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Ohio Customers: PUCO Holds Oral Arguments in AEP Ohio’s Electric Security Plan Regarding Subsidizing AEP Generation Facilities

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On December 17, the Public Utilities Commission of Ohio (PUCO) held oral arguments in AEP Ohio’s electric security plan (ESP) case. ESP cases are used to set default service rates for non-shopping customers, but the authorizing statute is so broad that each case ordinarily becomes a vehicle for generation, transmission, and distribution charges and service changes.

The PUCO held oral arguments on one aspect of the ESP: AEP Ohio’s power purchase agreement (PPA) proposal to subsidize its share of generation output from coal-fired Ohio Valley Electric Corporation (OVEC) units in Southern Ohio until June 30, 2040. This move would guarantee AEP Ohio a profit on the power sold from that plant. Under the proposed PPA, if the market price/revenue of the power sold into PJM markets from OVEC is less than AEP Ohio’s costs, which include a profit margin, all customers would make up any revenue deficiency through a non-bypassable charge. And on the other hand, customers would receive a non-bypassable credit when the power sold from OVEC exceeds the costs of the OVEC power.

Of note, Duke Energy Ohio and FirstEnergy also have nearly identical proposals before the PUCO in relation to OVEC. In addition, FirstEnergy and AEP Ohio (in a separate case) are proposing an expansion of their proposal beyond OVEC to approximately 3,000 MW of generating capacity each, which is owned by their utility affiliates. While the amount of generation discussed in the case argued December 17 is smaller, whatever the PUCO does in this case will set the stage for the other cases too.

The PPA is opposed by many, including PUCO staff, and supported by AEP Ohio, FirstEnergy Solutions, and the Ohio Energy Group, which is a group of industrial customers. The Commissioners asked many questions covering its legal authority to approve the plants under both Ohio and federal law. The Commissioners also inquired about the public policy implications of its decision and the practical outcomes on both sides of the issue.

Lastly, the Commissioners also heard a fair amount of arguments and asked questions about how AEP Ohio’s proposal differs from similar mechanisms at issue in New Jersey and Maryland that were held unconstitutional in the federal courts. AEP and the parties supporting the ESP attempted to distinguish those cases based upon alleged differences in the PPA and the New Jersey and Maryland subsidy mechanisms.

We expect an Order from the Commission sometime in the first quarter of 2015. If the PUCO approves the PPA, all customers (including those who shop for energy) will pay for revenue shortfalls from the market sales of the plants. Thus, fixed-rate customers will essentially have variable priced generation service to subsidize the OVEC generation. Estimates of whether the charge (or credit) to customers varied widely throughout the case, decreasing energy cost predictability for larger customers.  

Posted: December 18, 2014