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AEP Ohio files expanded purchase power agreement

AEP Ohio, a unit of American Electric Power (NYSE: AEP) filed with the Public Utilities Commission of Ohio (PUCO) an expanded Purchase Power Agreement (PPA) designed to provide customers with more stable electricity prices during periods of market volatility while continuing the economic viability of Ohio’s generation.

“Ohio is facing a period of unprecedented uncertainty related to the future supply of low-cost reliable energy,” said Pablo Vegas, president and chief operating officer – AEP Ohio. “By mid-2015, approximately 20 percent of investor-owned Ohio generation will be retired making this state a large importer of electricity to meet demand. In addition, current market conditions are such that even viable plants that are environmentally compliant may be forced to shutter for economic reasons causing our reliance for power from others to grow. The proposed PPA is designed to provide AEP Ohio customers long-term reliability and protect them from the impacts of significant price spikes, while preserving jobs and mitigating a shrinking tax base.”

AEP Ohio is proposing an agreement involving approximately 2,700 megawatts of generation located in Ohio that has long-served residents and businesses in the state. Through the agreement, AEP Ohio will be entitled to the capacity, energy and ancillary service output of AEP’s ownership share of nine units:

  • Cardinal Unit 1 in Brilliant (Jefferson County)
  • Conesville Units 4, 5 & 6 in Conesville (Coshocton County)
  • Stuart Units 1-4 in Aberdeen (Brown County)
  • Zimmer Unit 1 in Moscow (Clermont County)

In turn, AEP Ohio would bid all of the energy, capacity and ancillary services associated with these units into the PJM market and pass along the resulting net benefits or cost to customers through the proposed non-by passable PPA rider. The recovery mechanism for this rider was proposed as part of the company’s latest Electric Security Plan (ESP) that remains pending before the PUCO.

“This proposal does not change the auctions supplying AEP Ohio’s Standard Service Offering (SSO) load,” said Vegas. “The energy and capacity will be sold into the PJM market and because the rider is non-bypassable, it will have no adverse impact on CRES providers to compete for customers on a level playing field. The PPA proposal allows customers to take advantage of market opportunities while providing added price stability.”

AEP Ohio is proposing the term of the agreement for the remaining life of the units. The PPA rider, when combined with the projected rate decrease from the company’s current ESP proposal, will still result in a net decrease beginning June 2015 for the average residential customer using 1,000 kWh per month and receiving their generation through AEP Ohio.

“This rate structure will act as a hedge to partially shield customers from the impacts of market volatility,” added Vegas. “If market prices remain low, the rider would be a minimal net charge to customers while the customers also benefit from the low market prices. If market prices increase, the PPA rider would be a net credit to customers. Although they also will be paying higher market prices, those prices will be offset by the credit achieved through the PPA. Based on a 10-year projection, this PPA will provide an incremental customer benefit of $224 million.”

The proposed PPA also would ensure the continued economic viability of Ohio generation and the associated benefits to the state and local economies in terms of employment, wages and taxes paid. It is estimated the total economic benefit to Ohio from these plants exceeds $500 million annually while supporting nearly 4,600 direct and indirect jobs.

AEP Ohio delivers electricity to nearly 1.5 million customers of AEP’s subsidiary Ohio Power Co. in Ohio. AEP Ohio is based in Gahanna, Ohio, and is a unit of American Electric Power. News and information about AEP Ohio can be found at AEPOhio.com.