Tuesday, March 19, 2019

AEP Ohio Rate Plan Excludes Merchant Generation

Will Seek Legislative Change in 2017

By Rory D. Sweeney and Rich Heidorn Jr.

AEP Ohio proposed a new retail rate plan that would more than triple residential customers’ fixed charges and shift more costs to customers that do not purchase their power through a competitive supplier.

AEP's Cardinal Plant | Baker Concrete

AEP’s Cardinal Plant | Baker Concrete

But the company’s request for a six-year extension of its “Electric Security Plan” (ESP) lacks the controversial proposals in its last rate case to subsidize the company’s merchant generation — a plan that crumbled after FERC said it would be subject to its review. Instead, the company is hoping Ohio legislators will agree to revamp the state’s deregulation law to allow it to bring its merchant generation back into the rate base.

The utility said it expects the Public Utilities Commission of Ohio to decide on its Nov. 23 request in April (16-1852-EL-SSO).

Rate Impact

The new plan, which would run through May 2024, would increase bills by $1.58/month — a 1.2% increase — for residential customers who use 1,000 kWh and haven’t changed their electricity generator from AEP Ohio’s standard service offer (SSO).

Heavier energy users would see rate cuts, the company said. Residential customers using 2,000 kWh/month would save 1.8%, small businesses with 1,000 kW peak demand and 350,000 kWh usage would save 1.3%, and industrial customers with demands of 20,000 kW or more and using at least 8 million kWh would save more than 4%, according to accompanying testimony by Andrea E. Moore, AEP Ohio’s director of regulatory services.

“The terms of the proposed ESP offer AEP Ohio customers reasonable and stable electricity rates while offering investors some measure of financial stability,” the company said in its filing.

If the extension is not approved, AEP says it will terminate the current plan before its May 2018 expiration, freeing it from its promise to build 900 MW of renewable generation.

AEP Ohio, a subsidiary of American Electric Power, had requested a 2024 expiration date when it applied in 2013 for its third and current ESP, but PUCO in 2015 approved a three-year plan.

Merchant PPAs

In that case, PUCO allowed AEP Ohio to sign power purchase agreements for all of its Ohio merchant generation.

But after FERC ruled in April that the PPAs would be reviewed under the Edgar affiliate abuse test, AEP scaled back its request, asking PUCO for agreements covering only its 440-MW share of the Ohio Valley Electric Corp. (See AEP, FirstEnergy Revise PPA Requests to Avoid FERC Review.)

AEP posted a loss of $765.8 million in the third quarter after taking a $2.3 billion impairment on its share of 2,684 MW of competitive generation in Ohio. (See AEP Turns Away from Generation to Transmission, PPAs.)

The company is currently collecting costs for its share of OVEC through a surcharge on all distribution customers. Under the new proposal, the OVEC generation would supplant power bought through the ESP’s competitive auctions. AEP would recover costs from default customers, with its price blended with that of generators clearing in the auctions.


The proposal also includes adding or modifying several other riders to customer bills, such as an “alternative energy rider” to recover expenses for renewable energy credits. It also would more than triple the residential customer charge from $5/month to $18.40 by January 2018 while reducing the share of fixed charges included in distribution energy charges.

AEP's Conesville Power Station | © Delta Whiskey, Creative Commons

AEP’s Conesville Power Station | © Delta Whiskey, Creative Commons

AEP committed in the last rate case to developing 500 MW of wind generation and 400 MW of solar generation in its stakeholder agreement. The extension proposal includes commitments to install between eight and 10 microgrids, 250 electric-vehicle charging stations and self-dimming street lighting in Franklin and 10 surrounding counties.

It would also commit AEP to installing a faster crew-dispatch system for outages and infrastructure hardening, as well as extend existing commitments to “aggressive tree trimming and vegetation-management programs” and replacing aging infrastructure.

AEP’s proposal also includes a “competition incentive rider” (CIR) that would charge default customers extra for not shopping for an alternate supplier. The company said the rider would “incent shopping and recognize that there may be costs associated with providing retail electric service that are not reflected in SSO bypassable rates.”

AEP said PUCO and other parties were not able to agree on how large the rider should be but that the commission staff “has provided an initial CIR level for inclusion in this filing of $0.62/MWh.”

Although the new proposal lacks the PPAs that drew opposition, Ohio Consumers’ Counsel Bruce Weston said he has found things to dislike about it.

“AEP’s holiday wish list is too long,” he said in a statement. “AEP’s continual requests for state government to approve even more charges on Ohioans’ electric bills show why Ohio’s 2008 energy law [which allowed multiyear rate applications] should be repealed.”

Legislative Change Sought

Ohio deregulated the generation portion of its electricity rates in 1999, allowing customers to shop for their electricity suppliers.

AEP spokeswoman Melissa McHenry said the company is working with lawmakers to restructure the law so that it can reincorporate merchant generation into its rate base. McHenry said the company hopes to have a bill introduced into the legislature by the first quarter of 2017.

The company also is expected to file with PUCO by Dec. 31 a carbon-reduction plan, along with commitments on fuel diversification, grid modernization and battery utilization.

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