AEP Generation Resources and Ohio Power told the Federal Energy Regulatory Commission in a Feb. 23 brief that competing power suppliers have no leg to stand in trying to get FERC to intercede in a pending case where the Public Utilities Commission of Ohio is considering a plan to protect AEP coal-fired power.
AEP Generation Resources got earlier this decade power plants that Ohio Power, another American Electric Power (NYSE: AEP) subsidiary, had to give up under Ohio’s utility deregulation program. Ohio Power is now asking the PUCO, under a proposed Electric Security Plan (ESP), to let it sell output from this coal-fired capacity under an eight-year power purchase agreement. The PUCO is nearing a decision in that case.
On Jan. 27, the Electric Power Supply Association, the Retail Energy Supply Association, Dynegy Inc., Eastern Generation LLC, NRG Power Marketing LLC and GenOn Energy Management LLC filed this complaint at FERC.
Among the matters before the PUCO is the prudence, from a retail ratemaking perspective, of AEP Ohio’s proposal to enter into a contract with its affiliate and create a related non-bypassable generation rate mechanism for retail customers. Said AEP’s Feb. 23 brief filed with FERC: “Focusing exclusively on this matter, the Complaint poses a single, narrow question: In Ohio, where retail choice is mandated under state law, if the PUCO approves a non-bypassable rate mechanism in AEP Ohio’s service territory, would that render retail customers captive for purposes of the Commission’s affiliate restrictions, thereby requiring the Commission to step in and conduct its own review? The answer is clearly no.
“The Commission has confronted this same question in a prior case involving an Ohio utility, and held that retail customers in Ohio have the legal right under state law to choose alternative power suppliers, and thus are not captive customers regardless of whether the PUCO approves a non-bypassable charge. From a legal perspective, therefore, because the PUCO’s approval of AEP Ohio’s proposed retail rate mechanism would not impair the legal right of retail customers in Ohio to select an alternative power supplier, there are no changed circumstances that would justify granting the Complaint.
“From a policy perspective, the answer is the same. Although the Complainants suggest that absent Commission action, AEP Ohio’s proposal would evade meaningful review, the Complainants acknowledge that parties in the PUCO proceeding raised the very arguments that they claim warrant review in this proceeding. As the state commission with the authority and the mandate to oversee retail choice, the PUCO is undertaking a comprehensive review of the impact of AEP Ohio’s proposal on Ohio retail customers. This is precisely the reason why the Commission should adhere to its longstanding policy and defer to the PUCO’s resolution of the retail rate matters that form the basis for the Complaint.”
In its most recent ESP proceeding, Ohio Power/AEP Ohio has proposed a “PPA Rider” that would enable AEP Ohio to provide a partial cost-based hedge against volatile market prices to its retail customers, AEP said. The PPA Rider creates this hedge by netting revenues from the sale of AEP Ohio’s entitlement to capacity and energy under third-party power purchase agreements (PPAs) against the costs associated with those PPAs. The PUCO is currently reviewing two such PPAs for inclusion in the PPA Rider:
- One is a proposed agreement between AEP Ohio and AEP Generation Resources, which provides for the sale of capacity and energy from certain of AEP Generation Resources’ units (which previously were owned by AEP Ohio) to AEP Ohio.
- The second is a previously FERC-approved PPA entitling AEP Ohio to capacity and energy from the Ohio Valley Electric Corp.’s (OVEC) two coal-fired generating stations, called Kyger Creek and Clifty Creek.
A stipulated agreement reached last December in the PUCO case would require AEP Ohio to enter into an eight-year power purchase agreement (ending May 31, 2024) for the capacity, energy and ancillary service output of AEP’s 2,671 MW ownership share of nine generating units and AEP Ohio’s 423 MW contractual share of OVEC’s generation.
The nine coal units include Cardinal Unit 1; Conesville Units 4, 5 and 6; Stuart Units 1-4; and Zimmer Unit 1. OVEC, which is owned by several parties besides AEP, owns the coal-fired Kyger Creek and Clifty Creek plants.
