Office of the Ohio Consumers' Counsel

2008 Annual Report

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American Electric Power IGCC power plant cost recovery

(Supreme Court of Ohio Case No. 2006-1594)

The Supreme Court of Ohio upheld an appeal by the Office of the Ohio Consumers’ Counsel (OCC) and three other parties in March 2008. The decision reversed a Public Utilities Commission of Ohio (PUCO) decision authorizing American Electric Power (AEP) to begin collecting costs for the development of an Integrated Gasification Combined Cycle plant in Meigs County prior to the start of construction.

The OCC appealed the PUCO’s decision, maintaining that it lacked the authority to grant AEP’s request. The PUCO had ruled that the plant was a distribution, rather than a generation asset. The OCC argued that under this rationale, regulators acted outside the statutory ratemaking procedures for distribution rates when they allowed rates to increase. The state legislature had passed a law deregulating generation-related costs in 1999.

The Court reversed the PUCO’s decision, finding that “additional legislative authority is necessary” to support generating projects and that all of the evidence in the record defined the IGCC power plant as a generation asset. Existing statutes require a distribution rate case to be filed in order to approve an increase in such rates, including a test of whether the power plant is “used and useful.”

The case was remanded to the PUCO to correct its errors and a decision was still pending at the end of 2008.

Duke rate plan argued at Supreme Court of Ohio

(Supreme Court Case No. 08-36)

Photo of Man Arguing Before Supreme Court of Ohio For the second time, the Office of the Ohio Consumers’ Counsel (OCC) in 2008 presented oral arguments to the Supreme Court of Ohio in opposition to Duke Energy’s rate plan.

The case was originally appealed to the Court by the OCC in 2005. In 2006, the Court returned the case to the Public Utilities Commission of Ohio (PUCO), finding that the PUCO lacked sufficient evidentiary justification for accepting Duke’s proposal to assess new charges.

In addition, the Court found that the PUCO should have allowed the OCC access to any side deals offered to large volume users of energy to gain support for Duke’s rate plan.

In 2007, the PUCO reheard the Duke rate plan case. Side deals were presented by the OCC to the PUCO as evidence. Those side deals allowed large volume users to avoid certain surcharges that residential customers had to pay. However, the PUCO declined to consider the OCC’s arguments and made no significant changes to the generation rates that customers paid under the PUCO’s previous decision.

The OCC’s second appeal was pending a decision by the Court at the end of 2008.

Rules written to implement Ohio’s new electric policy

(Case Nos. 08-777-EL-ORD, 06-653-EL-ORD, 08-888-EL-ORD)

During 2008, the Public Utilities Commission of Ohio (PUCO) drafted rules governing the implementation of the new state energy policy established by Am. SB 221. The rules were divided into three sets and defined the responsibilites of electric utilities in developing new Electric Security Plans as the new law took effect.

The Office of the Ohio Consumers’ Counsel (OCC), in partnership with Ohio Consumer and Environmental Advocates (OCEA), presented the PUCO with joint comments on each set of rules, providing a united front to advocate for residential consumer and environmental benefits.

The first set of rules established procedures and information requirements for setting standard service generation rates. Beginning in 2009, an electric utility’s standard service rate, or offer, could be developed through a regulated Electric Security Plan or through a Market Rate Offer. Each procedure for setting standard service offers required details to be developed through the PUCO rulemaking process.

OCEA recommended that the rules be modified to ensure that customers receive proper protections. Their recommendations included:

Acceptance of the lowest possible price for electricity;
Elimination of non-bypassable generation charges that hurt efforts for government aggregation and deferral costs that include interest charges and saddle consumers with debt;
Additional criteria for special contracts between a utility and large users of energy, such as factories, to ensure accountablity when rate payers are asked to subsidize their bills; and
Independent evaluations of the economic development benefits from special contracts to ensure that discounted rates can be justified.

The second set of rules dealt with proposed changes to the Electric Service and Safety Standards. OCEA recommended that:

All electric utilities prioritize service reliability;
Statewide rules be adopted establishing a fouryear tree trimming cycle to improve maintenance policies and practices;
Stricter reporting standards be required for utilities;
New measurements be implemented related to momentary outages;
Comprehensive rules be set for net metering, making the process streamlined, transparent, affordable and accessible to residential customers; and
Consumers receive better opportunities, through government aggregation, to receive bulk rates for electric service.

