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AEP Ohio power purchase agreement rider

November 3, 2016

Role of the Commission

In formulating its decision in a case, the Commission must balance the interests of many parties and stakeholders while adhering to its mission, “to assure all residential and business consumers access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices.”

The Commission must balance this responsibility with an obligation to ensure Ohio’s regulated utilities the ability to continue to provide adequate, safe and cost-effective services to Ohio’s consumers and continue to invest in infrastructure improvements and innovative technologies.

In every case that comes before the Commission, a formal record is created. The case record includes written testimony, public testimony and cross-examination of expert witnesses. The Commission cannot make arbitrary decisions; information that is not in the formal record cannot be considered by the Commission in formulating its decision in a case.

Working as the neutral arbiter, it is the Commission’s goal to put Ohio in a position as a leader in developing regulatory certainty, rate stability and modernized grid technologies.

Background

In February 2015, the PUCO approved AEP Ohio’s electric security plan (ESP) for the term of June 1, 2015 through May 31, 2018. In its opinion and order, the Commission approved the establishment of a power purchase agreement (PPA) rider, set at an initial rate of zero. However, the Commission was not persuaded that the plan as proposed would be in the public interest.

AEP Ohio subsequently filed an amended application and testimony in regards to its PPA rider.

What did AEP Ohio ask for in its amended PPA rider case?

On May 15, 2015, AEP Ohio filed an amended application to include net impacts of both an affiliate PPA and the company’s Ohio Valley Electric Corporation (OVEC) contractual entitlement in the approved placeholder PPA rider in the ESP 3 case.

The affiliate PPA includes AEP Ohio’s shares in the Cardinal, Conesville, Stuart and Zimmer electric generating facilities.

The case docket is available in 14-1693-EL-RDR.

What agreement did AEP Ohio, PUCO staff and other parties reach?

On Dec. 14, 2015, AEP Ohio, PUCO staff and nine other parties reached an agreement resolving many issues in the PPA rider case. The agreement, referred to as a stipulation, serves as a recommendation to the five-member Commission, which has the ultimate decision making authority. Commissioners take settlement agreements into consideration, along with all evidence supported in the case record when forming their opinions. The Commission may accept, reject or modify a stipulation.

The stipulation was signed by AEP Ohio, PUCO staff, Ohio Energy Group, Ohio Hospital Association, Mid-Atlantic Renewable Energy Coalition, Ohio Partners for Affordable Energy, Buckeye Power, Inc., Sierra Club, FirstEnergy Solutions Corp., Direct Energy, and Interstate Gas Supply, Inc.

What decision did the PUCO reach?

On March 31, 2016, the Commission issued its opinion and order modifying and adopting the stipulation. AEP Ohio will file a separate application with the PUCO requesting that its current ESP be extended through May 31, 2024. The future ESP extension application will also include the stipulated provisions regarding extending interruptible credits, and implementing a mechanism to enhance retail competition.

How does the PPA rider work?

If energy market prices stay at the current low levels, customers will pay a charge under the PPA rider; however, if energy market prices rise from the current low levels, customers will begin to receive a credit under the PPA rider. The higher energy market prices rise, the greater the amount of credit customers will see.

What safeguards did the PUCO place on the PPA rider?

Customers are assured that during the first two years of the agreement, impacts of the PPA rider will not raise customer bills by more than 5 percent.

The Commission provided for rigorous oversight of the rider, including a process for periodic substantive review and audit, and AEP Ohio committed to full information sharing with the PUCO.

In accordance with the stipulation, the Commission adopted the reduced return on equity rate of a fixed 10.38 percent, rather than the initial variable rate of 11.24 percent sought in the company’s application. This represents a savings of $86 million over the term of the agreement.

What initiatives did the Commission order to advance efforts to modernize the electric grid?

Through the Commission’s opinion and order, AEP Ohio has agreed to file an application by June 1, 2016, outlining a plan to fully modernize its portion of the grid utilizing Volt/VAR technology, distribution automation and automated metering infrastructure. In addition, the application submitted by AEP Ohio is to include plans for deploying battery technology, encouraging distributed generation, new renewable commitments, and advanced metering technologies with data transfer capabilities. Competitive suppliers with access to data can help to engage consumers regarding their individual electric usage.

What other commitments are contained in the modified agreement?

AEP Ohio will file with the PUCO by Dec. 31, 2016, a carbon reduction plan for promoting both fuel diversification and carbon emission reductions.

AEP Ohio will work to retire, refuel, or repower to 100 percent natural gas, several generating units at its Conesville and Cardinal generating facilities by 2029 and 2030, respectively. Any associated costs will not be eligible for inclusion in the PPA rider, or any other cost recovery mechanism.

Over the next four years, AEP Ohio will propose to develop a total of at least 900 megawatts of renewable generation facilities.

AEP Ohio will maintain its corporate headquarters in Columbus, Ohio, and will maintain a nexus of operations in the state relating to operation and support of the PPA units.

What did the PUCO decide on rehearing?

In the decision on rehearing in AEP Ohio’s expanded PPA proposal, the Commission granted AEP Ohio’s rehearing request to forego the affiliate PPA and retain only the PPA related to the OVEC in its PPA rider. This serves to preserve the commitments agreed upon by AEP Ohio and several signatory parties.

AEP Ohio will make $15 million available to credit customers during the final four years of the eight-year term of the PPA rider.

Did the PUCO consider public opinion before reaching its decision?

Yes. The PUCO received thousands of contacts from Ohioans expressing their views on the utility’s application, available in the case docket.

How can I learn more?

The Commission’s opinion and order, and all other case documents are available online through Docketing Information System at www.PUCO.ohio.gov by searching case number 14-1693-EL-RDR.