEP Ohio's service territory during the suspension."

If, after 30 days, FirstEnergy Solutions has not provided the additional collateral, AEP Ohio said that the Commission should then, "suspend, rescind, or conditionally rescind FES's CRES certificate for failure to maintain sufficient financial security with an electric utility as required by O.A.C. 4901:1-24-08 or because the Commission finds that FES otherwise failed in a material way to adhere to requirements contained in an electric utility's tariff governing supplier requirements approved by the Commission (O.A.C. 4901:1-24-12)."

FirstEnergy Solutions filed a complaint with PUCO arguing that AEP Ohio's practices with regard to CRES provider credit requirements are, "unjust and unreasonable."

FirstEnergy Solutions sought an order from the Commission enjoining AEP Ohio from seeking to suspend FES' ability to supply retail electric service to existing and new customers in AEP Ohio's service territory, and declaring that FES need not provide further security to AEP Ohio in connection with FES' services in AEP Ohio's territory until such time as just and reasonable credit requirements are instituted.

FirstEnergy Solutions called AEP Ohio's credit requirements for CRES providers, "arbitrary and unnecessarily onerous," and said that AEP Ohio's credit requirements, "do not properly reflect the actual financial risk posed by CRES providers to AEP Ohio."

Specifically, AEP Ohio said that FES triggered the need for collateral in April 2013 when FES exceeded its maximum unsecured credit limit of $30,000,000. The amount of additional collateral requested is confidential.

AEP Ohio limits unsecured credit as the lesser of a varying percentage of tangible net worth or varying capped monetary limits, depending on the supplier's (or its guarantor's) credit ratings.

FES noted that such limits are not expressly described in the CRES Provider Credit Requirements as contained in the supplier tariff (Sheet Nos. 103-27D through 103-44D), as the tariff rather provides that AEP Ohio will make available its credit requirements upon request.

FES further noted that the Credit Requirements further provide that a CRES provider "may appeal the Company's [AEP Ohio] determination of credit requirements to the Commission or seek Staff mediation as to any dispute."

Furthermore, FES alleged that, "[u]pon information and belief, AEP Ohio did not have any written document that outlined its credit requirements for CRES providers at the time AEP Ohio issued its demand to FES for additional collateral [on April 12, 2013]."

"AEP Ohio's lack of transparency and inability to identify written credit requirements that would apply to all CRES providers equally raised concerns regarding AEP Ohio's creation and application of its 'credit requirements,' including whether AEP Ohio's application of the 'credit requirements' was discriminatory," FES alleged.

FES said that on April 26, 2013, two weeks after AEP Ohio's initial demand for FES collateral, AEP Ohio produced a written credit policy and provided it to CRES providers, which listed the varying tangible net worth percentages and maximum unsecured credit limit values, which for FES implicated a maximum unsecured credit limit of $30,000,000.

According to FES, AEP Ohio's credit policy provided that a CRES provider's exposure would be calculated on an ongoing basis by multiplying the provider's actual highest monthly energy usage over a rolling 12-month period times the next July forward price at AEP Ohio's load zone. AEP Ohio would then deduct the unsecured credit limit from the CRES provider's overall "exposure" to identify the amount of security or collateral the CRES provider must provide AEP Ohio.

FES said that AEP Ohio has since amended the credit policy to apply a mixture of on- and off-peak July forward prices to calculate the "exposure" caused by a CRES provider.

Dockets 13-1427-EL-UNC, 13-1439-EL-CSS