FRANK LEWIS

PDT Staff Writer

The Public Utilities Commission of Ohio (PUCO) has adopted a capacity pricing system through May 31, 2015, that will transition AEP-Ohio to a fully competitive retail environment.

The Commission’s decision establishes a cost-based capacity price of $188.88 per megawatt (MW) day, but requires AEP to charge competitive electric suppliers at a lower market-based capacity price, known as the Reliability Pricing Model (RPM) price. AEP is permitted to defer the difference between the adjusted RPM price and the cost-based price.

According to the Ohio Manufacturers Association, Portsmouth is one of 15 Ohio cities in which businesses which shop for their electric service will most likely see a large increase now that the new cost-based capacity rate has been set. The OMA said AEP had proposed three different capacity prices, each of which was significantly higher than regional, auction-based market prices for capacity that otherwise would apply to competitive suppliers in AEP Ohio’s service territory.

The first was $146 per megawatt day; the second, $255 per megawatt day; and the third, $355 per megawatt day. The PUCO decided on $188.88 per megawatt day. In Portsmouth currently, the market is dictating that the capacity cost should be $1,288,220. The OMA claims 255 commercial and industrial customers in Portsmouth currently shop for the best rates on power.

“The balanced outcome achieved in this case is based upon an extensive record that includes testimony from more than 20 parties,” PUCO Chairman Todd A. Snitchler said. “Our decision puts AEP on track towards a fully competitive environment faster than otherwise possible while ensuring that the utility receives fair compensation for its investment. The new pricing system provides electric suppliers with room to compete and secures consumers’ opportunity to shop for their electric generation service.”

Capacity charges are costs for reserve obligations that are billed to competing electric suppliers that sell power in AEP’s territory. Suppliers pay capacity charges to ensure that there is enough electricity on the power grid to meet their customers’ demands during periods of high usage.

The RPM price is set through an auction process designed to create price signals that stimulate important utility investment in reliability, including electric transmission and generation assets. The current adjusted RPM prices are $20.01 per MW-day for 2012/2013, $33.71 for 2013/2014 and $153.89 for 2014/2015.

While AEP is allowed to defer the difference between the RPM price that it collects from competitors and the cost-based capacity price, the total amount to be deferred will depend upon the number of customers who switch to a competitive supplier. The Commission will establish a capacity deferral recovery mechanism in AEP’s pending electric security plan (ESP) case in docket number 11-346-EL-SSO.

“Today’s decision is an important piece of the puzzle that will shape AEP’s rates going forward,” Snitchler said. “The remaining critical component is the company’s electric security plan proposal currently pending before the Commission. We continue to develop the record in the ESP case and expect to issue a decision early next month.”

The new capacity pricing system takes effect on August 8, 2012 and will remain in place through May 31, 2015. The existing interim two-tier capacity pricing adopted by the Commission earlier this year will remain in effect for one additional billing cycle through August 7, 2012.

The record in this case reflected a range of potential capacity costs put forth by diverse parties including AEP, PUCO staff, FirstEnergy Solutions and Ohio Energy Group. Proposed costs ranged from the RPM market price to $355.72 per MW-day.

Frank Lewis may be reached at 740-353-3101, ext. 232, or at flewis@heartlandpublications.com.