Skyrocketing SSO Auction Results for Duke and FE

Duke Energy (“Duke”) and FirstEnergy (FE) Ohio customers that take generation service under these utilities’ respective Standard Service Offers (SSO) will likely see dramatic increases in electric costs beginning June 1, 2023. Ohio’s investor-owned electric distribution utilities (EDUs) use a series of Competitive Bidding Process auctions to secure SSO load (i.e., energy, capacity, ancillary services, etc.) for each June 1 through May 31 delivery year (DY). Duke and FE recently held auctions to secure a portion of their SSO loads for the 2023-2024 DY.

Duke’s first SSO auction for the 2023-2024 DY was held on September 20, 2022. The auction secured 20% of Duke’s SSO load for the DY and cleared at a price of 11.575¢ per kilowatt hour (kWh). This is approximately 105% higher than the average clearing price from the SSO auctions that secured load for the current DY. Duke will need to secure the remaining 80% of its SSO load in future SSO auctions. At present, Duke has only one other auction scheduled for the DY, which will be sometime in February 2023.

FE’s first SSO auction for the 2023-2024 DY was held on October 4, 2022. The auction secured 33% of FE’s SSO load for the DY and cleared at a price of 12.23¢ kWh. This is approximately 127% higher than the average clearing price from the SSO auctions that secured load for the current DY. FE will secure another 33% of its SSO load during a January 2023 auction. The remaining SSO load will be secured through a third, yet unscheduled, auction.

Brakey Energy will continue to monitor the SSO auctions for Ohio’s EDUs and will report outcomes in future newsletters. If you have any questions about the SSO auction process or about SSO rates for any of Ohio’s EDUs, please contact Jennifer Lemley.

AES Ohio Requests Accelerated Approval of DP&L’s ESP 4

Dayton Power & Light (DP&L), d/b/a AES Ohio, customers could see changes in their monthly electric charges as soon as July 1, 2023 if the Public Utilities Commission of Ohio (PUCO) approves AES Ohio’s recently filed fourth Electric Security Plan (“ESP 4”) application.

At the center of the ESP 4 application is AES Ohio’s proposal to maintain its competitive bid process to secure load for DP&L’s SSO customers. AEP Ohio plans to conduct two SSO auctions per year with varied length contracts in an attempt to avoid situations where all load for a single year is procured on a single day. Costs associated with SSO auctions will be recovered from SSO customers through DP&L’s Standard Offer Rider (SOR).

In addition to the SOR, AES Ohio proposes the continuation of DP&L’s Economic Development Rider, Storm Cost Recovery Rider, Infrastructure Investment Rider, Tax Savings Credit Rider, Transmission Cost Recovery Rider (TCRR), and Energy Efficiency Rider (exclusively to recover final reconciliation costs associated with prior energy efficiency programs). AES Ohio also proposes several new riders including a Distribution Decoupling Rider, which would permit the company to collect a fixed amount of revenue each year regardless of how much electricity its customers consume.

DP&L’s transmission pilot program, which permits eligible customers to opt out of paying the TCRR and, instead, pay for transmission service based on how they use power during DP&L’s single highest coincident peak, would continue through the term of ESP 4. The program was reopened to enrollment in June 2021 as part of a Stipulation in a prior DP&L case.

ESP 4 eliminates DP&L’s controversial Rate Stabilization Charge (RSC). This charge is intended to compensate AES Ohio for providing stabilized generation rates for SSO customers. However, unlike other generation-related charges, the RSC is collected from all customers, even those that competitively source generation service. By eliminating the RSC, DP&L will no longer be subjecting its shopping customers to a nonbypassable generation-related charge.

AES Ohio estimates that ESP 4 will result in small increases in average electric costs for residential and small nonresidential customers. Customers served under DP&L’s Primary, Substation, and High Voltage rate schedules will likely see small decreases in average monthly costs as a result of ESP 4.

The table below shows the estimated impact of ESP 4 on average customer costs, per year, compared to current rates for DP&L residential and nonresidential customers.   

Table 1: Estimated Impact of ESP 4 on Charges for DP&L Customers

A technical conference to allow interested parties the opportunity to learn more about AES Ohio’s ESP 4 application was held on October 18, 2022. A video recording of the event can be viewed on the PUCO’s YouTube channel.

Residential Corner

The highly competitive generation offers we highlighted in the past for residential customers have long disappeared. We have been recommending since October 2021 that customers with expiring contracts default to the SSO until Spring 2023. We will provide a new and urgent contracting recommendation then. The SSO rate varies by electric distribution utility but is materially below current market conditions. To the extent you are in an expiring contract, make sure you provide notice to your supplier that you would like to default back to the SSO as to avoid being swept up in an extremely expensive holdover provision.

AEP Energy is currently offering a 36-month fixed price natural gas contract for $6.79 per hundred cubic feet with no early termination fees. While slightly higher than the Direct Energy offer we highlighted on August 26, 2022  that quickly disappeared, we think this offer represents a compelling value. This is especially true because customers can cancel at any time and enter into a lower priced agreement if it becomes available. Please note that the price listed will vary based on service territory.

Natural Gas Market Update

The NYMEX price for October settled at $6.868 per Million British Thermal Units (MMBtu) on September 28, 2022. This price is down 26.6% from September’s price of $9.353 per MMBtu. This settlement price is used to calculate October gas supply costs for customers that contract for a NYMEX-based index gas product.

The graph below shows the year-over-year monthly NYMEX settlement prices for 2018, 2019, 2020, 2021, and 2022 to-date. Prices shown are in dollars per MMBtu of natural gas.

Figure 1: NYMEX Monthly Natural Gas Settlement Prices

Figure 2 below shows the historical October 18, 2020 through October 18, 2022 Around the Clock (ATC) forward NYMEX natural gas prices in dollars per MMBtu for the first quarter of 2023 (labeled “Custom Strip” in the graph below) and calendar years 2023, 2024, 2025, 2026, 2027. Forward prices have softened since the highs seen in mid-September.

Figure 2: ATC First Quarter 2023 and Calendar Year NYMEX Natural Gas Prices

*Pricing courtesy of Direct Energy Business.

Electricity Market Update

Figure 3 below shows the historical October 18, 2020 through October 18, 2022 ATC forward power prices in dollars per Megawatt hour (MWh) for the first quarter of 2023 (labeled “Custom Strip” in the graph below) and calendar years 2023, 2024, 2025, 2026, 2027 for the AD Hub. Forward power prices for first quarter of 2023 and calendar year 2023 are continuing to trade at extreme premiums relative to outlier years. Power prices have plateaued in recent weeks.

Figure 3: ATC First Quarter 2023 and Calendar Year Power Prices for the AD Hub

*Pricing courtesy of Direct Energy Business.