The Public Utilities Commission of Ohio

BEFORE

THE PUBLIC UTILITIES COMMISSION OF OHIO

In the matter of the Continuation of the Rate Freeze and Extension of the Market Development Period for the Dayton Power and Light Company.
In the matter of the application of The Dayton Power & Light Company for certain accounting authority pursuant to 4905.13, Ohio Revised Code.
In the matter of the joint complaint of The Office of Consumers' Counsel and Industrial Energy Users-Ohio and American Municipal Power-Ohio, Inc. (vs) Dayton Power & Light Company relative to the alleged violation of the orders of the Public Utilities Commission of Ohio regarding implementation of its transition plan.
In the matter of the application of The Dayton Power & Light Company for authority to revise tariff sheets in DP&L PUCO No. 17. / :
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: / Case No. 02-2779-EL-ATA
Case No. 02-2879-EL-ATA
Case No. 02-2364-EL-CSS
Case No. 02-570-EL-ATA

POST-HEARING BRIEF

SUBMITTED ON BEHALF OF THE STAFF OF

THE PUBLIC UTILITIES COMMISSION OF OHIO

Jim Petro

Attorney General

Duane Luckey

Senior Deputy Attorney General

William L. Wright

Thomas G. Lindgren

Assistant Attorneys General

Public Utilities Section

180 East Broad Street, 9th Fl

Columbus, OH 43215-3793

(614) 466-4397

Fax: (614) 644-8764

On Behalf of the Staff of the Public Utilities

Date Submitted: July 3, 2003Commission of Ohio

INTRODUCTION......

PROCEDURAL HISTORY......

ARGUMENT......

THE SETTLEMENT COMPORTS WITH COMMISSION CRITERIA AND SHOULD BE APPROVED AND ADOPTED.

CONCLUSION......

PROOF OF SERVICE

BEFORE

THE PUBLIC UTILITIES COMMISSION OF OHIO

POST-HEARING BRIEF

SUBMITTED ON BEHALF OF THE STAFF OF

THE PUBLIC UTILITIES COMMISSION OF OHIO

INTRODUCTION

The General Assembly ushered in electric deregulation with the enactment in 1999 of Chapter 4928 of the Ohio Revised Code. The law established the framework to transition in an orderly manner from the traditionally heavily-regulated, bundled provision of electricity service to a market-driven environment characterized by “effective competition.” During the transition, or “market development period” (MDP), customers are provided certain rate protections. Under Chapter 4928, each electric utility was required to file a transition plan in compliance with enumerated statutory criteria to govern their provision of electricity service during the MDP. The success or failure of any particular transition plan was then unknown and uncertain. Since the Commission’s approval of transition plans for each regulated Ohio electric utility, customer switching has met with some success. This success has occurred across northern Ohio, where regulated electricity rates have traditionally been higher, primarily as a result of successful governmental aggregation programs in a number of municipalities.

The Dayton Power & Light Company’s plan was approved as part of a largely unopposed Stipulation and Recommendation entered into by a number of parties in Case No. 99-1687-EL-ETP. The parties who signed that agreement over two years ago believed it would facilitate customer shopping and entry of new competitive retail suppliers to market in DP&L’s service territory. Those expectations were based upon a number of assumptions and circumstances, at least some of which have not proven out. Significant intervening events, such as the Enron debacle and the well-publicized California energy crisis, congressional indecision regarding FERC’s Standard Market Design NOPR, and the State of Virginia’s regulatory hand-wringing have created new uncertainties. These uncertainties have hampered the ability of DP&L to become fully integrated into the PJM regional transmission organization, which is important to development of effective competition in DP&L’s territory. The result – the competitive marketplace that many envisioned developing in DP&L’s service area has not materialized in the three-year MDP provided for under the ETP settlement. The traditionally low generation costs enjoyed by DP&L customers and lower shopping credits have hampered market entry by competitive suppliers who themselves seek to serve DP&L customers. The development of a competitive marketplace in DP&L’s service area remains a proper goal, but more time is required to allow efforts in pursuit of that goal to continue.

