Ohio commission rejects Duke protection plan for two coal plants

The Public Utilities Commission of Ohio (PUCO) on April 2 modified and approved an electric security plan (ESP) for Duke Energy Ohio that will ultimately determine its standard service offer (SSO) rates in the June 2015-May 2018 period.

“The PUCO reaffirms the responsibility to ensure reliable utility service in Ohio,” stated PUCO Chairman Thomas W. Johnson. “Today’s decision emphasizes our commitment to that mission while enhancing the competitive electric market.”

Although the commission found that this Duke Energy (NYSE: DUK) subsidiary’s proposed Price Stabilization Rider (PSR) is permitted under Ohio law, the recovery of costs related to Duke’s Ohio Valley Electric Corp. obligations through this rider was not adopted. The commission was not persuaded that the rider, as proposed, would benefit ratepayers. Duke is authorized to establish a placeholder PSR, at a rate of zero, pending consideration of future proposals to the commission.

Ohio Valley Electric owns the coal-fired Kyger Creek and Clifty Creek power plants, and the Duke Energy Ohio proposal would have offered them some certainty of selling electricity during the period covered.

Throughout the term of the ESP, Duke will continue to utilize the competitive bidding process to provide 100% of the supply needed for its SSO customers, including Duke’s Percentage of Income Payment Plan customers. In order to minimize price uncertainty, the commission finds that Duke should modify its auction schedule as follows. The first auction should occur prior to the end of the current ESP on May 31, 2015, and offer a mix of one-, two- and three-year products, with delivery to begin on June 1, 2015. The second and third auctions should take place in November 2015 and March 2016, respectively, and each offer a two-year product. Finally, the fourth and fifth auctions should occur in November 2016 and March 2017, respectively and each offer a one-year product.

Sierra Club says coal protection not going well in Ohio

The Sierra Club on April 2 hailed the PUCO decision related to Ohio Valley Electric as a victory for clean air. “Today, the Public Utilities Commission of Ohio (PUCO) denied a bailout request by Duke Energy, the Charlotte-based utility that was seeking to pass increasing coal plant electricity costs to customers’ bills,” said the club. “Like a similar measure proposed by Columbus-based American Electric Power (AEP) that the PUCO also shut down in late February, the bailout request would have guaranteed Duke a revenue stream for its ownership stake in aging coal plants for decades, making customers’ electric bills higher than they should be.”

That Feb. 25 rejection by the commission of the AEP request, by the way, had to do with AEP’s ownership stake in Ohio Valley Electric and its two coal plants.

The club added: “The bailout denial comes in a series of other high-profile cases, including Akron-based FirstEnergy’s bailout request, still pending at the PUCO. The cases have drawn extreme ire from consumers and businesses, including a group of 12 Ohio businesses, like Lowe’s Home Improvement, Staples Inc., and Macy’s Inc. The business group sent a letter last October urging the PUCO to reject the bailouts proposal, citing a poll by Public Policy Partners showing a strong percentage of Ohio electricity customers favor clean, renewable energy sources to power the state – and do not support paying more to keep aging coal plants in operation.

“Meanwhile, more hearings in FirstEnergy’s similar bailout case are scheduled for June. Last January, public hearings in Cleveland, Akron and Toledo drew hundreds of opponents and hours of testimony with the Cleveland Plain Dealer reporting FirstEnergy’s request was ‘pummeled’ by the public.”

Daniel Sawmiller of the Sierra Club’s Beyond Coal Campaign said: “FirstEnergy is also brazenly trying to prop up its polluting and costly Sammis coal plant, and we encourage the PUCO to continue to carefully examine these sweeping bailout requests which will only increase our monthly bills and keep us tethered to dirty energy.”

PUCO did say power plant protection can be considered in such cases

Duke, along with 12 other entities, owns stock in Ohio Valley Electric (OVEC). Duke’s share is currently 9%. OVEC and its wholly-owned subsidiary, Indiana Kentucky Electric Corp. (IKEC), were created in the 1950s to provide power for uranium enrichment facilities located near Portsmouth, Ohio. OVEC owns two coal-fired plants that have a combined nameplate capacity of nearly 2,000 MW. OVEC has 11 coal-fired units, five at Kyger Creek in Cheshire, Ohio, and six at Clifty Creek, located near Madison, Indiana. Duke is entitled to capacity from these OVEC-owned stations commensurate with its contractual entitlement, or approximately 200 MW. Duke is also entitled to a share of the energy produced by the OVEC-owned stations, although it is not obligated to take energy.

Duke said that its proposal would provide price stablity for retail customers and ensure stable coal-fired generation for the future during high peak demand periods, like the winter of 2013-2014 polar vortex.

The commission did in its April 2 decision hold the door open a crack for power plants to be considered through the aforementioned “placeholder” provision.

“The Commission emphasizes that we are not authorizing, at this time, Duke’s recovery of any costs through the placeholder PSR,” the April 2 order said. “Rather, Duke will be required, in a future filing, to justify any requested cost recovery. All of the implementation details with respect to the placeholder PSR will be determined by the Commission in that future proceeding. In its filing, Duke should, at a minimum, address the following factors, which the Commission will balance, but not be bound by, in deciding whether to approve Duke’s request for cost recovery: financial need of the generating plant; necessity of the generating facility, in light of future reliability concerns, including supply diversity; description of how the generating plant is compliant with all pertinent envirormxental regulations and its plan for compliance with pending environmental regulations; and the impact that a closure of the generating plant would have on electric prices and the resulting effect on economic development within the state.

“The Commission also reserves the right to require a study by an independent third party, selected by the Commission, of reliability and pricing issues as they relate to the application. Duke must also, in its PSR proposal, provide for rigorous Commission oversight of the rider, including a proposed process for a periodic substantive review and audit; comnnit to full information sharing with the Commission and its Staff; and include an alternative plan to allocate the rider’s financial risk between both Duke and its ratepayers. Finally, Duke must include a severability provision that recognizes that all other provisions of its ESP will continue, in the event the PSR is invalidated, in whole or in part, at any point, by a court of competent jurisdiction.”

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.