Electric Industry

In 2006, electric rate plans approved by the Public Utilities Commission of Ohio (PUCO) caused higher electric bills for many of Ohio’s 4.5 million residential consumers. In northern Ohio, where many customers are served by FirstEnergy’s electric utilities, the rates remained high with the impact of increases delayed, while automatic rate increases were imposed on residents in central and southern Ohio served by American Electric Power (AEP), Dayton Power & Light and Duke Energy.

The Office of the Ohio Consumers’ Counsel (OCC) remained steadfast in its commitment to protect residential consumers from higher rates through its participation in many state and federal cases. The Supreme Court of Ohio issued decisions in several of the OCC’s appeals of PUCO decisions, including those related to AEP, Cincinnati Gas & Electric (CG&E, now known as Duke Energy) and FirstEnergy rate plans. In its decisions, the Court found some of the PUCO’s actions to be unlawful and reversed significant portions of the PUCO’s decisions.

Several electric cases in which the OCC participated involved a variety of costs associated with individual utilities’ rate plans. For example, CG&E was permitted by the PUCO to establish annual or quarterly rate adjustments covering four separate categories of costs such as the Fuel & Purchased Power and System Reliability Tracker components. In addition, Duke Energy proposed to extend its rate plan, currently set to expire in 2008, an additional two years.

The PUCO held an important statewide review where the OCC encouraged the removal of regulatory barriers that have prevented residential and business consumers from producing their own electricity (distributed generation) and obtaining alternative power-related options. This review was prompted by the federal Energy Policy Act of 2005 and a request by then Governor Bob Taft. The OCC played a key role in the review proceeding by filing extensive comments supporting distributed generation and working with experts who contributed to a series of technical panels held in Columbus.

This review explored many topics related to distributed generation and how consumers could manage their electricity use. For example, “smart meters” and new rate options were discussed, which the OCC advocated as tools to allow Ohioans, on a voluntary basis, to shift energy usage into low-priced time periods. This shifting could help the reliability of the local utility’s system, lower the overall cost of electricity and reduce customers’ monthly bills.

During 2006, progress was made to help consumers purchase renewable power, a measure that could help the environment, increase our state’s and nation’s energy independence and help make the electric system more reliable. The OCC and Duke Energy worked cooperatively to develop a new green energy option that would allow consumers to support energy that is produced using sources such as wind and solar. This option must first be approved by the PUCO before being offered to Duke Energy’s customers.

If the proposal is approved, Duke Energy customers who sign up for the program would pay a small premium and commit to purchasing a minimum of 200 kilowatt hours (kWh) of green power each month for one year. Customers would pay a 2.5 cent/kWh premium for green power. For example, the typical residential customer uses 850 kWh per month but could choose to buy as little as 200 kWh through the program, which would cost $5 more per month. Consumers could choose to purchase a greater amount of their electricity from renewable energy sources as well.
Duke Energy’s new green option is consistent with the OCC’s support for electric utilities to maintain a diverse energy portfolio, which includes renewables, clean coal and energy efficiency programs.

AEP service reliability

The reliability of American Electric Power’s (AEP) service has been at issue for a number of years. The Office of the Ohio Consumers’ Counsel (OCC) has had an ongoing concern that AEP’s utility companies are not providing all residential customers with the reliable service for which they pay and that is required under state law. The potential for higher rates heightened the OCC’s concerns when AEP proposed a plan in 2006 to try to improve the reliability of its distribution system and recover the costs through distribution rate increases. AEP filed its plan at the Public Utilities Commission of Ohio (PUCO).

Distribution rates cover costs associated with the poles and wires used to deliver electricity to customers’ homes. According to its 2006 filing, AEP wants to collect approximately $71 million in additional revenues from consumers to pay for the first 18 months of a five-year plan.

The OCC believes that asking consumers to pay more money to receive reliable electric service is a violation of a distribution rate freeze agreed to by AEP as part of a plan to transition from a regulated to a competitive electric market.
That rate freeze is supposed to last through 2008 for AEP.

