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PUCO Approves AEP Ohio and First Energy PPA Stipulations

April 25, 2016

On March 31, 2016 the Public Utilities Commission of Ohio (PUCO) separately approved AEP Ohio and First Energy’s Purchase Power Agreements (PPAs) (14-1693-EL-RDR and 14-1297-EL-SSO) allowing the two utilities to enter into an eight-year power purchase agreement (ending May 31, 2024) to support their select utility affiliate generation units.  The products procured through the PPAs are to be sold into wholesale markets (not used for default service), with costs/benefits allocated on a non-bypassable basis.

Following the announcement of these two approved PPAs, PUCO Staff sent out an email cautioning all competitive suppliers from using the recent decision by the Commission as a marketing tool to mislead customers into believing that by locking into a fixed competitive rate will eliminate the impact of the PPA decision on their electric bill.  The rider will be charged to all customers regardless of who is supplying the generation portion of their bill.  To imply that signing up for a fixed rate with your company will avoid the PPA rider is incorrect, and a misleading and deceptive marketing statement that could result in further enforcement action by the PUCO.

Probably the most controversial aspect of the two Orders is that PUCO adopted with modifications, PPAs between the two utilities and their affiliate generation suppliers.  In both cases, PUCO noted that the utilities have stated that the output of such plants will be sold into the PJM market and will not be used in the default service auctions. As such, any costs and/or credits from the PPAs will be allocated on a non-bypassable basis.  Specifically, PUCO said that concerns that the utilities may provide the products procured under the PPAs to an affiliated retail supplier are addressed by prudency and other reviews that PUCO will undertake. In adopting the PPAs, PUCO stressed that the Electric Security Plan (ESP), “will protect consumers against rate volatility and price fluctuations by promoting rate stability for all ratepayers in this state.”

There is an outstanding petition pending before the Federal Energy Regulatory Commission (FERC) on this matter and PUCO’s decision may be appealed by generators who claim the PPAs impermissibly interfere with wholesale markets.

Overview of AEP Ohio’s Approved PPA

The Order contained several provisions.  First, AEP Ohio was directed to form a working group with interested parties to discuss a pilot program for future descending clock default supply auctions where, after the auction is completed but before the market-clearing price is announced, energy efficiency providers would be able to competitively bid to supply energy efficiency projects. In addition, AEP Ohio is required to seek several retail market enhancements including the following:

  1. A bypassable Competition Incentive Rider (CIR) with the intent to incent shopping
  2. Create a customer referral program pilot offering a standard discount rate to shopping customers at a guaranteed discount off the Price-to-Compare rate without early termination fees
  3. Establish parameters of a two-year pilot supplier consolidated billing program.

Bypassable Competition Incentive Rider (CIR)

AEP Ohio was directed to create and file a pilot program that establishes a bypassable Competition Incentive Rider (CIR) as an addition to the Standard Service Offer (SSO) non-shopping rate above the auction price with the purpose of incenting shopping.  The total collected from the (CIR) would be refunded to all distribution customers through a new rider established in the 2016 ESP amendment case. Details of the program would be determined in the proceeding.

Customer Referral Pilot Program

 AEP Ohio was instructed to institute a customer referral pilot program, “providing an EDU (Electric Distribution Utility) third-party agent call transfer process to educate and enroll interested customers moving and initiating service and to establish a procedure for the offering of a standard discount rate providing a guaranteed discount off the price to compare without early termination fees.”

Consolidated Billing Program

AEP Ohio was ordered to work with PUCO Staff and interested parties to determine the parameters of a two-year supplier consolidated billing pilot program for any Competitive Retail Electric Service (CRES) provider.  A participating CRES provider would agree to assume all utility bill requirement administrative code rules and work with Staff and the utility on consumer safeguards.  The Staff, AEP Ohio and participating CRES providers (CRES) would meet to determine a methodology to govern the implementation including but not limited to the method of transfer and payment to the utility of customer charges; as well as credit and collection procedures and purchase of receivables without recourse.  The methodology to govern the supplier consolidated billing pilot program would be established no later than six months from a final order approving a stipulation in the PPA proceeding. Participating CRES suppliers would have the ability to bill under the pilot program no later than one year from approval of the final opinion and order approving a stipulation in the PPA proceeding.

Overview of FirstEnergy Approved PPA and ESP

Similarly, PUCO has accepted with modification several non-unanimous stipulations that certain PPAs between the utilities and affiliated FirstEnergy Solutions generation.  The Order established the process governing the FirstEnergy utilities’ procurement of default service for the period June 1, 2016 to May 31, 2024 as part of such electricity security plan (ESP).  In addition, the Order approved the continued reliance on a mix of 12-, 24-, and 36-month contracts to serve all default service classes under an electric security plan covering the period June 1, 2016 to May 31, 2024.

PUCO modified the stipulations to establish a zero-based rider that unbundles the costs that FirstEnergy utilities incur to support the Standard Service Offer (SSO) from their distribution rates and to reflect those costs in the SSO price.

PUCO said, “[T]his proposal may enhance competition in the Companies’ service territories.”  FirstEnergy was therefore directed to file an application in a separate proceeding. The PUCO will determine whether to approve such an application.

PUCO also adopted expansion of the existing pilot program that allows certain large customers to avoid paying the Non-Market-Based Rider (NMB), which collects on a non-bypassable basis certain non-market-based PJM charges. Instead, these costs would be assigned to the customer’s retail supplier, who would then pass these costs through to the customer.

The Commission also ruled that default service Generation Cost Reconciliation Rider (Rider GCR) may only become non-bypassable upon approval of the Commission. If the utilities wish to make the charge non-bypassable once the threshold is met, the utilities must seek approval from the Commission. The stipulation had provided that the default service Rider GCR was to be recovered via a bypassable charge unless the Rider balance exceeds 10% of the applicable generation expense in two consecutive quarters, at which point the rider was to become non-bypassable. Under the current rider, GCR becomes non-bypassable if the deferral balance exceeds 5% for a given calculation period.

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