The agreement includes significant environmental improvements to AEP-owned generating units including converting Conesville Units 5 and 6 to co-fire natural gas by Dec. 31, 2017, subject to regulatory approval, and retiring, refueling or repowering Conesville Units 5 and 6 and Cardinal Unit 1 to only use natural gas by the end of 2029 and 2030, respectively.
Oregon Clean Energy says a further 860-MW project is possible, if signals are right
Oregon Clean Energy LLC, which is developing a gas-fired power project in Ohio, and subsidiaries of power producer Talen Energy (NYSE: TLN) on Feb. 23 filed a joint brief with FERC in support of the complaint.
“The Affiliate PPA, if it is made effective, will make all AEP Ohio customers captive to paying generation charges regardless of whether they have opted to shop for their electric purchases,” they wrote. “No customer will have the choice of avoiding responsibility for these pass-through generation costs pursuant to the Affiliate PPA; instead, all customers will be captive to these costs of privately-arranged wholesale generation supply between affiliates. Accordingly, the Affiliate PPA does not satisfy the criteria the Commission relied upon when it granted the waiver, should therefore not be subject to the waiver, and must be subject to Commission review in order to ensure that it is not the product of prohibited affiliate preference. This also will protect other wholesale market participants, and ultimately customers, against undue discrimination.”
Oregon Clean Energy developed and owns the Oregon Clean Energy Facility, which is an 860-MW natural gas-fired combined cycle generator located in the City of Oregon, Lucas County, Ohio. In November 2014, Oregon Clean Energy closed financing on a total investment exceeding $800 million, including over $400 million in equity contributions and an additional $400 million in debt provided by a syndicate of ten experienced project-finance banks. To date, construction of the Oregon Clean Energy Facility is approximately 65% complete, placing the project on schedule to achieve commercial operation during the first quarter of 2017.
The Feb. 23 brief co-authored by this company noted: “The Oregon Clean Energy Facility was financed and is being developed in direct response to the robust wholesale price signal provided by PJM’s capacity and energy markets. Its investors’ willingness to commit more than $800 million to this Ohio-based project was predicated on their long-term confidence in PJM’s markets. Oregon Clean Energy has the potential to develop an additional 860 MW facility in Ohio, and while Oregon Clean Energy would be interested in pursuing expansion, that expansion will require confidence in the fairness of competitive markets. The Affiliate PPA, if approved, will undermine the efficiency and fairness of the wholesale markets and erode that needed confidence.”
PJM Interconnection on Feb. 23 sought to intervene in the FERC case in support of the complaining parties. PJM said that, if approved, the Affiliate PPA and associated PPA rate rider will create incentives that will likely lead to these generation units being offered, unless checked, in a manner that could harm the overall competitiveness of the PJM markets. “This outcome could impact significantly PJM’s administration of the wholesale markets in its region and affect the mission entrusted to these markets – assuring efficient, long-term resource adequacy,” it said. “Accordingly, based on the foregoing, PJM has an interest in the proceeding that cannot be adequately represented by any other party, and respectfully asks the Commission to grant PJM’s intervention as a party to this proceeding.”
Also on Feb. 23, the Pennsylvania Public Utility Commission, which covers a deregulated state next door to Ohio, filed a brief that expressed concerns about the AEP plans. “At the outset, the PAPUC contends that its involvement in this case is solely predicated on a concern that the AEP affiliate PPA, as currently structured, represents a potential threat to the continued efficient function of PJM’s wholesale capacity markets beginning with the upcoming Base Residual Auction (BRA). More precisely, AEP’s affiliate PPA presents the risk of potential subsidization of generation facilities that may otherwise be retired, resulting in conveyance of incorrect price signals in the next and subsequent capacity market auctions. The PAPUC is likewise concerned that the very nature of this affiliate PPA represents the exact type of abuse of the affiliate relationship that should be subject to FERC review under FPA Section 205 and the Edgar/Allegheny standard. As such, the PAPUC’s support for the EPSA Complaint is narrowly predicated on the issue of appropriate FERC review of the affiliate PPA and no other reason.”