In 2003, the staff of the PUCO prepared two investigative reports about the company’s practices and expenditures on tree trimming and other distribution operations needed to provide electricity to customers. The investigations also looked at AEP’s record keeping for these types of activities.

The PUCO staff’s investigations in the year 2003 detailed multiple violations of the PUCO’s Electric Service and Safety Standards, and both reports contained recommendations for necessary improvements by AEP. The standards contain rules that all electric utilities in Ohio must follow, including rules regarding service reliability and outages. Over the OCC’s objections, an agreement was reached in December 2003 between the PUCO and AEP that the OCC believes failed to resolve key reliability problems.

In January 2004, the OCC asked the PUCO to launch a statewide electric reliability investigation and highlighted the need for electric companies to provide tree trimming reports that define their practices, outline future plans and disclose current and future spending. Later that month, the PUCO rejected the OCC’s request. In January 2005, the OCC asked the PUCO to conduct a comprehensive AEP-specific reliability investigation based on the breadth and depth of power outages following two winter storms. The OCC also requested local public hearings in several communities. The PUCO did not act on the request for a comprehensive investigation.

A report issued in April 2006 by the PUCO staff found AEP had failed to meet obligations required under the agreement reached in December 2003 to improve its service. The reliability issues relate to outages customers have experienced, whether the power failures could have been prevented through better maintenance efforts and the length of time it took for the company to restore service. The 2006 report showed that while performance improved in the portions of AEP’s service area that had experienced the most power outages, electric reliability declined in other service areas.

To resolve the utility’s failure to meet its obligations under the agreement, the PUCO ordered AEP to earmark $10 million toward future reliability measures. The OCC questioned whether the amount is adequate and whether it could be determined if and how those funds were spent.

Based on AEP’s 2006 request to increase its distribution rates to improve reliability, public hearings were scheduled by the PUCO for January 2007. The OCC encouraged customers of AEP to voice their opinions on the utility-proposed plan to try to improve service reliability.

— Cases 03-2570-EL-UNC, 06-222-EL-SLF

AEP power plant costs

In April 2006, the Public Utilities Commission of Ohio (PUCO) approved an American Electric Power (AEP) proposal to increase customers’ rates in order to recover an estimated $23.7 million for research and pre-construction costs related to the building of a clean coal power plant. This amount is included in the first of three phases proposed by AEP’s distribution utilities, Columbus Southern Power and Ohio Power, for the project estimated to reach well over $1.3 billion upon completion.

The Office of the Ohio Consumers’ Counsel (OCC) supported the environmentally friendly technology that would be used by the plant and the economic benefits for southeast Ohio, where the plant would be located. However, the OCC opposed the way in which AEP proposed paying for the plant, including the collection of millions of dollars in costs from consumers before the plant is operational and any potential benefits are gained. The OCC also argued that AEP’s proposal violated Ohio’s electric choice law because a local distribution utility cannot own a power plant. The Integrated Gasification Combined Cycle (IGCC) plant proposed by AEP would be owned by its distribution utilities. In addition, the construction of the plant would unlawfully increase customers’ rates without a full examination of all the utility’s costs and a legally required ratemaking process.

The technology that would be used by the plant is a newer, clean power technology that transforms the coal into a gas and then removes pollutants before it is used to create electricity. This technology, supported by the OCC, reduces emissions like nitrogen oxide, sulfur dioxide, carbon dioxide and mercury that are harmful to humans and the environment.

The OCC also advocated for customer protections in the event the PUCO approved AEP’s request to require customers to pay for the plant. The customer protections included: more details about the proposed plant’s design, the associated costs and its efficiency and reliability; a cap on construction costs to limit how much is collected from customers; a mechanism to share any profits earned from the sale of byproducts; and a limitation on the collection of costs that is tied to the performance of the power plant. For example, if the plant can only operate 80 percent of the time, consumers would pay less.

