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PUCO Staff Recommend Maintaining Current Base Generation Rates at AEP Ohio Under Modified Electric Security Plan

August 5, 2011
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Staff of the Public Utilities Commission of Ohio have recommended maintaining current base generation rates at Columbus Southern Power and Ohio Power through May 31, 2014 (11-348-EL-SSO et. al.).

Background on AEP Ohio's ESP Proposal

In pre-filed testimony, Staff advocates the use of a Staff modified electric security plan (ESP) for Standard Service Offer rates, finding its own proposal to be superior to a Market Rate Offer (MRO).

"The ESP, as modified by Staff is the best option," Staff testified.

However, Staff did testify that AEP Ohio's proposed electric security plan is not more favorable than a blended Market Rate Offer as determined by Staff, or even a blended Market Rate Offer as determined by its AEP Ohio's witness.

Staff's recommendation to continue current base generation rates through May 31, 2014 would also maintain the current allocation of generation costs among various customer classes, which AEP Ohio has said results in the commercial generation rate being artificially high at Columbus Southern Power (and causing migration).

"Staff does not agree with the Companies' proposal to increase generation rates at this time. The proposed revenue is simply determined to be lower than the revenue that would be generated based upon the market rate projected by AEP witness Laura Thomas. To Staffs knowledge, there is no cost-based rationale to the Companies's [sic] proposal. As a result, the Staff has no reason to believe that such an increase in revenues is warranted at this time," Staff testified.

Staff would raise base generation rates for the 12-month period beginning June 1, 2014, which represents an extension in the term of AEP Ohio's proposed electric security plan (which was proposed for the period January 1, 2012 through Ma 31, 2014). Under this extension, Staff would increase base generation rates by $57 million dollars for the extended 12 months.

"The purpose of extending the ESP period is to provide a time extension for the ESP/MRO comparison during which time market rates are expected to significantly increase," Staff said.

"Staff does not believe that it [is] necessary to make the substantial changes being proposed by the Companies," regarding the allocation of generation costs among customer classes.

"The Companies are attempting to modify the rate structure simply to establish a market-based pricing relationship. Unfortunately, these changes result in substantial cost shifts. These shifts are so substantial that the Companies have proposed the Market Transition Rider to phase-in the impacts over the proposed 29-month ESP period. Until such time as the costs to AEP are actual market prices, the Staff does not believe a complete rate design overhaul is necessary," Staff said.

Staff said that it was a "real stretch" to conclude that AEP Ohio's proposed rates would, as claimed by AEP Ohio, "provide all customers with equivalent opportunities to shop and should make it easier for customers to evaluate competitive offers."

Staff also said that, until such time as the merger of Columbus Southern Power and Ohio Power is approved, the companies should maintain separate generation rates.

Staff presented the following comparison of ESP and projected MRO rates (in cents per kWh):

2012 AEP Ohio ESP Proposal: 6.147
2012 Staff Modified ESP: 5.747
2012 AEP Ohio Blended Market Rate: 5.902
2012 Staff Blended Market Rate: 5.711

2013 - May 2014 AEP Ohio ESP Proposal: 6.389
2013 - May 2014 Staff Modified ESP: 5.747
2013 - May 2014 AEP Ohio Blended Market Rate: 6.212
2013 - May 2014 Staff Blended Market Rate: 5.781

Jun. 2014 - May 2015 Staff Modified ESP: 5.886
Jun. 2014 - May 2015 Staff Blended Market Rate: 6.192

Staff further said that, over the 41-month term of its proposed ESP, the average generation rate is 5.788 cents, versus 5.881 cents under an MRO.

In the Market Rate Offer price forecasts by AEP Ohio, Staff faulted, among other things, AEP Ohio's use of capacity components reflecting AEP Ohio's higher, cost-based capacity charges, rather than PJM market prices. Staff also faulted the historic time period used by AEP Ohio to input energy prices into the MRO forecast.

Riders and Other Issues
Regarding POLR charges, Staff said that the POLR charge should only reflect the risk of customers returning to AEP Ohio for supply, and not the risk that customers would migrate away. Staff said that that AEP Ohio estimates that such "return risk" is only 12% of the sought POLR charge, with Staff translating this 12% into a POLR charge of $0.0003408/kWh, reflecting on the return risk borne by AEP Ohio. Staff did not address the bypassability of the POLR charge.

Staff recommended that the Environmental Investment Carrying Cost Recovery Rider (EICCR) remain bypassable. Furthermore, Staff said that, per statute, the only environmental investments recoverable through a nonbypassable charge under R.C. 4928.143(B)(2)(b) are construction work in progress costs.

Furthermore, Staff said that statute does not provide for the recovery of generating plant shut-down costs as sought by AEP Ohio. However, should a rider for such costs be approved, it should be bypassable because the costs are generation-related, Staff said.

Regarding capacity costs charged to competitive retail suppliers under AEP Ohio's Fixed Resource Requirement Plan, Staff said that the issue should continue to be addressed in Case 10-2929-EL-COI, and that AEO Ohio's proposed charges in the ESP case should be rejected.

Staff opposed the Rate Security Rider proposed by AEP Ohio. This nonbypassable rider would fund non-fuel generation discounts of up to 15% for certain customers taking supply from AEP Ohio who have annual peak demands of at least 200 kW.

"[T]he Rider could be considered as being (1) discriminatory, because its availability is restricted to customers of specified SIC codes; and, (2) anti-competitive, because it requires customers to take full service from the Companies for the full term, or suffer significant penalties," Staff said.

"Because of the negative issues that result from the regulated operating Companies being the entities offering this proposal, it seems to Staff that this may be an excellent opportunity for an AEP retail marketing affiliate to provide a similar service," Staff said.

Staff also opposed AEP Ohio's proposed Green Power Portfolio Rider (GPPR). As first reported by Matters, the proposed Green Power Portfolio Rider is a voluntary REC purchase product; however, the RECs voluntarily purchased by customers under the rider would be used to reduce AEP Ohio's renewable compliance obligations, and would result in a reduction in the costs recovered from other customers on a bypassable basis.

"GPPR customers would actually be subsidizing the renewable portfolio requirements of others, rather than enhancing their own renewable portfolio percentages, as the name of the rider would tend to imply," Staff said in recommending that the proposal be denied.

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