Leadership & Strategy

Market Shifts In Ohio

More than a decade after Ohio’s governor signed a bill into law deregulating the state’s electricity market, the legal and regulatory web of actions implementing deregulation is still being woven. The long and complicated shift toward a competitive market for power generation in AEP Ohio’s service territory moved forward in 2012 but still has several milestones to clear before it is completed.

What happens in Ohio is extremely important to all of AEP. AEP Ohio accounts for almost 30 percent of the corporation’s customers and owned generation and 29 percent of AEP’s retail revenues.

In 1999, Ohio’s state legislature passed Senate Bill 3, deregulating the state’s electricity market. For the first eight years the bill was in effect, few customers in AEP Ohio’s service territory shopped because AEP’s regulated rates were lower than market prices. In 2008, Senate Bill 221 was passed, continuing the long and complicated journey to competition for AEP Ohio.

The company filed its first Electric Security Plan (ESP) in 2008 and it was working well until the recession, when customer demand for electricity dropped sharply. At the same time, natural gas prices started to fall, due in large part to shale gas development.

AEP filed a second ESP in 2011 and received approval in August 2012. While some issues have not been finally resolved, AEP Ohio’s service territory is well along the path to a competitive generation market. This means AEP Ohio must separate its generation business from its transmission and distribution businesses, and it expects to complete this process by Jan. 1, 2014. AEP Ohio-owned power plants will be moved to the new AEP Generation Resources Inc., pending FERC approval. Some of the generation will be transferred to other operating companies that need the capacity and the energy to serve their customers, pending FERC and state regulatory approvals.

The process also includes the termination of a regional generation pool agreement among AEP’s eastern operating companies. The companies historically “pooled” their resources and dispatched the most efficient units to meet the combined demand of the companies. This decades-old pool agreement has become less effective due to changes in the electricity markets. After corporate separation, AEP Ohio will be a fully regulated transmission and distribution company and will no longer own generation assets.

As AEP Ohio moves its generation assets to a competitive electricity environment, the company will transition toward establishing its generation rates through competitive auctions for customers who have not switched providers. Once the transition is complete, competitive electricity suppliers will bid to provide the electricity supply needed by AEP Ohio’s remaining customers. Customers will continue to have a choice of competitive generation providers.

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