While the PUCO granted AEP its phase one costs, it concluded that the utility needed to economically justify several factors, including its construction and technology choices and the financial structure of the proposal. The PUCO directed AEP to address many of the OCC’s concerns in the next phase of the proceeding. The PUCO also denied the utility automatic approval of charges related to the second and third phases of the project. Additional evidentiary hearings likely will be held once AEP initiates its filings for those phases.

The OCC, the Industrial Energy Users – Ohio, the Ohio Energy Group (an industrial customer group) and FirstEnergy Solutions (an electric supplier) appealed the PUCO’s approval of the phase one rate increases to the Supreme Court of Ohio, where the case is pending.

— Case 05-376-EL-UNC, Supreme Court of Ohio Case 06-1594

Storm cost recovery

Dayton Power & Light (DP&L) and American Electric Power (AEP) requested the Public Utilities Commission of Ohio (PUCO) approval of distribution rate increases in September 2005 and March 2006, respectively, to recover costs related to damage resulting from storms.

The Office of the Ohio Consumers’ Counsel (OCC) advocated for residential consumers in each case, arguing that the electric utilities failed to follow the process required to increase distribution rates. The OCC said the utilities should be required to produce expert testimony and provide evidence that would be subject to scrutiny, including cross examination at a hearing, to prove the increases were necessary.

Over the OCC’s objections, the PUCO did not use a traditional rate case process that would have required public hearings at which the utilities would have presented expert testimony with cross-examination by parties. Requests to intervene in the case by the OCC and Industrial Energy Users – Ohio were denied by the PUCO. The PUCO approved the DP&L request in July 2006 and the AEP request in August 2006. Customers of both companies are paying higher rates as a result. In total, DP&L is collecting approximately $8.6 million while AEP is collecting about $24 million from all customers (residential, commercial and industrial).

In the DP&L case, two PUCO Commissioners expressed concern regarding the company’s significant decreases in tree trimming expenditures between 1999 and 2003. They stated that the company failed to provide sufficient information regarding the portion of its costs that could have been avoided if it had invested more money in maintaining the trimming of trees and other vegetation that can cause outages. The Commissioners’ concerns pointed to the possibility that if DP&L had spent more money in previous years on tree trimming around its lines, the outages could have been fewer and less severe. The OCC believes these concerns supported the need for a full examination of both companies’ requests.

— Cases 06-412-EL-ATA, 05-1090-EL-ATA

Disconnection waivers

In September 2005, American Electric Power (AEP) and Dayton Power & Light (DP&L) separately asked the Public Utilities Commission of Ohio (PUCO) to be granted waivers to a PUCO rule related to when consumers could be disconnected for not paying their bills during the winter heating season. Specifically, the rule requires electric and natural gas utilities to contact an adult in the home “ten days prior to disconnection by personal contact, telephone or hand-delivered written notice.”

The issue for the companies centered around the option of a hand-delivered written notice. AEP argued that the mailing of a notice is equivalent to hand delivery, while DP&L told the PUCO that it mailed a notice and took an additional step by reaching its customers by telephone or a hand-delivered note three days prior to a disconnection. DP&L later amended its request to the PUCO to allow it to use a mailing and a new automated telephone message system to comply with the 10-day rule.
The Office of the Ohio Consumers’ Counsel (OCC) led a group of consumer advocates in the cases to protect the interests of residential consumers. Regarding AEP’s waiver request, the group argued there was no basis for the request to be granted and that it was not in the public interest to allow consumer safeguards to be scaled back during what was projected to be an expensive winter heating season. Based on DP&L’s amended request, including both the three-day notice and automated telephone message system, the OCC found the company’s safeguards to be at least as effective as those that were currently in place.

In January 2006, the PUCO issued decisions that denied AEP’s waiver request and granted DP&L’s proposal. As a result of the PUCO decision, AEP must abide by the rule and provide the proper 10-day notice to customers during the winter heating season. The DP&L system was to be implemented and serve as a consumer safeguard prior to disconnection of service.

— Cases 05-1168-EL-UNC, 05-1171-EL-UNC

 

Home The Future of Energy in Ohio Supreme Court Cases