Update: On February 25, 2015, the Commission issued an Opinion and Order approving, with substantial modifications, AEP’s ESP Application. Of greatest significance in the Opinion and Order was the Commission’s decision to establish the proposed PPA Rider, but deny recovery of the proposed OVEC “financial hedge” through the rider. Effectively, the Commission determined that AEP had sustained its burden of proving that the PPA Rider could be lawfully established, but did not demonstrate that the PPA Rider proposal would provide customers with sufficient benefit from the rider’s financial hedging mechanism or any other benefit commensurate with the rider’s potential cost. The Commission did state, however, that its decision does not preclude AEP from requesting recovery of its OVEC costs (or other costs) through the PPA Rider in the context of another proceeding, and that, in the context of such a proceeding, AEP should address a number of specific factors, including the financial need of the generating plant, the necessity of the generating facility (in light of future reliability concerns), a description of how the plan is compliant with all pertinent environmental regulations and how it plans to comply with pending environmental regulations; and the impact that closure of the generating plant would have on electric prices and the resulting effect on economic development within the state. The Commission also reserved the right to require a study of reliability and pricing issues as they related to any application of recovery of costs through the PPA Rider by an independent third party of the Commission’s choosing. Moreover, the Commission indicated that any future PPA Rider proposal would need to provide for rigorous Commission oversight of the rider, including a proposed process for a periodic substantive review and audit of the rider, full information sharing about the rider, its components, and related issues with the Commission and its Staff, and an alternative plan to allocate the rider’s financial risk between both AEP and its ratepayers.

With regard to other pertinent portions of the Application, the Commission approved AEP’s request to continue the Distribution Investment Rider (DIR), but substantially reduced the levels at which AEP may collect funds under that rider from those requested in the Application. The Commission also denied AEP’s request to establish a Sustained and Skilled Workforce Rider (SSWR), noting that AEP had not demonstrated that the SSWR, allegedly designed to facilitate the hiring of new skilled construction employees, is necessary in relation to the Company’s total workforce. The Commission also denied AEP’s request to establish a NERC Compliance and Cybersecurity Rider. Although noting that it believes that NERC compliance and cybersecurity matters are of the utmost importance for Ohio’s customers and customer information, as well as for the security of the electric grid and electric distribution utility facilities, the Commission found that AEP had not sustained its burden of proof, and that its request to establish a placeholder rider for NERC compliance and cybersecurity costs is premature.

The Commission also determined that AEP’s interruptible tariff, IRP-D, should be modified and continued, such that IRP-D will provide for unlimited emergency interruptions and that the $8.21/kW-month credit should be available to new and existing shopping and non-shopping customers. Further, the Commission determined that AEP should continue to collect IRP-D costs through the EE/PDR Rider, as opposed to the economic development rider, until otherwise ordered, and that AEP should bid the additional capacity resources associated with the IRP-D into PJM’s base residual auctions throughout the course of the ESP term, with any resulting revenue being credited to customer through the EE/PDR Rider.

As is the case with most ESP proceedings, we expect that a number of parties will file applications for rehearing on one or more of the issues determined by the Commission in the Opinion and Order. Applications for rehearing are due on March 27, 2015.