After nearly a year of battle and debate, state regulators in Ohio have rejected American Electric Power’s bid to “rate base” its customers for the construction of a 300 MW project, which would be the largest in the state, as well as another 100 MW project, which would be tied for second largest.
For anyone wondering, rate basing is a mechanism that utilities have traditionally used to get their customers to pay for the up-front costs of building conventional power plants through their electric bills. Outside of Ohio, Florida utilities, including Tampa Electric and Florida Power and Light, have begun to rate base solar plants as well.
The designation of “need” stems from the testimony of a utility specialist at the PUC during hearings back in January:
Having determined that supply is sufficient to meet the needs of Ohio Power’s customers and to ensure that resource adequacy is maintained, Staff therefore finds that the Company has not demonstrated a need to construct any additional resources at this time.
The basis of this definition comes from the determination that there are enough generation resources currently to feed the electrical demand of Ohio. This was illustrated by the below charts, which projected need vs. how actual electricity demand fell within those bounds:
Then point was also raised that the most recent PJM Interconnection reliability auctions for 2021/22 ended with a reserve margin well in excess of required targets.
This is AEP’s second major project rejection in as many years. In 2018, regulators in Texas shot down a 2 GW Wind Catcher project after it was deemed the project didn’t provide enough benefit.
Not necessary, not enough benefit, there’s a pattern forming here.
In terms of the impacts of the rare basing, AEP customers would have seen an increase of about $0.28 per month. This is in comparison to the 3,900 jobs and $400 million GDP increase that the utility expected the projects to bring to the state.
An unfortunate aspect to this rejection is that the affected projects represent a capacity greater than Ohio has seen to date. To date, Ohio has put on-line 231 MW of solar, good for 28th in the nation. These projects, in conjunction with the 100 MW municipal solar project announced yesterday by the mayor of Cincinnati, would have added more than 200% capacity to that mark. this would bring Ohio to roughly 730 MW of installed solar capacity which, as capacities currently stand, would be good for 19th in the nation, below Virginia.
The determinations on these projects represent a larger conversation about that value Ohio places on its genration resources. In July, the state passed HB 6, a bill which:
- lowered the state’s Alternative Energy Portfolio Standard to 8.5% by 2026, eliminating it thereafter
- eliminated the solar carve-out in the AEPS
- created a new system of credits for nuclear & renewable power plants, 88% of which will go to two nuclear power plants
- requires the state’s utilities to charge their customers up to $0.85 per month and raise up to $170 million annually from their customers to fund the new credit system
- allows utilities to charge their customers up to $1.50 each month to create a fund to bail out coal plants owned by the Ohio Valley Electric Corporation (OVEC)
So is this decision by Ohio regulators an actual reflection of the state’s generational needs, or another drastic measure taken in order to maintain the status quo of expensive and dated resources.