Update:  In addition to focusing on its rate plan for 2015 through 2018, the Application addresses provisions regarding AEP Ohio’s distribution service, provisions that promote retail electric competition, economic development and job retention, the alternative energy resource requirements of Section 4928.64, Revised Code, the energy efficiency requirements of Section 4928.66, Revised Code, preserving and expanding the development of competition for retail electric services in its territory, and other matters.

Generation and Applicable Riders

The Application proposes utilizing full auction-based pricing for the Company’s SSO customers beginning in June 2015 through the full term of the proposed ESP.  AEP Ohio contends that the proposed procurement plan increases diversity of electricity supplies and suppliers, which supports reasonably priced retail electric service. The delivery point for the auction is specified as the AEP Load Zone established in PJM.

AEP Ohio contends that its proposed ESP will provide transparency in SSO pricing through the introduction of a Generation Energy (GENE) rider, a Generation Capacity (GENC) rider, a Basic Transmission Cost Rider (BTCR), and an Auction Cost Reconciliation Rider (ACRR).  The Company posits that these riders will give consumers a comparable price that they can use to compare information when determining whether to select an alternative supplier.

The Company also contends that it is seeking to stabilize customer rates by providing a hedge against market volatility through a Power Purchase Agreement (PPA) Rider. Under the PPA rider mechanism, the Company will have the ability to petition the Commission to allow the inclusion of additional PPAs (or similar products subsequently approved by the Commission) in the PPA rider throughout the ESP term. AEP Ohio proposes that this new rider will initially flow through to customers, on a nonbypassable basis, the net benefit of all revenues accruing to AEP Ohio from the sale of its OVEC entitlement in the PJM market (including energy, capacity, ancillaries, etc.) less all costs associated with the Company’s OVEC entitlement.

The proposed ESP retains the bypassable Alternative Energy Rider (AER).  In contrast, the Application proposes to eliminate Schedule IRP-D (IRP-D), Supplement No. 18, Schedule Standby Service (SBS), and its Standard Time of Use tariffs.  The Company argues that these changes are the result of the implementation of full auction-based pricing for SSO customers and the continued development of the competitive marketplace.

Distribution and Applicable Riders

A major focus of the Application is a distribution reliability strategic plan. The foundation of this plan is a group of programs, allegedly supported by current riders.

The existing programs which AEP Ohio’s Application requests authority to continue and/or modify as part of the proposed ESP, include the replacement of aging infrastructure through the Distribution Investment Rider (DIR), continued cyclic vegetation maintenance through the Enhanced Service Reliability Rider (ESRR), further implementation of advanced technologies through Phase 2 of the gridSMART program, and continued recovery of major storm costs through the Storm Damage Recovery (SDR) Mechanism and Rider.  In addition, the Company is proposing to implement a new program designed to ensure the availability of a sustained and skilled workforce, the Sustained and Skilled Workforce Rider (SSWR).  The purpose of the SSWR is to provide a mechanism to recover the incremental operations and maintenance (O&M) labor costs incurred to remedy the projected shortfall of internal labor resources, both in front-line construction and construction support, in order to execute the planned distribution infrastructure investment.

The Application also proposes, in response to the increasingly expansive scope of the North American Electric Reliability Corporation (“NERC”) compliance and cybersecurity activities, a NERC Compliance and Cybersecurity Rider (NCCR) to serve as a placeholder for significant future increases in the cost of compliance. The Company explains in its Application that it aims to track and defer both the capital and O&M costs associated with new NERC compliance and cybersecurity requirements or new interpretations of existing requirements, starting with the date of the decision in this case and going forward through the entire term of the proposed ESP. The Company further proposes to track and defer (with a carrying cost) such costs, after which the Company would file a rider application during the ESP III term to recover the costs. The NCCR proposed in the Application is, however, a placeholder rider established at a level of zero.