In the third set of rules, which covered energy efficiency and renewable energy, OCEA sought to ensure that:

All electric utilities be required to include energy efficiency and renewable energy in their electric service proposals;
A PUCO staff recommendation requiring utilities to annually report their plans to meet electricity demand is included; and
Independent evaluations of the utilities’ energy efficiency programs are conducted to ensure that benchmarks are met and necessary adjustments are made.

The outcomes of the rulemakings will be finalized in 2009.

Agreement reached on Duke Energy’s electric security plan

(Case Nos. 08-920-EL-SSO, 08-921-EL-AAM, 08-922-EL-UNC, 08-923-EL-ATA)

Proposed rate increases for residential customers of Duke Energy were limited to 2 percent in 2009 and 2010 and eliminated in 2011 following an agreement in October 2008 by members of the Ohio Consumer and Environmental Advocates, which included the Office of the Ohio Consumers’ Counsel (OCC), and other advocates, with staff of the Public Utilities Commission of Ohio (PUCO), Duke Energy Ohio and other parties.

Duke’s original plan would have increased the average total electric bill for residential consumers by at least 5.7 percent from 2009-2011. Under the agreement and Duke’s original plan, riders on customers’ bills will be used to account for the rise and fall of certain costs such as fuel and environmental compliance.

OCEA also achieved an agreement with Duke to invest $1.75 million per year in low-income assistance which will be distributed by local nonprofit organizations.

At the OCC’s urging, Duke also will develop, by June 30, 2009, a standard renewable energy certificate purchase program to promote the development of customer-sited renewable energy. Under this program, customers who invest in a renewable energy project would receive payment from Duke for the project’s positive environmental and social attributes. This would help Duke meet its renewable energy requirements under Ohio’s electric policy law.

Duke agreed with OCEA to lower caps on what it can earn through energy efficiency programs while providing significant incentives for the utility to exceed Ohio’s new standards. Duke will not be able to earn a rate of return profit for meeting the state’s mandatory requirements but can earn limited profits for reducing its energy load above the standards.

The parties also negotiated guidelines for Duke’s SmartGrid and automated metering proposals, including annual cost caps. Duke’s original proposal would have placed all of the risk of emerging technology on its customers.

The OCC continued to advocate for the opportunity for local communities to aggregate, or create buying pools, to purchase electricity from alternative suppliers on behalf of residential customers. The agency sought to ensure that aggregating communities are provided the same benefits as businesses that chose an alternative supplier.

American Electric Power proposes more than 50 percent rate increase over three years

(Case Nos. 08-917-EL-SSO, 08-918-EL-SSO)

In accordance with Am. SB 221, American Electric Power (AEP) filed an Electric Security Plan in July 2008. In its proposal, AEP sought to increase residential customers’ rates by approximately 15 percent annually from 2009 through 2011. The utility requested increases in rates for fuel costs, purchased power and environmental compliance. Rate increases of more than 15 percent over the next three years would be deferred, with interest, and recovered from customers over seven years beginning in 2012.

The Office of the Ohio Consumers’ Counsel (OCC) intervened in the case and provided extensive expert testimony to the Public Utilities Commission of Ohio (PUCO). In its response to the proposal, the OCC argued that AEP had not proven it needed more than $600 million in increases to its non-fuel generation charges and $200 million in increases to its distribution rates, which were substantially less than the over $3 billion AEP was requesting.

AEP also asked to recover costs from customers for distribution system reliability improvements, estimated financial risk associated with remaining the provider of last resort, economic development discounts and compliance with energy efficiency requirements.

According to AEP, its proposal would meet the required renewable energy standard established under Ohio’s new energy law. The plan included the purchase of up to 300 megawatts of renewable energy. The company also would provide shareholder funds of $75 million over three years to support programs for low-income customers, economic development, energy efficiency and the installation of renewable energy systems.

The OCC sought to eliminate AEP’s proposal to charge customers a provider of last resort fee of approximately $500 million as compensation for an estimated financial risk to provide electricity to customers who shop for alternative suppliers and then return to AEP. AEP had not shown any specific costs it would incur related to this provider of last resort obligation.