The Commission is now presented with a settlement that the signatory parties believe will move us forward in these uncertain times. The subject Stipulation and Recommendation pro-poses to extend the MDP[1] to allow customers to continue to enjoy DP&L’s relatively low, frozen “legacy” rates as well as additional rate discounts. The Stipulation provides higher shopping credits for DP&L’s commercial and industrial customers, the very customer groups targeted by the marketers who principally oppose the settlement. These higher shopping credits are expected to encourage more shopping, and opportunities for competitive retail electric service (CRES) providers to transact business in DP&L’s service area. The Stipulation also offers rate stability for customers beyond the MDP, beginning January 1, 2006, with rates that the stipulating parties believe will be market-based, and which, under the settlement agreement, will be subject to ongoing Commission oversight to ensure that those rates remain at reasonable levels. The benefits are significant to customers and, it is believed, will move DP&L’s service territory closer to the competitive marketplace contemplated under Chapter 4928.

Although the Stipulation and Recommendation is not unanimous, it is nonetheless the product of lengthy settlement efforts pursued by parties who represent, to one extent or another, all DP&L customer classes. Contrary to assertions previously raised by opponents of the settlement, no customer class was excluded[2] from the negotiations and, the Staff submits, all customer groups will benefit from the provisions of the settlement. The proper public interest focus in this case, and that embedded within the Stipulation, is upon DP&L customers and how they are best served in these uncertain times.

PROCEDURAL HISTORY

These dockets were consolidated by an Administrative Law Judge entry issued on May 6, 2003. Principal among these cases, and the focus of this litigation, is Case No. 02-2779-EL-ATA. That case was initiated by an application filed by Dayton Power & Light Company (Company or DP&L) on October 28, 2002, pursuant to R.C. 4909.18 and 4928.40. That application seeks, inter alia, approval to extend DP&L’s market development period (MDP) for an additional two years, to December 31, 2005, the maximum MDP time period allowed by law, while continuing the rate freeze and certain rate discounts provided by law for this extended period. In DP&L’s earlier transition case, 99-1687-EL-ETP, the Commission approved a Stipulation and Recommendation which, among other things, had provided for a MDP extending through December 31, 2003.

A number of parties filed comments and objections to DP&L’s application filed in Case No. 02-2779-EL-ATA. Additionally, the Commission’s Staff submitted Staff Recommendations regarding DP&L’s request to extend the MDP, what level of shopping credits should be implemented to encourage shopping, and addressing lingering transmission/RTO issues that pertained to DP&L. These Recommendations, which were filed on March 31, 2003, and supporting Staff testimony were later withdrawn from the record in light of Staff’s decision to become a signatory party to the Stipulation and Recommendation filed on May 28, 2003. Tr. at 25-26.

Settlement discussions commenced on December 16, 2002 and were ongoing in one form or other until May 28, 2003 when a partial, albeit broad-based, Stipulation and Recommendation was filed which was intended to address all outstanding issues in the consolidated cases. Parties signing the Stipulation represented a wide range of customer interests, including low-income customers.

The Stipulation is opposed principally by marketer groups[3] which seek to compete with DP&L in the company’s service territory. The Ohio Manufacturers’ Association also opposes this agreement. Adjudicatory hearings were held on May 29, 2003 and June 17, 2003. Opportunities for public testimony were also provided on May 15, 2003, and again on May 29, 2003, prior to commencement of the adjudicatory hearing phase. Many proponent and opponent parties engaged in extensive discovery preparatory to the hearings.

ARGUMENT

THE SETTLEMENT COMPORTS WITH COMMISSION CRITERIA AND SHOULD BE APPROVED AND ADOPTED.

In evaluating a stipulation, the Commission uses the following three-part test, which the Ohio Supreme Court has approved:

1.Is the settlement a product of serious bargaining among capable, knowledgeable parties?

2.Does the settlement, as a package, benefit ratepayers and the public interest?

3.Does the settlement package violate any important regulatory principle or practice?[4]

The Staff believes that the criteria listed above are met for the reasons that follow.

