MEMO TO: FROM: DATE: RE: Rick Sites Tom O Brien. members. INGS. AEP Ohio is. DIR are: Amount. including. unclear v1

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1 MEMO RANDU M TO: FROM: DATE: RE: Rick Sites Tom O Brien OHA Active Cases Before the PUCO This Memorandum lists and summarizes, as of the above date, the proceedings before the Public Utilities Commission of Ohio ( PUCO or Commission )) in which the OHA Energy Program is taking an active role, or is actively monitoring for issues of importance to OHA members. I. AEP OHIO PROCEED INGS A. Case No EL-SSO, ESP III Issues with major rate implications and service quality impacts for OHA members: AEP Ohio is seeking authority to recover revenues to recover capacity cost deferrals through the continuation of the Retail Stability Rider ( RSR ). The RSR would collect the deferred capacity balance of approximately $463 millionn over the course of the ESP III period. AEP Ohio proposes to continue its Distributionn Investment Rider ( DIR ), whichh was established in ESP I and renewed in ESP II. This rider provides additional capital funding to support distribution asset management programs, infrastructure additions, and advanced technology. The forecasted capital investments expectedd through the DIR are: Amount Yearr $246.9 million 2015 $214.8 million 2016 $235.5 million 2017 $239.2 million 2018 AEP Ohio seeks to expand the types of costs allowable for recovery under the DIR, including the incorporation of the existing gridsmart Phase I. The specifics of these expenditures, and whether OHA members will see system improvements as a result, are yet unclear v1

2 Page 2 AEP Ohio proposes to continue the Enhanced Service Reliability Rider ( ESRR ), also established in ESP I and renewed in ESP II. In ESP II, AEP Ohio requested incremental funding over the $24.2 million base for both (a) the completion of the transition to a cycle-based vegetation management program in the amount of $16 million for 2014 and (b) maintenance of the cycle-based program, through an additional increase of $2 million annually beginning in 2015, for an annual total of $42 million. According to AEP Ohio, recent estimates indicate that, instead of $18 million beginning in 2015, approximately $25 million of O&M and $1M of capital above the base will be needed to fund the on-going cycle-based program. AEP Ohio states that the increase in O&M is primarily due to increased fuel and labor costs and the availability of actual historical data for developing the estimates. The steep escalation of costs associated with this rider demand closer scrutiny. As noted in the overview of the DIR, AEP Ohio proposes to modify the gridsmart Rider to incorporate the existing gridsmart Phase I assets in the DIR and use the proposed ESP III gridsmart Rider to track gridsmart Phase 2 costs going forward. AEP Ohio filed its gridsmart Phase 2 Application in Case No EL-RDR on September 13, AEP Ohio is anticipating that it will receive an order in Case No EL-RDR, which will approve recovery of the gridsmart Phase 2 costs, prior to receiving an Order for ESP III. 1. New proposed riders: a. Sustained and Skilled Workforce Rider The ostensible purpose of the Sustained and Skilled Workforce Rider ( SSWR ), is to provide a way to recover incremental operation and maintenance labor costs incurred to remedy the projected shortfall of internal labor resources, both in front-line construction and construction support. AEP Ohio asserts that this recovery is needed for it to execute its planned distribution infrastructure investments. Additionally, AEP Ohio states that the SSWR will enable it to move away from more costly and unreliable contract labor. The SSWR would support an additional 150 full-time employees between 2015 through A forecast for the proposed SSWR shows $8 million to be spent from 2015 through The positions associated with the SSWR are intended to be permanent, and AEP Ohio states that the O&M cost of these positions will be recovered in the distribution base rates. b. NERC Compliance and Cybersecurity Rider AEP Ohio is proposing the NERC Compliance and Cybersecurity Rider as a placeholder for significant future increases in the cost of compliance concerning the North American Electric Reliability Cooperation ( NERC ) compliance and cybersecurity activities. AEP Ohio states that it intends to track and defer both the capital and O&M costs associated with new NERC 1 The Ohio Hospital Association ( OHA ) submitted comments in this case on November 1, v1 2

3 Page 3 compliance and cybersecurity requirements, or new interpretations of existing requirements, through the proposed ESP III term. A rider would then be filed during the ESP III term to recover costs. This rider is the first of its kind filed in Ohio. No projections concerning the cost of this rider have been offered. B. Related Cases 1. Case No EL-UNC, 2014, DIR Work Plan Review Case No EL-UNC, 2013 DIR Plan Review (completed, but pending PUCO rehearing) As discussed above, the expenditure levels associated with Rider DIR appear to be rapidly escalating. As it concerns the 2014 DIR Work Plan, the $200 million expenditure proposed is an increase of nearly 62% over the 2014 cap level of $124 million set by the PUCO in the ESP II case on August 8, Very little meaningful detail has yet been provided as to how these dollars will be spent or what the corresponding benefit to customers will be. The OHA is urging the Commission to direct AEP Ohio to provide those necessary details and cost justifications. 2. Case No EL-RDR, gridsmart Phase 2 Rider In this phase of AEP Ohio s gridsmart program, the Company proposes to make certain specific investments designed to reduce the frequency and geographic scope of network outages, as well as improve power quality in certain poorly performing circuits. The OHA is actively working to direct these infrastructure investments towards improvements in circuits that affect OHA member facilities. 3. Case No EL-RDR, Storm Damage Rider In this case, AEP Ohio is seeking recovery of the costs associated with the 2012 Drecho storm that passed through Ohio on June 29 of that year. The Company initially sought approximately $61 million (as corrected upwards during the case) but agreed to settle the case for $54 million. Because the OHA membership as a vested interest in ensuring that AEP Ohio can restore its network in a timely manner, the OHA intervened to support the company in achieving a reasonable level of costs. 4. Case No EL-UNC, Amendment to Corporate Separation Plan (pending rehearing) Case No EL-UNC, Amendment to Corporate Separation Plan These are companion cases which arise from the ESP II case wherein AEP Ohio agreed to divest its generation and transmission assets from its core distribution utility (AEP Ohio). The v1 3

