Parties go at it again at Ohio commission over Duke interests in two coal plants

The fact that the Public Utilities Commission of Ohio on April 2 refused to grant a protection proposal for Duke Energy Ohio‘s shares of two coal-fired power plants of Ohio Valley Electric Corp., but left open the door to approving such a mechanism in the future, was a key feature of several May 4 motions by parties to the case for rehearing of the April 2 order, including a rehearing request from Duke Energy Ohio itself.

The Environmental Law & Policy Center and the Ohio Environmental Council (collectively called the “Environmental Advocates”) sought rehearing of the April 2 decision approving an Electric Security Plan (ESP) proposed by Duke Energy Ohio. In its application, this Duke Energy (NYSE: DUK) subsidiary sought authorization of an Electric Security Plan for the period of June 1, 2015 to May 31, 2018.

“The Commission rightly refused to allow Duke to require the Company’s customers to pay the costs of a power purchase agreement (‘PPA’) for electricity from two Ohio Valley Electric Corporation (‘OVEC’) plants in which Duke itself has an ownership interest,” said the Environmental Advocates petition, referring to the Kyger Creek and Clifty Creek power plants. “Duke is bound by a contract that entitles the Company to 9 percent of the energy and capacity from OVEC but requires Duke to pay corresponding fixed and variable plant costs.

“In other words, Duke and its shareholders effectively own 9 percent of the OVEC plants for the term of this contract. In return for bearing the OVEC entitlement costs under the proposed Price Stability Rider (‘PSR’), customers would receive only the benefit of a credit of the net proceeds of Duke’s sale of its OVEC power on the wholesale market. The Commission recently rejected a similar arrangement proposed by American Electric Power (‘AEP’) with respect to its own OVEC interest, based primarily on the dubious benefits of such a PPA for ratepayers. Similarly, the Commission correctly held that the ‘considerable uncertainty’ regarding the magnitude of any wholesale market proceeds precluded a conclusion ‘that Duke’s PSR proposal would provide customers with sufficient benefit from the rider’s financial hedging mechanism or any other benefit that is commensurate with the rider’s potential cost.’

“While the Environmental Advocates support this ultimate conclusion, we believe that the Order is unlawful and unreasonable for the same reasons that we have sought rehearing in the AEP case. As an initial matter, the Order erroneously concluded that the Commission has legal authority to approve the PSR in principle, even though it operates as an anticompetitive subsidy from Duke’s distribution customers to Duke’s generation interest in the OVEC plants. Even if the Commission had such authority, the Order is unlawful and unreasonable in two additional respects: first, in concluding that PSR costs should be imposed as a non-bypassable charge on shopping customers, thereby depriving them of the opportunity to seek an alternative hedge or decline to accept any hedge; and second, in setting forth factors for the consideration of future PPAs proposed for cost recovery under the PSR that do not adequately reflect the relevant statutory and legal considerations.”

Said a group of large industrial power customers, called the Industrial Energy Users-Ohio, in their own May 4 request for rehearing: “In the ESP Order, the Commission found that Duke had failed to demonstrate the proposed PSR would provide customers the stability benefits, the so-called ‘hedge,’ that Duke claimed, but still authorized Duke to establish a PSR as a placeholder with an initial rate of zero. Further, the Commission left open the door for Duke to make a ‘future filing’ for authorization to recover generation-related costs and directed Duke to address at least four ‘factors’ if it sought cost recovery.”

The industrials said the ESP Order is unlawful and unreasonable for several reasons, including:

  • The commission’s finding that it may authorize the PSR as a term of an ESP is unlawful because state stature does not provide authorization for a nonbypassable generation-related rider.
  • The commission’s finding that it may increase Duke’s compensation for wholesale generation-related electric services is unlawful because the finding exceeds the commission’s jurisdiction under Ohio law.
  • The commission’s finding that it can authorize Duke to collect above-market wholesale generation-related costs through a separate filing would permit Duke to unlawfully evade certain requirements.

Duke Energy Ohio, in its own May 4 request for rehearing, said the April 2 decision needs another look for several reasons, including that the commission has denied ratepayers a valuable hedge against volatile power market prices and that a commission directive to pursue transfer of the OVEC capacity entitlement or divestiture of the OVEC capacity is beyond the commission’s authority in this proceeding.

On the issue of getting rid of the OVEC capacity, Duke Energy Ohio noted that one of its subsidiaries is Duke Energy Kentucky, which directly owns generating capacity. So the commission in this case is directing Duke Energy Ohio to get rid of its OVEC stake, but not of Duke Energy Kentucky, the company added. Among other things, Duke Energy Ohio said the directive about OVEC is a “takings” of its property and a “flagrant violation” of its due process rights.

OVEC operates the Kyger Creek plant in Cheshire, Ohio, which has a nameplate capacity of 1,086 MW. It also operates the Clifty Creek in Madison, Ind., with a nameplate capacity of 1,304 MW.

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.