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AEP Ohio's electric security plan

Electric Security Plan 101

An electric security plan (ESP) is a rate plan for the supply and pricing of electric generation service. The PUCO approved AEP Ohio’s first ESP in March 2009, setting gradual increases for the base price of electric generation through December 2011. In 2012, the PUCO approved AEP Ohio’s second ESP, which is in effect until May 31, 2015. The second ESP brought AEP Ohio’s standard service offer (SSO) load to be fully provided through competitive auctions. The second ESP also directed AEP Ohio to separate its generation assets from its distribution business.

AEP Ohio’s third ESP takes effect on June 1, 2015. Under this plan, AEP Ohio will fully source its SSO load through competitive bidding auctions. AEP Ohio will hold the first and second auctions for this ESP prior to June 1, 2015. The third and fourth auctions will be held in November 2015 and March 2016, respectively. The fifth and sixth auctions should occur in November 2016 and March 2017, respectively.

What did AEP Ohio request in its ESP filing?

On Dec. 20, 2013, AEP Ohio filed an application to establish a new electric security plan for the term June 1, 2015 through May 31, 2018.

AEP Ohio proposes to use the competitive bidding process throughout the term of the ESP. Under the proposal, all of AEP Ohio’s SSO load would continue to be sourced through a competitive bidding process.

AEP Ohio proposes to establish a purchase power agreement (PPA) rider. The rider would pass on to ratepayers, on a non-bypassable basis, the net benefit or cost from the sale of its Ohio Valley Electric Corporation (OVEC) contractual entitlements, including energy, capacity and ancillaries, into the wholesale market. The company states this would provide a financial hedge against fluctuating market prices.

AEP Ohio requests approval to develop a purchase of receivables (POR) program in which AEP Ohio will purchase and receive ownership for receivables and bill on behalf of competitive retail electric suppliers.

In addition, the application contains provisions addressing distribution service, economic development and storm damage recovery.

AEP Ohio seeks the approval of its reservation of right to terminate the ESP after a two-year period.

How did the PUCO rule on AEP Ohio’s application?

In February 2015, the PUCO modified and approved AEP Ohio’s ESP application effective June 1, 2015 through May 31, 2018.

The proposed competitive bidding process was modified to include six auctions throughout the duration of the ESP that provide for better blending of one, two and three-year auction products. AEP Ohio will establish a Generation Energy Rider, a Generation Capacity Rider and an Auction Cost Reconciliation Rider to recover costs associated with its standard service offer.

AEP Ohio will continue to recover costs related to upgrading aging infrastructure through its Distribution Investment Rider (DIR). However, the Commission established rate caps during the term of the ESP. The DIR will be capped at $145 million for 2015, $165 million for 2016, $185 million for 2017 and $86 million for January-May 2018.

AEP Ohio will continue to defer incremental operations and management expenses exceeding $5 million from major storms.

In order to enhance the competitive marketplace, AEP Ohio is authorized to develop, with PUCO staff and interested stakeholders, a POR program where AEP Ohio will purchase and receive ownership for receivables and bill on behalf of competitive retail electric suppliers. Implementation of the program will be determined in a subsequent proceeding. In addition to the POR program, AEP Ohio will establish a placeholder Bad Debt Rider to recover generation-related uncollected expenses.

Although the Commission found that the proposed PPA is permitted under Ohio law, the Commission did not authorize recovery of the OVEC entitlements at this time. The PUCO was not persuaded that the agreement, as proposed, would benefit ratepayers. AEP Ohio is authorized to establish a placeholder PPA rider, at a rate of zero, pending consideration of future proposals to the Commission.

AEP Ohio will continue to enhance reliability through distribution investments and vegetation management programs.

The PUCO ordered AEP Ohio to continue its $1 million commitment to fund its low-income Neighbor-to-Neighbor assistance program, and continue to implement programs to enhance the competitive marketplace.

The PUCO denied AEP Ohio’s proposed reservation of right to terminate the three-year ESP after two years. In doing so, the Commission noted that the request offered no statutory or legal precedent, would create market uncertainty and is not necessary to protect AEP Ohio’s interests.

What did the PUCO decide on rehearing?

The PUCO reaffirmed that authorization of the PPA rider is permitted by Ohio law. The PUCO also modified the annual revenue caps of the DIR. The DIR will be capped at $190 million for 2017 and $89.6 million for January through May 2018 and the 2015 and 2016 annual revenue cap will remain at $145 million and $165 million, respectively.

Did the PUCO consider public opinion in this case?

In April and May 2014, the PUCO held five local public hearings to provide the public an opportunity to express their views regarding AEP Ohio’s electric security plan application. Hearings were held in Canton, Columbus, Lima and Marietta.

History of deregulation

A law enacted in 1999 restructured Ohio’s electric industry by changing the way customers shop for electricity. The law, which took effect January 2001, provided for a five-year market development period. During this time, the utilities’ rates were frozen to allow a competitive retail market to develop.

As the end of the market development period neared, there was a growing concern that an immediate shift to market-based rates in 2006 would not be in the best interest of customers. To minimize the effects of rate “sticker shock” and transition customers to market-based rates, the PUCO worked with Ohio’s electric utilities to develop rate stabilization plans.

The rate stabilization plans, along with other changes, eliminated market uncertainty and provided customers with stable rates. Most of these plans expired at the end of 2008. In 2008, the Ohio General Assembly passed Senate Bill 221 to keep electric rates stable going forward, create jobs, implement energy efficiency and expand Ohio’s renewable and advanced energy industry. The new law incorporated a new system under which rates would be approved by the PUCO beginning in 2009.  Senate Bill 221 also outlined alternative paths for electric utilities to implement different forms of market-based pricing.

Where can I learn more?

The entire case record, including the company’s application, accompanying testimony and the Commission’s order is available on the PUCO website. Click on the link to Docketing Information System (DIS) and search for case number 13-2385-EL-SSO.