Ohio Nixes Duke Energy Proposal to Guarantee Income from Coal Plants

As it decided in a February case involving American Electric Power (AEP), the Public Utilities Commission of Ohio (PUCO) has denied Duke Energy Ohio’s request to charge ratepayers for power from two aging coal plants owned by the Ohio Valley Electric Corp. (OVEC). 

In an April 2 order, the state regulator approved the Duke Energy subsidiary’s electric security plan (ESP), which will ultimately determine its standard service offer rates from June 1, 2015, through May 31, 2018. But while it found that Duke’s proposed price stabilization rider (PSR) is permitted under state law, it did not adopt the recovery of costs related to Duke’s OVEC obligations through the rider.

“The Commission was not persuaded that the rider, as proposed, would benefit ratepayers,” PUCO said in a statement.

Since 2008, Ohio has been transitioning from the traditional regulated model of vertically integrated utilities to a more market-based approach. But most of Ohio’s utilities are flailing, and most have sought price guarantees for unregulated plants.

Duke’s original application, for example, proposed the price stabilization rider “as a way to provide wholesale market rate stabilization to customers as additional power plants in our region are retired in coming years—a trend that experts project is likely to increase electricity costs,” it said in an April 6 statement. The company had recommended using its 9% entitlement to the plants owned by the OVEC as a hedge against “volatile wholesale market prices.”

OVEC is a joint venture between Duke Energy, AEP, FirstEnergy, and several other companies that was initially formed to supply power to a federal government-owned uranium enrichment plant in Portsmouth, Ohio. After the contract with the federal government ended, the generating capacity and output from OVEC’s two power plants has been made available to its sponsoring companies.

The April 2 PUCO order means that the regulator has now rejected two of three proposals that would have let the utilities buy power from OVEC affiliates at a long-term contract price and pass costs through to customers, regardless of whom customers chose as their electricity provider.

The commission’s order in February affecting AEP’s ESP almost mirrors the recent order. And it poses hurdles for FirstEnergy Corp., which has a case scheduled for an ESP hearing in June.

Duke said on April 6 that in its order, PUCO “recognized that uncertainty is expected in the wholesale electricity markets due to future market reform and pending litigation and environmental regulations. The PUCO also agreed with Duke Energy Ohio that a properly structured PSR could mitigate wholesale market price volatility,” it said. It added that while PUCO denied the company’s specific OVEC proposal, it “created a placeholder for the PSR that allows Duke Energy Ohio to submit additional information in an effort to request recovery in the future.”

Duke, which last year announced it would sell interests in 13 power plants in the Midwest after Ohio regulators rejected the company’s request to bill customers in the state an additional $729 million to help cover the gap between power plant costs and wholesale power prices, said it will now begin planning for a May auction to acquire electricity for its customers.

If the utility decides to file applications for a rehearing, it will do so in early May, it said.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)





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