PUCO Staff Opposes AEP Proposal to Assure Income from Aging Plants

On October 9, staff at the Public Utilities Commission of Ohio (PUCO) rebuffed American Electric Power Ohio’s proposal (Case No. 14-1693-EL-RDR) to guarantee the income from its ownership interests in four AEP Generation Resources (AEPGR) coal plants  and its stake in  two Ohio Valley Electric  coal plants for the full operational life of those units.

The Columbus-based utility (also known as Ohio Power) had first requested an income guarantee for the Ohio Valley Electric holdings – and had been denied by the commission – and then had expanded its proposal to include its own aging coal plants in its newer filing.

According to AEP Ohio, the purpose of the broader Power Purchase Agreement (PPA) Rider comprising the AEPGR plants would be to “… provide a necessary hedge to AEP Ohio’s customers that will protect them from the impacts of market volatility, especially during periods of extreme weather; provide Ohio generators with a predictable source of  revenue to maintain operations, keeping jobs and taxes in the state; and promote economic development in Ohio by providing retail price certainty that Ohio businesses desire.”

Although the regulatory staff now also has rejected the more ambitious AEP Ohio plan, they did find that the deal could be restructured “to mitigate concerns” in such a way as to benefit the state’s electricity consumers.

Among the staff’s alternative recommendations to AEP Ohio – all of some of which the PUCO commissioners are empowered to either accept or ignore – are the following:

• Limit the term of the expanded PPA Rider: Should the commission approve AEP Ohio’s expanded PPA Rider, staff recommends that the term of this rider should be no longer than the term of Electric Security Plan (ESP) III, which runs for three years.
• Review the expanded rider rigorously: These two PPAs would be under the jurisdiction of the Federal Energy Regulatory Commission (FERC). As a result, if PUCO found that certain future cost components were not prudent, the state commission would have to file a challenge at FERC; and the burden of proof would be on PUCO to demonstrate its case. In order to mitigate this concern, AEP Ohio and AEPGR would have to accept that all future cost components would be audited annually by staff; and agree to abide by PUCO’s finding to the extent there is a disagreement and a hearing is conducted.
• Commit to full information-sharing: AEP Ohio and AEPGR should provide access to information on their generation fleet. For example, if PUCO staff is assessing a specific cost item for one of the AEPGR plants and deems it appropriate to compare it with a cost item of another plant, then such information should be made available.
• Agree to risk-sharing: AEP Ohio and AEPGR would have to develop a sharing mechanism whereby AEPGR commits to be responsible for a portion of the costs associated with the expanded PPA Rider, in exchange for a portion of the revenues associated with the broader rider. Alternatively, the commission may wish to include an appropriate charge and credit caps on the expanded PPA Rider.
• Fund an independent assessment of the impact on reliability and economic development: AEP Ohio would have to agree to use investor dollars for an independent reliability and economic analysis conducted by a third party of PUCO’s choosing.
• Consent to severability provision: AEP Ohio would have to commit fully to the severability provision, should a court of competent jurisdiction invalidate the expanded PPA Rider “in whole or in part.”

The staff opinion was presented to PUCO by Hisham Choueiki, a senior energy specialist for the commission. Choueiki issued a similar recommendation related to a FirstEnergy PPA proposal last month that would have guaranteed income at a coal and nuclear plant for 15 years.

At that time, AEP Ohio President Pablo Vegas told Columbus Business First that the staff ruling did not concern him. “I think big policy issues belong with the commission and not with the staff,” he commented to the news organization.

Opponents of the plan, including large commercial and industrial customers and environmental advocates, labeled the filings as “bailouts” for the aging plants, which no longer are competitive against natural gas and renewables.