There can be little question that the first criterion has been met. The subject settlement is the culmination of several months of settlement efforts, including negotiations and discussions among a broad range of parties representing diverse interests who sought to craft a solution for the uncertain times. All parties who signed the Stipulation were represented by competent counsel with years of experience and practice before the Commission. These parties, who represented actual DP&L customer groups, made concessions to forge an agreement on complex issues which provides significant customer benefits not otherwise achievable. The Stipulation embodies these compromises and reflects the heightened concern regarding market uncertainties and goal of all signatory parties to keep retail rates as low as possible for all DP&L customers into the foreseeable future and to establish a framework to create increased opportunities for customer shopping and alternative supplier entry into the DP&L service area. The Stipulation clearly satisfies this first criterion.

By agreeing to commit and devote considerable resources to a settlement process, the stipulating parties demonstrated their desire to create a roadmap to remove, to the extent possible, retail price uncertainty for DP&L customers attendant to the present lack of effective competition in the Company’s service territory. The Stipulation presents a package highly beneficial to ratepayers in this regard and is in the public interest since it manages future risks of market and rate uncertainty for DP&L customers and because it promotes greater customer supply and shopping opportunities over the next couple of years through increased shopping credits for DP&L’s non-residential customer classes. The stipulating parties recognized that the need to extend the MDP through 2005 was absolutely fundamental to address the undeveloped wholesale and retail marketplace in DP&L’s service area and pricing and rate uncertainties attendant thereto.[5] The Stipulation further creates a three-year rate stabilization period (RSP), from 2006-2008, during which time DP&L’s distribution rates and charges remain generally frozen, thus providing additional protection to DP&L’s customers from price uncertainty.

In addition, the Stipulation contains numerous other provisions beneficial to customers:

1.Continues a 5% reduction to the generation component of rates for residential customers during the MDP and the RSP, while providing an additional 2.5% residential discount during the RSP.[6]

2.Creates substantial increases in shopping credits for the commercial and industrial customer classes, which are expected to enhance the presence of competitive retail suppliers and create greater opportunities for customer shopping.[7]

3.Recognizes that the transmission-related requirements of R.C. 4928.12 are important to establishment of a fully-functioning retail marketplace in Ohio and thereby provides that DP&L shall transfer operation of certain functions of DP&L’s transmission system to PJM, thus encouraging the development of wholesale and retail markets.[8]

4.Continues the Voluntary Enrollment Procedure established in the ETP Stipulation, which will provide competitive retail electric service (CRES) suppliers additional opportunities to present offers to DP&L’s customers to achieve statutory switching targets.[9]

5.Resolves, in whole or in part, Case Nos. 02-2364-EL-CSS, 02-570-EL-ATA, and 02-2879-EL-AAM, now pending before the Commission.[10]

6.Provides that during the RSP, rate increases are limited to actual and verifiable increases for only certain, enumerated types of costs, and caps the total of such increases at 11% of DP&L’s January 1, 2004 tariffed generation rate.[11]

7.The standard service offer prices in the Stipulation reflect the generation service pricing available during the RSP. The Stipulation provides for periodic Commission review of those prices, including consideration of short-term energy market pricing information to determine whether such prices remain market-based. The Commission may direct DP&L to implement annually a competitive bid process to obtain current pricing information against which to evaluate Stipulation standard service offer prices.[12]

Additionally, the Stipulation continues other beneficial aspects of the earlier ETP settlement, including the $4 million funding commitment by DP&L to help defray the cost to other suppliers or customers of transmitting power into DP&L’s service area. In the main, the present settlement provides customers with rate stability through 2008 and creates, post MDP, a mechanism for establishing market-based rates for customers as mandated under R.C. 4928.14, while providing for Commission oversight to ensure that rates remain at market-based levels.

In addition, the Stipulation addresses marketer concerns regarding a history of lackluster shopping in DP&L’s area by providing higher shopping credits for non-residential customers to encourage alternative suppliers to become active in DP&L’s service area and thus create greater shopping opportunities for DP&L commercial and industrial customers. In short, the Stipulation carefully balances the interests of DP&L and its customers and creates many rate-related and other benefits for the Company’s customers and thus it promotes the public interest. In contrast, the opponents selective criticism of the settlement focuses on narrow provisions rather than upon the reasonableness of all provisions, i.e., the entire settlement package.

