PUCO Sets Interim Capacity Payment Rate for AEP Ohio

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December 9, 2010

The Public Utilities Commission of Ohio yesterday expressly adopted the current capacity charges established by the three-year capacity auction conducted by PJM, Inc. as the as the state's capacity compensation mechanism for Columbus Southern Power and Ohio Power, during the pendency of a newly initiated review of the companies' capacity charges which are collected from retail suppliers under the Fixed Resource Requirement (10-2929-EL-UNC).

The establishment of a state-defined capacity charge should preclude the AEP Ohio companies from imposing any FERC-established capacity charge on retail suppliers, at least so long as the PUCO-set rate is in effect.  As previously reported, Ohio Power and Columbus Southern Power are currently seeking approval at FERC to transition capacity payments under their Fixed Resource Requirement (FRR) plan from a market-based payment to a cost-based payment, which would result in retail suppliers paying millions of more dollars to the AEP Ohio companies for capacity (11/22).  FERC has the authority to set this rate if no state-establised rate for capacity has been set.

PUCO found that a review of the AEP Ohio companies' capacity charges is necessary in order to determine the impact of the proposed formula, cost-based capacity rate that the AEP Ohio companies are seeking at FERC.

As an initial step, PUCO sought public comment regarding the following issues: (1) what changes to the current state mechanism are appropriate to determine the AEP Ohio companies' FRR capacity charges to Ohio competitive retail electric service (CRES) providers; (2) the degree to which AEP Ohio's capacity charges are currently being recovered through retail rates approved by PUCO or other capacity charges; and (3) the impact of AEP Ohio's capacity charges upon CRES providers and retail competition in Ohio.

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