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AEP Ohio’s modified electric security plan Filed March 30, 2012 presented April 9, 2012

11-346-EL-SSO and 11-348-EL-SS0. AEP Ohio’s modified electric security plan Filed March 30, 2012 presented April 9, 2012. Timeline. ESP Term - June 1, 2012 through May 31, 2015 January 1, 2015 through May 31, 2015 energy auction for 100% of SSO load

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AEP Ohio’s modified electric security plan Filed March 30, 2012 presented April 9, 2012

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  1. 11-346-EL-SSO and 11-348-EL-SS0 AEP Ohio’s modified electric security planFiled March 30, 2012presented April 9, 2012

  2. Timeline • ESP Term - June 1, 2012 through May 31, 2015 • January 1, 2015 through May 31, 2015 energy auction for 100% of SSO load • June 1, 2015 begins full delivery and pricing of SSO service, both energy and capacity, through Competitive Bid Process • Energy-only auction for 5% of SSO load with delivery beginning six months after final orders in ESP and Corporate Separation cases

  3. Discounted Capacity Prices to CRES Providers • AEP Ohio cost-based capacity charge as presented in Case No. 10-2929-EL-UNC is ~$355/MW-day • Tiered capacity pricing mechanism for AEP Ohio load served by CRES providers during transition period prior to Company’s SSO load being served through an auction • First tier priced at $146/MW-day • Based on total MWh retail sales • ~21% of each customer class through December 2012 • For 2012, governmental aggregation initiatives approved in the November 2011 election or prior will be awarded as additional allotments of the first tier price as necessary • ~31% of each customer class during 2013 • ~41% of each customer class from January 1, 2014 through May 31, 2015 • Second tier priced at $255/MW-day

  4. Impact on Customer Rates • No base generation rate increase • On average over the three-year period, retail customers will see an approximate increase of 3%

  5. Recovery Mechanisms • Proposed riders: • Retail Stability Rider (RSR): Non-bypassable rider that provides economic stability and certainty for AEP Ohio, our customers and other stakeholders during the market transition term of the modified ESP II plan. • Distribution Investment Rider (DIR): Non-bypassable rider that allows for continuation of distribution investment measures to support reliability improvements. • Alternative Energy Rider (AER): Bypassable rider that recovers the expense related to Renewable Energy Credits (RECs). RECs are currently recovered through the Fuel Adjustment Clause (FAC). • Generation Resource Rider (GRR): Non-bypassable rider that will recover the cost of new generation resources. • Will be used to recover the cost of the proposed Turning Point project, if approved by the Commission.

  6. Recovery Mechanisms (cont’d) • Miscellaneous Riders and Provisions: • Phase In Recovery Rider (PIRR): Non-bypassable rider utilized to collect deferred fuel, as approved in the previous ESP. The Company is proposing to delay the implementation of this rider until June 1, 2013 in order to minimize customer rate impacts. • Storm Damage Recovery Mechanism: Establish an accounting mechanism creating a regulatory asset/liability depending on actual expense in a given year (base line = $5M). • Pool Termination Provision: Only applies if the Corporate Separation plan is amended or denied. • Continuation of current riders: • Fuel Adjustment Clause (FAC)- unified rates begin June 1, 2013 • gridSMART® • Enhanced Service Reliability Rider • Transmission Cost Recovery Rider • Economic Development Rider • Energy Efficiency/Peak Demand Reduction • Other Miscellaneous Riders

  7. Corporate Separation • Achieve full structural corporate separation of generation and marketing from transmission and distribution by January 1, 2014. • Transmission and Distribution remain with AEP Ohio • Generation units and all other assets related to the generation business will be transferred at net book value to AEP Generation Resources, Inc. • Appalachian Power Company (APCo): Amos Unit 3 (APCo currently owns 33% of this Unit) and 80% of the Mitchell plant. • Kentucky Power Company (KPCo): 20% of the Mitchell plant.

  8. Aggregate Market Rate Offer (MRO) Test • The Company’s proposal is more favorable in the aggregate as compared to the expected results under a MRO. • All components must be considered, including those not readily quantifiable.

  9. Alternative Option • Single price for all capacity utilized by Competitive Retail Electric Service (CRES) providers. • $355.72/MW-day while AEP Ohio is a Fixed Resource Requirement (FRR) entity • Shopping credit of $10/MWh, subject to a cap of $350M over the period of June 2012 through December 2014 • Typical residential customer could receive shopping credits of over $100 per year • Encourages shopping in each customer class • Provides direct and tangible benefit through a bill credit to customers who shop, independent of the CRES offer selected • Shopping credits to customers on a first come, first served basis by customer class • 20% of the load from June 2012-May 2013 for each customer class • 30% of the load from June 2013- May 2014 for each customer class • 40% of the load from June 2014- December 2014 for each customer class • Eliminates the need for the Retail Stability Rider

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