Under settlements approved by the Public Utilities Commission of Ohio (“PUCO”), many customers can reduce their transmission bills if they are capable of managing their contributions to the zonal single coincident annual transmission peak.

This opportunity arises out of the complicated system of regulation of electric services that has developed in Ohio.  As part of the introduction of competition in the sale of electricity in Ohio that became effective in 2001, Ohio law requires electric distribution companies to unbundle electric service into generation, distribution, and transmission services.

The price regulation of the services varies by service.  In general, the PUCO is without jurisdiction to regulate generation services prices, and generation service can be secured from competitive providers.  Distribution service can be secured only through the electric distribution utility and is priced through traditional cost-based regulation.

Transmission services, however, have developed in a more complicated legal environment.  Under Ohio and federal law, the electric distribution utilities retain ownership of transmission facilities, but operation of the facilities is placed with the regional transmission organization, PJM Interconnection.  The owners of the transmission facilities are compensated through federally mandated charges under the PJM Open Access Transmission Tariff (“OATT”).  The customers that pay these charges are load serving entities such as utility companies and competitive retail service providers and individual customers in states that have provided for competitive choice such as Ohio.  Under the OATT, these individual customers may contract either directly or indirectly through a competitive retail electric service provider for transmission service.

In recent years, however, several PUCO rate orders have frustrated the customer’s ability to contract for transmission services.  While the OATT authorizes a customer to directly or indirectly contract with PJM for transmission service and the Ohio Commission’s rules provide that transmission rates are to be bypassable (meaning that the customer may contract for transmission services when it contracts for generation service), the PUCO has approved for each electric distribution utility nonbypassable transmission rates for certain PJM costs including Network Integrated Transmission Service (“NITS”).

Because the PUCO has frustrated contracting for transmission services by authorizing nonbypassable transmission charges, customers lose the opportunity to manage their transmission charges.  This opportunity arises because the customer’s cost for NITS under the OATT is based on the customer’s contribution to the zonal single coincident transmission annual peak while the electric distribution utilities have been authorized by the PUCO to bill customers for NITS and other transmission costs based on a customer’s monthly billing demand.  For a customer that can manage its contribution to the zonal single coincident annual transmission peak, there is an opportunity to reduce the customer’s transmission cost.

A simple example demonstrates the potential for savings.  In the example set out in the table, the customer’s contribution to the zonal single coincident annual transmission peak is five MW, and its average monthly demand is 30 MW.  The example assumes that the OATT provides for a zonal single coincident annual transmission peak-based charge of $5/kW, while the electric distribution company charges $3/kW for transmission services based on the customer’s monthly billing demand.  Due to the differences in billing math under the OATT and PUCO approved rates for transmission service, the customer faces increased transmission charges of $780,000 annually under the PUCO approved rates than what it would pay under the OATT rate.

 

Monthly Demand Based Rate Monthly Demand Monthly Transmission Charge
$3/kW 30 MW $90,000
     
Zonal Single Coincident Peak-Based Rate Customer Contribution to the Zonal Single Coincident Annual Peak Monthly Transmission Charge
$5/kW 5 MW $25,000
     
Monthly Net Difference   $65,000
Annual Net Difference   $780,000

 

Because there are opportunities for substantial savings, McNees Wallace and Nurick attorneys have supported efforts for customers to have the opportunity to elect to purchase transmission service based on their contributions to the zonal single coincident annual transmission peak rather than their monthly demand.

These efforts have resulted in two approved transmission pilot programs that permit customers to seek to reduce the transmission portion of their bills.  A third pilot is under PUCO review.  The enrollment in each pilot program is limited, but the PUCO has indicated that it will entertain applications from additional customers.

One pilot program is available to a group of customers of the FirstEnergy utilities, Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company.  Under this pilot, a customer may elect to contract for transmission service through its competitive electric generation service provider.  The second pilot, developed under a settlement with the Ohio Power Company, provides for alternative tariff rates based on the customer’s contribution to the zonal single coincident annual transmission peak.  A third proposal that would be available for customers of Dayton Power and Light Company is currently under review by the PUCO.