AEP Ohio Utilities Seek to Raise Capacity Costs Paid by Ohio Retail Suppliers

Email This Story
November 22, 2010

Columbus Southern Power and Ohio Power have petitioned FERC to alter how competitive retail electric service (CRES) providers in Ohio compensate the AEP Ohio utilities for capacity under the utilities' use of the Fixed Resource Requirement of the Reliability Pricing Model.

Specifically, the AEP Ohio utilities have sought approval from FERC to transition from a market-based payment to a cost-based payment set via formula rate, effective January 1, 2011.

"AEP Ohio Companies have not been fully recovering from Ohio CRES Providers a fully-allocated share of their respective capacity costs," AEP Ohio claimed.

Under the proposed changes, competitive providers would collectively pay an additional 50%, or $6.2 million, in capacity costs to Columbus Southern Power and an additional 92%, or $26,000, to Ohio Power.

Under the pro forma rates, the capacity cost would increase from $208.20/MW-day to $310.04/MW-day at Columbus Southern Power, and from $208.20/MW-day to $401.01/MW-day at Ohio Power.

In cases where a utility uses the Fixed Resource Requirement to meet its PJM capacity obligations, alternative suppliers serving migrated load must compensate the Fixed Resource Requirement entity for capacity associated with the migrated customer.  If the retail choice state sets a policy to determine such compensation, the state policy shall hold.  However, if the state does not set forth such compensation, the Fixed Resource Requirement entity shall be compensated at the capacity price in the unconstrained portions of the PJM Region, unless the Fixed Resource Requirement entity elects to make a filing with FERC to change the compensation to a method based on the Fixed Resource Requirement entity's cost or such other basis shown to be just and reasonable.

The AEP Ohio utilities have filed to change the basis for their capacity compensation to a cost-based method, using Capacity Compensation Formulas.

AEP Ohio said that the Capacity Compensation Formulas are designed to recover from Ohio competitive retailers, "the appropriate share of the AEP Ohio Companies' respective total generation revenue requirement through annually-adjusting formulas that track actual capacity costs."

"The formulas are fairly standard cost-of-service trackers and are consistent with formulas utilized by other AEP utilities, which are on file with the Commission," AEP Ohio said.

"One significant difference, however, is that AEP is not proposing the typical two-step formula rate process, under which the utility initially projects the next year's costs and then, several months after the end of that rate year, makes a true-up calculation based on actual costs.  Instead, the Capacity Compensation Formulas are based on actual data from the prior year, as shown on the most current FERC Forms 1 submitted by OPCo and CSP.  The rates will adjust each June 1 and remain in effect through the following May 31.  Thus, for example, during January through May 2011, the daily capacity charges will be based on 2009 costs, as set out in the Forms 1 filed in 2010," AEP Ohio said.

"This methodology is particularly appropriate for the FRR capacity market, as it provides the Ohio [competitive] Providers with certainty as to the daily capacity charges; i.e., they will not be subject to potential surcharges after the true-up calculations are performed.  It also avoids the need for the projection and true-up review processes," AEP Ohio added.

The Capacity Compensation Formulas are intended to permit the AEP Ohio Companies to recover 100% of construction work in progress ("CWIP") expenditures for Pollution Control Facilities and Fuel Conversion Facilities and 50% of all other CWIP expenditures.  The costs will also include Post- Employment Benefits other than Pensions ("PBOPs") and Post Employment Benefits ("PEBs").

AEP Ohio proposed an initial rate of return on common equity ("ROE") of 11.1%.

The FERC dockets are ER11-1995, ER11-1997, and ER11-2034.

Email This Story

HOME

Copyright 2010 Energy Choice Matters.  If you wish to share this story, please email or post the website link; unauthorized copying, retransmission, or republication prohibited.

 

Be Seen By Energy Professionals in Retail and Wholesale Marketing

Run Ads with Energy Choice Matters

Call Paul Ring

954-205-1738

 

 

 

 

 

Energy Choice
                            

Matters