AEP Ruling Could Color Future Utility Proposals In Ohio

Mar 2, 2015

An American Electric Power plant in Conesville, Ohio.
Credit WOSU file photo

The Public Utilities Commission of Ohio last week rejected a request from American Electric Power to have customers subsidize two coal plants. AEP said it would have helped customers in the long run, but opponents likened it to a bailout.

So what will the ruling mean for future proposals?

The state’s utility regulators made an unprecedented decision when it comes to certain costs a power distribution company can and cannot pass on to the customer.

It all started with AEP Ohio’s electric security plan, which is essentially a blueprint for how a utility will provide generation services to customers. Among AEP’s proposal was a plan to have its ratepayers subsidize two coal plants.

This plan, also known as a Power Purchase Agreement or in short PPA, would compare the actual cost of generation at the coal plants to the market price. If the market price is higher, then AEP would credit the difference to customers—if lower then it would take the difference from customers.

“We think it’s the right thing to do,” says AEP spokeswoman Terri Flora.

Especially in light of where these plants stand and where the industry stands. We think it’s a benefit not only to customers but to Ohio in itself.

But the Public Utilities Commission of Ohio didn’t necessarily see it that way. The commission approved AEP’s overall plan, but struck down the coal plant idea.

PUCO spokesman Matt Schilling says there was too much uncertainty revolving around the proposal.

The evidence kind of showed that it could end up being a net benefit to customers where they would’ve received maybe about $8.4 million in benefits over the three-year term of this electric security plan but it could’ve been up to a $54 million cost as well.

Several groups, including environmental and consumer advocates, came out against the plan. The Sierra Club’s Ohio Chapter dubbed it a coal plant bailout.

“If you can’t make money in the market you’ve got to find other ways to make money with these units or you’re gonna have to sell them or shut them down and these are the questions our utilities are facing right now and so what they’re attempting to do is just force those costs whether these plants are competitive or not onto the customers so it’s no longer a risk for the corporation it would now instead be a risk on the consumer,” says the Sierra Club’s Dan Sawmiller.

Flora argues that that’s an unfair assessment and says groups such as the Sierra Club simply don’t like coal. She points out that there might’ve been more cost to consumers in the short term, but ratepayers would’ve seen more credit on their bills over the entire lifespan of the plants which would be 15 years or longer.

“The plants that we have proposed in both the ESP and the expanded PPA are efficient coal plants. They are very effective in what they do they’re good units and we want to continue that because again we think that they have a lot more to provide the state of Ohio and its customers,” said Flora.

This is the first PPA of its kind since Ohio started its transition to having generation sourced through market pricing. The good news—according to AEP—is that the PUCO did rule that this kind of PPA is legal, but this one just didn’t show a concrete benefit to customers.

The commission also laid out some criteria to offer guidance for any other utility that’s considering a similar rider for electric bills. And as it turns out that’s the boat Duke Energy and FirstEnergy are in right now—their PPA proposals are still pending with the PUCO.

But Sawmiller believes the commission has already drawn a line in the sand with their ruling.

Based on the criteria in this order here, I don’t see how they get more comfortable with the other proposals that are pending that have much higher financial stakes for customers.

Besides Duke and FirstEnergy—Flora says AEP plans to move forward with its other PPA proposal for a rider on four other coal plants.