APCo CEO Patton Tries to Get Out Front on Increasing WV Coal Power

According to today’s story in the Charleston Gazette, Appalachian Power’s CEO Charles Patton met with the Gazette editorial board yesterday to discuss APCo’s decision to increase its coal-fired power generation in WV and increase APCo’s electric rates.  Except that’s not what Mr. Patton told the Gazette.

Instead, Patton went on and on about natural gas’s increasing share of power generation and plant closures.  Ken Ward, the Gazette reporter on the scene, neatly nailed the fact that none of APCo’s coal plant closures have anything to do with EPA’s new enforcement activity on air pollution.

Here is the main point of the story:

Appalachian Power officials said Wednesday they hope to avoid further rate increases amid a long-term national energy transition that includes a continued — but perhaps significantly reduced — role for the coal industry.

Part of Appalachian’s plan is the proposed acquisition of additional coal-fired generation from a sister American Electric Power unit and the conversion of other plants to natural gas.

AEP hopes to transfer more than 2,000 megawatts of generation capacity from the coal-fired John Amos and Mitchell plants in West Virginia to Appalachian, as part of a plan that includes converting the Clinch River plant in Virginia and the Dresden plant in Ohio to burn natural gas instead of coal.

The proposal, pending before regulators, has been previously discussed by AEP and Appalachian Power, but company officials this week met with Gazette editors as part of an effort to make their intentions clear to the public and to power customers.

Historically, Appalachian has purchased power from those facilities, currently owned by sister AEP unit Ohio Power. The proposed transfer would allow Appalachian to generate for its customers directly from those plants.

“Our plan to replace and increase Appalachian’s generating capacity is a cost-effective solution that will have little or no effect on customer rates,” the company said in a flier describing its proposals.

Buried in all the flim-flam about retiring coal plants and natural gas, Patton told the Gazette that APCo is buying 2000 megawatts of coal-fired generating capacity.  He tried to connect this with some vague connection to AEP’s new gas-fired plant at Dresden, OH.  But that isn’t what is really going on.

Right now, AEP’s OH subsidiary Ohio Power owns one third of the John Amos plant near Nitro, WV and about 80% of the Mitchell plant near Moundsville, WV.  Both plants are part of a “power pool” that AEP operates among many of its plants in the region that share electric power among AEP companies.  AEP is dissolving this power pool and reorganizing how its subsidiaries purchase wholesale electricity.  So the change in AEP’s power pool is one factor in the change, and Patton apparently never mentioned it to the Gazette yesterday. [see accompanying post here]

The main thing driving AEP’s changes, however, is the deregulation of how electricity is sold in OH, AEP’s base of operations.  AEP’s Ohio Power now have to compete with other power companies.  AEP has to keep OH rates as low as possible, so Ohio Power can no longer afford to get their power from expensive coal-fired plants.  AEP is dumping its Ohio Power shares in WV coal plants because electricity from those plants is too expensive to sell in the newly deregulated OH markets.

So who ends up with those expensive-to-run obsolete coal plants?  APCo’s WV rate payers.  Yes, AEP is playing its WV rate payers for chumps.  Again.

Does Mr. Patton tell us any of this?  No.  He goes on and on about Amos’s and Mitchell’s scrubbers, blah, blah, blah — and, look over here, the Dresden gas-fired plant.

AEP is dumping its coal-fired generation capacity on WV because WV is a regulated market where APCo can recover all its expensive fuel costs, as well as its capital costs, from consumers without having to face the rate competition the company faces in OH.  While the Mitchell and Amos plants’ original capital costs have mostly been paid off, both plants have recently installed billion dollar stack scrubber systems whose costs will be included in APCo’s electric bills.  Oh, yes, and by the way, gas fired power plants don’t require stack scrubbers at all, because they emit no toxic mercury, very little nitrogen emissions and no sulfur emissions.  That’s a big reason why gas fired power is less expensive than AEP’s coal fired power.

In the quote above that Mr. Patton says that the purchasing of 2000 megawatts of new coal-fired generation capacity is “a cost-effective solution that will have little or no effect on customer rates.”  Note that he hedges his statement about rate impacts.  This is pure spin.  Remember Mr. Patton’s statements only a few months ago minimizing the effects of his bond bailout plan, all the while he was preparing to add $50 million to the amount APCo wanted to “securitize.”

In fact, acquiring 2000 megawatts of new capacity will have a direct rate increase impact.  APCo will be buying Ohio Power’s shares of the Amos and Mitchell plants.  That money will come from APCo’s WV rate payers and will be included in the base rate portion of their electric bills.  Base rate cases at the WV PSC allow recovery by utilities of all their capital expenditures and overhead.  All of these costs will go up with the purchase of Ohio Power’s WV operations.

Plus, APCo rate payers will be stuck with paying rising coal costs through ENEC cases at the WV PSC which cover short term operating cost like fuel and power purchases.

WV Consumer Advocate Byron Harris has also pointed out to the WV PSC that AEP’s shell game could well lead to a shortage of power capacity for Wheeling Power, AEP’s other WV subsidiary.  Here is a link to Mr. Harris’s PSC filing last March.

At a time when WV should be diversifying its power mix AWAY FROM coal, like the rest of the US, AEP wants to increase the proportion of coal-generated electricity in our state as part of its deregulated chess game in OH.

Why didn’t Mr. Patton discuss these topics with the Gazette yesterday?

Update: I did another post this morning on Patton’s spin in the Charleston Daily Mail here.

2 thoughts on “APCo CEO Patton Tries to Get Out Front on Increasing WV Coal Power

  1. “Why didn’t Mr. Patton discuss these topics with the Gazette yesterday?”

    I love rhetorical questions – especially when I know the answers! Because as long as APCo owns the legislature (see the different fates of this year’s (a) bubble-bond bill and (b) least-cost planning bill), Mr. Patton sees no reason for honesty with ratepayers.

  2. And he thinks West Virginians are stupid. And judging from the Daily Mail article, maybe some of us are. AEP is simply dumping AEP-Ohio assets that are not cost effective in WV and telling us there will be no rate increase. As Bill points out, AEP-Ohio needs to scuttle those assets off into a regulated state, where ratepayers are on the hook to pay for the plants over their remaining useful life. In a de-regulated state, AEP is on the hook for the costs as part of the price of their generation. We’re talking about adding millions to APCO’s ratebase here, not to mention the cost of the inter-company “sale.” West Virginia ratepayers are responsible for paying that down over time. Will the WV PSC require APCO to compare the price of buying generation to the cost of owning it? And the cost of owning different types of generation? APCO wants WV to buy without comparison. Perhaps if the WV PSC had the tools, instead of being the tools…

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