The Staff believes that the Stipulation and Recommendation satisfies the third criterion of the Commission’s test as well. First and foremost, it ensures the continued availability of adequate, reliable, and reasonably-priced retail electric service to non-shopping DP&L customers.[13] Again, continuing a freeze on traditionally lower “legacy” rates, as well as certain rate discounts, coupled with the market-based, post-MDP pricing provisions of the settlement, all work to achieve policy goals of the General Assembly. Through the higher shopping credits for commercial and industrial customers, the agreement seeks to create greater diversity of supply and supplier options for DP&L customers, a major step toward creating effective competition for retail service in the Dayton area.[14] In short, the Staff believes that the Stipulation and Recommendation supports and promotes important policy goals of R.C. 4928.02.

Importantly, the settlement agreement fulfills the requirement of Section 4928.14(A) that DP&L offer its customers a “market-based rate” once the MDP expires. The RSP provisions satisfy that requirement for each of the following reasons: (1) the generation rates established in the Stipulation for the rate stabilization period (RSP) were the product of serious bargaining by knowledgeable buyers and sellers, thus ensuring that they are market-based; (2) the provisions of Stipulation § IX.E. provide for changes to rates during the RSP to reflect changes to limited, enumerated DP&L costs, and only upon approval by the Commission, thus ensuring that the rates charged during the RSP will track market conditions; and (3) Stipulation § IX.F. provides for continuing Commission review of the rates charged during the RSP, and if market rates do not reasonably reflect the rates charged during the RSP, then for good cause shown, the Commission may terminate the RSP after which DP&L will charge a market-based rate pursuant to Section 4928.14(A). The signatory parties’ agreement to the generation rates established for the RSP, and the process for changing and reviewing those rates, establish that the generation rates during the RSP will be market-based.

The Stipulation also complies with the requirement in Section 4928.14(B) that DP&L provide a competitive bidding process:

The commission may determine at any time that a competitive bidding process is not required, if other means to accomplish generally the same option for customers readily available in the market and a reasonable means for customer participation is developed. (Emphasis added).

The Stipulation satisfies the competitive bidding requirements of Section 4928.14(B) for the following reasons: (1) Stipulation § IX.F. provides for ongoing Commission review of market-based rates, through a competitive bidding process, if necessary; (2) Stipulation § IX.F. also provides that, if market-based rates do not reasonably reflect the rates established by the Stipulation, then the Commission may terminate the RSP and trigger a competitive bidding process; and (3) the Voluntary Enrollment Procedure, created under DP&L’s ETP Stipulation, is continued in the present Stipulation at Section VI., which provides DP&L customers with the opportunity to choose any certified supplier, thus providing customers with an option to select a marketer and a reasonable method to participate. The Stipulation thus satisfies the requirements of Section 4928.14(B).

The settlement creates price certainty for non-shopping DP&L customers and makes greater strides toward bringing effective competition to DP&L’s service area. In short, the Stipulation satisfies the three criteria that the Commission uses to evaluate settlements, and the Commission should thus approve the Stipulation and Recommendation submitted in this case.

CONCLUSION

The May 28, 2003 Stipulation is fair, reasonable, and lawful under the Commission’s standards for analyzing contested settlements. By extending the market development period for an additional two years, the Stipulation continues frozen rates and significant customer discounts for the additional MDP period while providing more time for effective competition and market activity to develop within DP&L’s service area. This pricing certainty allows customers to plan for their future energy needs, while minimizing risks associated with uncertain wholesale electricity prices, which, in turn, could exert upward pressures on prices paid by DP&L retail customers. Chapter 4928 was enacted with Ohio ratepayers in mind; the “public interest” must focus upon whether the Company’s customers will benefit under the settlement provisions. While not embraced by every party, the Stipulation was signed by parties representing a diverse range of customer interests, who collectively believe, for the reasons already described, that the Stipulation and Recommendation is highly beneficial to DP&L customers and is consistent with the policy goals enumerated by the General Assembly in Chapter 4928.