AEP Sees Opportunity for Long-Term Contracts to Serve Ohio Load, Touts SSO Savings Versus PJM

AEP sees an opportunity for long-term contracts to provide rate stability to Ohio customers while supporting existing generation.

"Ohio certainly needs to take notice in my opinion of what happened during the polar vortex, and I would have to say that there is discussion going on relative to how Ohio would deal with that in the future," AEP CEO Nicholas Akins said during a Friday earnings call.

"Because it's a clear indication that we really do need to think about a portfolio for Ohio customers that has a long-term component and a short-term component to it and customers are continued to allow the switch," Akins said.

Akins noted that AEP Ohio's electric security plan proposal for the period starting June 1, 2015 contains a nonbypassable PPA rider to allocate costs/credits for its entitlements in the Ohio Valley Electric Corporation (OVEC), which could not be divested, with all entitlements sold into the PJM market and not used in the SSO auction or to serve SSO load.

"And you could see some expansion of that PPA to accommodate other generation resources within the state, and that would be a way to address at least some portion of the overall requirements of Ohio customers that could be served with a long-term formula-based rate contract that could supply some of those needs," Akins said.

"[W]e see it as something that could be done under the current [market design] construct as evidenced by our PPA arrangement that we filed in our ESP filing late last year. We believe that could be done and customers could continue to choose, although in all likelihood the long-term PPAs would be a non-bypassable charge or something like that, that would benefit Ohio in total, but at the same time allow customers to continue to shop and choose suppliers," Akins said.

AEP said that its AEP Ohio SSO customers saved $132 million through their tariffed SSO rates versus the PJM day-ahead market during the first quarter.

AEP reported that shopping in its Ohio utility territory is in the upper 60% range right now, and the company expects shopping to reach about 71% by year-end.

AEP also said that it is not passing on PJM uplift costs from the first quarter to its competitive retail supply customers at AEP Energy. Executives said that AEP Energy did have a "misstep" where some customers started to see those charges be passed through, but AEP Energy has gone back and corrected that, and is not passing on such incremental charges.