Ohio Staff Recommend Changes to AEP Ohio Default Service Plan to Address 'Rate Volatility', Add 36-Month Contracts

Staff of the Public Utilities Commission of Ohio have proposed changes to the procurement of default service under AEP Ohio's proposed electric security plan covering the period starting June 1, 2015 to address "potential rate volatility."

AEP Ohio had proposed a mix of 12 and 24-month laddered contracts to serve SSO load. However, although AEP Ohio proposed to extend the electric security plan through May 31, 2018, AEP Ohio does not propose any overlap of contracts serving default service between the period ending May 31, 2017 and the 12-month period ending May 31, 2018. Instead, default service supply for the June 1, 2017 to May 31, 2018 period would be sourced 50% from a September 2016 auction and 50% from a March 2017 auction, with all contracts starting June 1, 2017.

AEP Ohio's specific bid schedule can be seen in our original story (click here). Staff said that it understands that AEP Ohio proposed the hard-stop on laddered contracts on May 31, 2017 to allow for a potential early termination of the electric security plan.

However, Staff said that this proposal would subject default service customers to, "uncertainty and potential rate volatility in both 2017 and 2018."

Staff therefore recommended that the mix of products be revised so that there would not be a 100% termination of contracts at May 31, 2017.

Staff would also introduce 36-month contracts to the procurement plan to achieve this goal. As noted above, the longest contracts proposed by AEP Ohio had been for 24 months.

Further, "in order to reduce the uncertainty and frequency of potential rate volatility occurrences over the long term," Staff recommends that the ESP should be extended for a longer period of 5 years, through May 31, 2020.

Staff's specific bid schedule for default service is below:

Auction    Product Term    Delivery         % of 
Date         Length          Start        SSO Load
Nov. 2014      12        June 1, 2015        17
Nov. 2014      24        June 1, 2015        17
Nov. 2014      36        June 1, 2015        16
Mar. 2015      12        June 1, 2015        17
Mar. 2015      24        June 1, 2015        17
Mar. 2015      36        June 1, 2015        16
Nov. 2015      36        June 1, 2016        17
Mar. 2016      36        June 1, 2016        17
Nov. 2016      36        June 1, 2017        17
Mar. 2017      36        June 1, 2017        17
Nov. 2017      24        June 1, 2018        16
Mar. 2018      24        June 1, 2018        16
Nov. 2018      12        June 1, 2019        17
Mar. 2019*     12        June 1, 2019        17

*This date is listed as March 2018 in a Staff exhibit, but Matters believes this to be a scrivener's error

Additionally, Staff believes that the creation of a new PJM pricing point, the AEP Ohio Load Zone, that better reflects the auction product would be an improvement to the auction procurement process and result in lower rates to customers.

AEP's proposed procurement auctions will require winning bidders to deliver electricity to the AEP Load Zone, as defined by PJM. AEP Ohio in its application recognizes that "at a time in the future it may be appropriate" to define a new pricing point to settle AEP Ohio load.

Citing modeling, Staff said that a new AEP Ohio Load Zone produced prices that were approximately 2% lower than the price of energy delivered to the AEP Load Zone.

Therefore, Staff said that AEP should be encouraged to petition PJM to establish an AEP Ohio settlement zone as soon as is practicable.