With regard to the previously-approved establishment of the Pilot Throughput Balancing Adjustment Rider (PTBAR), a revenue decoupling mechanism, the Company proposes to continue the PTBAR for residential and GS-1 tariff schedules, as currently implemented, throughout the term of the proposed ESP.  As with the PTBAR, the Application proposes to continue the previously-approved Residential Distribution Credit Rider (RDCR) for all residential tariff schedules, as currently implemented, throughout the term of the proposed ESP.

Transmission and Applicable Rider

As part of the new ESP, AEP Ohio proposes to establish a nonbypassable Basic Transmission Cost Rider (BTCR) through which it will recover non-market based transmission charges from all of its customers, both shopping and non-shopping. Certain transmission charges would be included as part of the auction product offering for SSO customers, and competitive retail electric service (CRES) providers would be responsible for paying certain transmission charges for their shopping customers.  AEP Ohio notes in its Application that while many of the proposed riders and terms and conditions of the proposed ESP are being submitted (via the Application) as part of a package, there is independent statutory authority for the BTCR, and the Company reserves the right to pursue continued collection of this rider outside the context of an ESP, if necessary.

Other Nonbypassable Charges

The ESP Application includes modification and continuation of AEP Ohio’s Energy Efficiency/Peak Demand Reduction Rider (EE/PDR). The Company proposes that the EE/PDR rider rate will continue to be updated periodically.  The Application also proposes to continue, as part of the ESP III, AEP Ohio’s Economic Development Rider (EDR).  The Company further proposes to establish a Purchase of Receivables (POR) program and a new Bad Debt Rider (BDR) which, it contends, is an integral component of the POR program.

The Company also plans to continue implementing other existing riders during the term of the ESP.  The Application details that the Company plans to continue collecting the Retail Stability Rider (RSR) through the term of ESP III.  The purpose of the RSR during the ESP III term will allegedly shift to being in place exclusively to recover the capacity charge deferrals, inclusive of carrying charges, and will continue for three years or until fully recovered. AEP Ohio notes that will file a separate Application to continue the RSR, but the rider will be incorporated into the projected rate impacts being submitted as part of the ESP.

Accounting Deferrals and Recovery of Existing Regulatory Assets

The proposed ESP requests authority to record regulatory liabilities and regulatory assets and, thus, to perform regulatory deferral over/under recovery true-up accounting for a number of the riders explained above.  The ESP also requests continued deferral accounting authority for its proposed major storm damage recovery mechanism and additional deferral authority related to its NERC Compliance and Cybersecurity Rider proposal.

Early Termination and Reopener Provision Included

In the Application, the Company reserves the right to terminate the proposed ESP one year early (i.e., by June 1, 2017) based upon the following circumstances: (a) a substantive change in Ohio law (including rules or orders of the Commission) affecting SSO obligations and/or SSO rate plan options under Chapter 4928 of the Revised Code, or (b) a substantive change in federal law (including FERC rules or orders) or PJM tariffs or rules with respect to capacity, energy or transmission regulation or pricing that has an impact on SSO obligations and/or rate plan options.  The Company notes that it may exercise this early termination right, at its sole option and discretion, by giving written notice to the Commission no later than October 1, 2016.  If the Company exercises the right to early termination, it will propose a new SSO rate plan to encompass the June 1, 2017 through May 30, 2018 period (or a longer time period consistent with applicable law).

Rate Impacts

Among other witnesses, AEP Ohio witness David Roush discusses rate impacts of the proposed ESP in his testimony, which is filed with the application.  Mr. Roush summarizes the forecasted impact of AEP Ohio’s proposed ESP on customers’ total bills in the following chart:

Recommendation

Given the rate impacts arising from this that may positively, negatively, or otherwise affect OMA’s members, we strongly recommend OMAEG’s intervention in the proceeding in the near future.  Moreover, on December 27, 2013, an attorney examiner issued an entry scheduling a technical conference to allow interested persons the opportunity to better understand AEP Ohio’s application.  The technical conference will take place on January 8, 2014.  It is important for OMAEG to be able to establish itself as a stakeholder in the proceeding at the conference.  With OMAEG’s approval, we plan to file a motion to intervene in short fashion.