The OCC also testified that AEP’s proposal to defer any costs above a 15 percent annual rate increase was not necessary and unreasonable. In addition, the OCC argued that the utility’s proposed interest rate at approximately 14 percent on the deferred charges was too high.

Finally, the OCC maintained that AEP’s proposed increased fuel costs were unreasonable, providing testimony that the utility submitted its electric security plan with an inappropriate starting point for calculating fuel costs. The OCC argued that the fuel cost baseline should be actual 2008 costs and that using such a baseline would reduce the additional fuel costs recovered from customers. The OCC concluded, in its testimony, that there were significant changes in the energy markets necessitating a recalculation of fuel cost estimates to reflect the current market value.

Because a decision was not reached on AEP’s plan, the PUCO allowed AEP to continue its current rates as it continued working in 2009 to arrive at a decision on the utility’s Electric Security Plan.

FirstEnergy’s Electric Security Plan contested

(Case Nos. 08-935-EL-SSO, 08-936-EL-SSO)

In 2008, FirstEnergy filed two proposals related to Ohio’s energy policy law. One would give the utility the ability to price electricity based on market rates, while the other would establish an Electric Security Plan to price electricity over the next three years.

The Office of the Ohio Consumers’ Counsel (OCC) intervened in both cases, arguing that FirstEnergy’s cost estimates were excessive and would overcharge consumers by $4.3 billion.

In its expert testimony, OCC presented evidence that the utility used high market prices for its comparison with the utility’s proposed Electric Security Plan rates and included inappropriate adders to provide for its generation needs over the next three years.

FirstEnergy touted minimal increases, but was only able to do so by deferring 10 percent of the electricity costs over 10 years. The OCC contended that no deferrals should be included past the plan’s three-year term.

FirstEnergy’s proposed Electric Security Plan would have increased total average rates for all of its customers. Over three years (2009-2011) rates for residential consumers would have increased 11.7 percent for Cleveland Electric Illuminating, 12.1 percent for Ohio Edison and 14.75 percent for Toledo Edison, before adding the impact of nearly $2 billion in deferred costs. The Electric Security Plan reflected increases in generation, distribution and transmission costs and included a proposal to resolve a distribution rate case that was awaiting a decision by the Public Utilities Commission of Ohio (PUCO).

The OCC advocated that FirstEnergy’s proposed distribution-related increases should be resolved in a pending distribution rate case. These increases had been fully litigated, and the OCC recommended substantially lower distribution rates than the utility proposed in that separate rate case.

A provision in FirstEnergy’s Electric Security Plan would have allowed the PUCO to choose market rates in the third year of its plan if those rates proved to be more favorable. Under Ohio’s new energy policy law, if FirstEnergy was allowed to competitively price electricity from the market, it could not return to an Electric Security Plan.

The OCC also testified that FirstEnergy should provide more reliable electric service and that the under-performance of the utility in meeting its reliability targets should result in lower profits. The OCC argued that the PUCO should use its authority to further investigate FirstEnergy’s service quality.

As a requirement of Ohio’s new energy law, all utilities must include energy efficiency as part of their Electric Security Plan. FirstEnergy’s proposal would have provided up to $25 million in energy efficiency programs and $25 million for economic development programs through 2013.

The OCC argued that FirstEnergy’s Electric Security Plan lacked the details needed to determine that it was in compliance with Am. SB 221 and that the $25 million proposed for energy efficiency does not meet the requirements of the law.

In November 2008, the PUCO rejected FirstEnergy’s Market Rate Offer proposal because it failed to meet a number of fundamental requirements under Ohio’s new energy law. The PUCO also modified and approved FirstEnergy’s Electric Security Plan proposal in December 2008. In its order, the PUCO agreed with many of the OCC’s arguments and adjusted the proposed generation rates downward, refused to allow the utility to defer costs into the future and decided to rule separately on distribution rates in the pending rate case.

Following the PUCO’s December decision, FirstEnergy withdrew its Electric Security Plan as allowed under a provision in the state’s energy law. In early 2009, the issues involving FirstEnergy’s future rates remained unresolved.

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