The Public Utilities Commission of Ohio (PUCO or Commission) issued Orders approving Power Purchase Agreements (PPAs) for the AEP Ohio and FirstEnergy Ohio electric distribution utilities – but not without significant modification. The PUCO approved the FirstEnergy Standard Service Offer (“SSO”) Plan and approved the AEP Power Purchase Agreement Rider (“PPA Rider”) proposal. The main feature of each proceeding was a request by Ohio electric distribution utilities for approval to enter into power purchase agreements with their deregulated generation affiliates (AEP Order at 21, FirstEnergy Order at 13). The utilities described the PPAs as a hedge against market volatility while opponents referred to these PPAs as “bailouts” for coal plants. The utilities entered into stipulations with certain parties – including the Commission Staff – which modified the original proposals. On March 31, 2016, the Commission approved the stipulated proposals, but not without further modifications to the proposed stipulations.
FirstEnergy entered into several stipulations with different parties. In the final stipulation, the PPA proposal (aka “Rider RRS”) was modified significantly. The time period for Rider RRS was reduced from 15 years to 8 years. The utility agreed to provide credits to customers totaling 100 million dollars for the last 4 years of the Rider. In the Order, the Commission imposed additional safeguards in its annual prudency review of the affiliate transactions to “prevent anticompetitive behavior” (FirstEnergy Order at 110) on the part of the utilities and their affiliates.
The AEP proposal was modified in by the stipulation in several significant ways. First, the stipulation modified the return on equity to a lower, fixed rate rather than a variable rate. Similar to FirstEnergy, the term of the Rider was reduced to eight years. Finally, the last four years provided customer credit guarantees of up to 100 million dollars, depending on the results of the PJM auction.
The Commission’s modifications in the AEP Order included a mechanism that limits the rate impact of the PPA rider to five percent limit (for each individual customer) for the period ending May 31, 2018 (see the AEP Order at 81). This five percent excludes the cost of renewable energy projects (proposed in the stipulation and cost collected through the PPA Rider).
Under Ohio law, all parties have the right to request rehearing of the Commission’s Orders. There will no doubt be several requests for rehearing and further scrutiny of the PUCO’s decision. AEP has already indicated that it will request a rehearing. So the Commission Orders, despite their length and deliberation, will likely not be the end of what has already been a lengthy process to determine the fate of some of Ohio’s aging generation resources.