PUCO establishes AEP capacity pricing system

The Public Utilities Commission of Ohio (PUCO) adopted today 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 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.

“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 stated.

“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 stated. “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.

The Commission opinion and order issued today in case number 10-2929-EL-UNC will be available online at www.PUCO.ohio.gov.