PUCO Staff Recommends Denying Duke Energy Ohio Market Rate Offer as Filed

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December 29, 2010

The Public Utilities Commission of Ohio should not approve Duke Energy Ohio's market rate offer application as proposed, PUCO Staff said in prefiled testimony, citing the accelerated three-year transition to market rates in the application (10-2586-EL-SSO).

While, as only noted in Matters (12/9), Staff had previously filed comments raising concerns on the transition period and whether it conformed to statute, and has encouraged Duke Energy Ohio to file an electric security plan, Staff's testimony represents the first formal position taken by Staff in the case.

Staff testified that a "plain reading" of R.C. 4928.142(D) shows that a "gradual" blending of competitively bid generation pricing with adjusted pre-existing rates is to take place.  Under Duke Energy Ohio's plan, full market pricing would begin after only two years of a blended price.

Staff further said that any adjustment to the five-year blending process cited in statute is, "supposed to be made based on the actual circumstances that exist at some future time," and not forecasts of a convergence of the electric security plan price and market prices as Duke Energy Ohio has used to justify the accelerated transition.

Staff also recommended that Duke Energy Ohio's competitive bid plan include a load cap to, "encourage participation of bidders and assure diversity of supply in the auction."  Staff did not recommend a specific amount for the load cap.

Several of Duke Energy Ohio's proposed nonbypassable riders should be made bypassable, Staff argued.  Staff also confirmed that Duke Energy Ohio intends for Rider EIR (Environmental Investment Rider) to be fully bypassable.  Although the initial tariff sheet described the rate as unavoidable, Staff confirmed an errata from Duke Energy Ohio and said that Rider EIR is bypassable.

Regarding Rider RECON, which would true-up the costs and revenue for certain riders being eliminated or zeroed out under Duke Energy Ohio's market rate offer (Rider PTC-FPP and Rider SRA-SRT), Staff said that Rider RECON should be, "fully bypassable until collected from customers, rather than non-bypassable."

Staff noted that Rider PTC-FPP is currently bypassable, as is Rider SRA-SRT under certain exceptions.

Staff believes that any under or over-recovery balances under Rider RECON should be attributed to Rider PTC-FPP, "as it tends to fluctuate more than Rider SRA-SRT from quarter to quarter."

"Therefore, Rider RECON should be fully bypassable to mirror Rider PTC-FPP's bypassability in the current ESP," Staff testified.

Staff recommended making Rider SCR, which will recover reconciliations between the cost of power under the market auction and SSO revenue as well as the auction's administrative costs, fully bypassable, and opposed the proposed "circuit breaker" concept that would make the rider nonbypassable if deferred costs exceed 5% of supply costs.

"Staff recognizes the remote situation where the last non-switched customer would have to pay for the all of the costs remaining in Rider SCR.  However, Staff would expect that Duke could foresee this type of spiral situation and would be able to assess the risks ahead of time.  If this spiral situation occurs or Duke procures 100% of its SSO by auction, Duke could make a separate application to the Commission to address this unlikely scenario, as well as the continued bypassability of Rider SCR," Staff said.

Staff also opposed any carrying charges for the balances under Rider SCR, since the rider adjusts quarterly and, "the expectation is that credits and/or charges flowing through Rider SCR will be relatively small."

Staff opposed Duke Energy Ohio's proposed bypassable generation-related uncollectibles rider (Rider UE-GEN), arguing that R.C. 4928.142(D) denotes what adjustments a utility can request for recovery under a market rate offer construct, and the statute does not provide for an uncollectible rider for generation

Staff recommended adjusting Duke Energy Ohio's auction schedule for procuring supplies during the transition period to market rates.  While Duke Energy Ohio proposed using layered procurements to obtain supplies once full market rates are implemented (under a three year staggered process), the initial supplies for the first two years, to be blended with electric security plan rates, would be procured under terms that are not staggered.

"As proposed, there is no overlap between the initial 17 month product and the following 24 month product.  Overlapping the terms of the auction products can have the effect of dampening any changes in market pricing from auction to auction," Staff said.

Staff said that the procurement could be adjusted to produce overlapping terms by extending the initial product purchased to be 29 months in length rather than 17 months, and then reducing the amount of tranches bought in the second auction.

 

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