Duke Energy Ohio readies May auction to procure electricity

Duke Energy Ohio said April 6 that it is ready to move forward with a new Electric Security Plan (ESP) that was approved on April 2 by the Public Utilities Commission of Ohio (PUCO).

In Ohio, an ESP is an electric utility’s plan for the supply and pricing of electric generation service for customers who do not choose a competitive retail electric service (CRES) provider. The PUCO’s ruling directs Duke Energy Ohio to move forward with implementing its new ESP for three years, beginning on June 1, 2015. The company’s current ESP went into effect on Jan. 1, 2012, and is set to expire on May 31, 2015.

“We appreciate the time and attention the commissioners put into this decision,” said Jim Henning, president of Duke Energy Ohio and Kentucky. “We continue to evaluate the commission’s order. In the meantime, we will move forward with scheduling a May auction to procure electricity for our customers, who still pay the lowest electric rates in Ohio.”

In its ESP application, Duke Energy Ohio proposed using competitive auctions to acquire electricity for its customers who do not choose a CRES provider to supply their generation. This is the same process that the company has followed under its current ESP.

“Buying electricity at auction ensures that our customers will continue to see competitive, market-driven prices on the generation portion of their monthly bills,” said Henning. “Duke Energy does not mark up the prices we pay for electricity. That means our customers will continue to enjoy highly competitive rates whether they rely on Duke Energy or a CRES provider for their generation service.”

In addition to setting guidelines for the company’s electricity procurement, the new ESP creates two new riders, which are line items added to utility bills for dedicated purposes.

  • The Distribution Capital Investment Rider gives Duke Energy Ohio the ability to proactively replace aging infrastructure in order to improve the reliability, safety and efficiency of its electric distribution system, which is the backbone for how the company delivers electricity to customers.
  • Duke Energy Ohio also received approval for the Distribution Storm Rider, which will track ongoing, annual expenses for restoring power following large-scale storms and natural disasters.

In its original application, Duke Energy Ohio proposed the Price Stabilization Rider (PSR) as a way to provide wholesale market rate stabilization to customers as additional (mostly coal-fired) power plants in our region are retired in the coming years – a trend that experts project is likely to increase electricity costs. The company recommended using its 9% entitlement to the Kyger Creek and Clifty Creek coal plants owned by Ohio Valley Electric Corp. (OVEC) as a hedge against volatile wholesale market prices. Among other details, Duke Energy Ohio proposed in its original application to pass on to customers all of the net revenues from the company’s entitlement in OVEC’s generation.

The PUCO, in its approval of the modified ESP, recognized that uncertainty is expected in the wholesale electricity markets due to future market reform and pending litigation and environmental regulations. The PUCO also agreed with Duke Energy Ohio that a properly structured PSR could mitigate wholesale market price volatility. In its order, the PUCO denied the company’s specific OVEC proposal, but created a placeholder for the PSR that allows Duke Energy Ohio to submit additional information in an effort to request recovery in the future.

Duke Energy Ohio said it will begin planning for a May auction to acquire electricity for its customers. The company will also continue to evaluate the PUCO decision in order to gain a clearer understanding of the commissioners’ opinions, the potential impact on customers and plan the company’s next steps. Duke Energy Ohio and other interested parties retain the right to file applications for rehearing, if they so choose, until early May.

Duke Energy Ohio/Kentucky’s operations provide electric service to about 840,000 residential, commercial and industrial customers in a 3,000-square-mile service area and natural gas service to approximately 500,000 customers.

Parent Duke Energy (NYSE: DUK) is the largest electric power holding company in the United States with approximately $121 billion in total assets. Its regulated utility operations serve approximately 7.3 million electric customers located in six states in the Southeast and Midwest.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.