4 Page 4 OHA participates in these cases only to monitor the progress of the divestiture process and to protect against unintended harms to the competitive market for electric generation services. 5. Case No EL-POR, EE/PDR plan The OHA has been a major participant in the development of AEP Ohio s energy efficiency and peak demand reduction ( EE/PDR ) programs. This current case, although decided by the PUCO, has ongoing collaborative activity. 6. Case Nos EL-UNC and EL-UNC, 2011 SEET Review (monitoring only) These are annual proceedings wherein the PUCO examines to level of AEP Ohio s return on equity to see if that return exceeds a reasonable level. In both 2009 and 2010, AEP Ohio was required to return money to ratepayers because the Commission determined that AEP s earnings had exceeded the SEET threshold. The OHA participates only to the extent necessary to remain apprised of the developments in the cases. 7. Case No EL-UNC, Review of Customer Rate Impacts from Ohio Power Company s Transition to Market-Based Rates. This investigation involves potential rate design (cost shifting) changes that could adversely affect OHA members. Although this case began in August 2012, AEP Ohio only filed proposed changes to its tariff on January 10, We are currently reviewing the impact of this filing and will file responsive comments if issues arise. C. Inactive Cases The Commission has decided the following cases, but are either pending on appeal, or hold the potential for further action: Case No EL-AEC, Ormet Request for Unique Arrangement with Ohio Power (may see further cost recovery activities) ESP II Case No EL-SSO (on appeal) Case No EL-UNC Capacity cost case (on appeal) Case No EL-AIR Distribution rate case (on appeal) Case No EL-RDR Rider PIRR, deferred fuel cost case (on appeal) v1 4

5 Page 5 II. FIRSTENERGY PROCEEDINGS A. Case No EL-POR, et al., Energy Efficiency/Peak Demand Reduction Plan, The OHA was a major participant in this proceeding and won a significant concession from FirstEnergy for the development of an OHA-member-specific Energy Star benchmarking program, despite FirstEnergy s initial opposition. This modification of FirstEnergy s plan was one of the very few changes ordered by the PUCO in its decision. This case is currently pending appeal (for other reasons), and the collaborative activities are ongoing. III. DAYTON POWER & LIGHT COMPANY PROCEEDINGS A. Case No EL-POR, DP&L Energy Efficiency/Peak Demand Reduction Plan This EE/PDR case was the subject of a stipulation to which the OHA was a signatory. The Stipulation was approved by the Commission on December 4, 2013, Through OHA s participation in this case, DP&L agreed to support the OHA s outreach and assistance efforts for OHA members in the DP&L territory for participation in the DP&L s efficiency programs. These efforts remain ongoing. B. Case No EL-SSO, ESP Case (on appeal to the Ohio Supreme Court). In this case, the OHA fought the efforts of the company to increase its rate stabilization payments from $73 million per year to over $137 million per year. The Commission ultimately agreed to give DP&L $110 million per year. The OHA is monitoring the progress of this case as it goes through the appeals process. IV. GENERAL INVESTIGATIONS BEFORE THE PUCO A. Case No EL-COI, Investigation into Ohio Electric Retail Market The PUCO opened this case to collect stakeholder comments on a variety of topics related to the evolving retail marketplace for electric generation services. To this point, no topics of specific interest to OHA membership has been raised for comment by the Commission. The OHA continues to monitor these proceedings v1 5

6 Page 6 B. Case No EL-ORD, Review of O.A.C. Chapter 4901:1-10, Electric Utility Rules This case is a statutorily required five-year rule review and involves the Commission s rules governing electric distribution services generally. The OHA intervened and filed comments urging the Commission to strengthen the requirements for priority service reliability and restoration for Critical Human Service Facilities. A definition for this term was also offered by the OHA. This matter is currently pending rehearing. C. Case No., EL-ORD, Review of O.A.C. Chapter 4901:1-22, Electric Interconnection This five-year rule review involved distribution utility interconnection services, including net metering. This rulemaking is ongoing, but thus far, our monitoring of the case has not required any direct OHA involvement. We continue to monitor this case. D. Case No EL-ORD, Review of Rules for Competitive Retail Electric Service, O.A.C. Chapter 4901:1-21 and 24. This five- year rule review involves the Commission s rules governing the retail electric services market. The issues raised thus far involve mass market customers and processes, rather than issues pertaining to commercial services provided to larger consumers, such as hospitals. We continue to monitor the progress of this rulemaking. E. Case No EL-ORD, Review of Rules for Energy Efficiency Programs O.A.C. Chapter 4901:1-39 1Case No EL-ORD and EL-ORD, Review of Rules for the Alternative Energy Portfolio Standard O.A.C. Chapter 4901:1-40 This five- year rule review involves the Commission s rules governing energy efficiency programs and alternative energy portfolio standards. We are currently working on comments, which are due February 28, 2014 with reply comments due March 14, F. Case No EL-ORD, Review of Rules for Standard Service Offers for Electric Utilities O.A.C. Chapter 4901:1-35 This five- year rule review involves the Commission s rules governing standard service offers for electric utilities. We will monitor the progress of this rulemaking, and address any issues of concern in comments due February 26, v1 6