After a number of delays, following filings at FERC and trying to figure the best way to shut down their Big Sandy coal burner in KY, AEP finally filed their petition with the WV PSC to transfer ownership of one unit at the John Amos plant and half of the Mitchell plant from AEP subsidiary Ohio Power to AEP subsidiary Appalachian Power. AEP wants to sell the other half of the Mitchell plant, all of which is owned by Ohio Power, to AEP’s subsidiary Kentucky Power, to make up for the generating capacity Kentucky Power will lose when two units of the Big Sandy plant are shut down. Could you follow all that?
Here is a link to the AEP filing at the WV PSC on the proposed Mitchell and Amos deals. Here is a link to AEP’s filing on the Big Sandy plant at the KY PSC which details plans for Big Sandy and the KY Power Mitchell purchase. Pam Kasey at Grounded also did a very informative story last week on the situation. Ken Ward also provided some useful background on the Big Sandy situation on Coal Tattoo on Friday. Here is a link to Ken’s story.
If you read all the information at these links, you will see that there are a lot of differences between the AEP coal dump and the FirstEnergy Harrison Power Station coal dump. There are also several similarities. Here are some of the similarities I have picked up:
- Both AEP and FE are based in Ohio. Ohio as completed the last stages of its deregulation process, leaving AEP’s Ohio Power and FirstEnergy stuck with a lot of coal fired power plants that are so expensive to operate that they cannot compete in Ohio’s new open retail market. FirstEnergy has aggressively attacked AEP’s Ohio customer base by using power bought on PJM’s open market, whose prices are now set largely by gas fired power, and in some instances even wind power. FirstEnergy has been forced to take its huge Sammis coal burner off line as a base load plant, because the plant’s power is no longer competitive in the open market.
- Both AEP and FE are trying to dump expensive coal burners onto rate payers in regulated markets in KY and WV, where state laws allow them to recover all their operating and capital costs, plus a guaranteed rate of return on equity. AEP and FE couldn’t sell their coal burners on the open market right now, because nobody would want them. Instead, the companies are trying to hoodwink formerly tractable PSCs to lock rate payers in to paying for their investment mistakes for decades into the future.
- In both cases, there are lots of alternatives to saddling rate payers with decades of unnecessary rate increases. As consultant Billy Jack Gregg has already pointed out in testimony before the WV PSC, power is cheap on PJM’s wholesale power markets right now. There is plenty of time to figure out a diversified and flexible response to AEP’s and FirstEnergy’s capacity problems. There is no need to rush into any deal, especially a deal that involves buying coal plants that no one else would buy.
AEP and FirstEnergy are using sleight of hand in both these cases. They want everyone to focus on generating capacity and power plants, when the least expensive solutions to most of their problems lie on the demand side of the equation. In both cases, the power companies provided estimates of future demand, glossing over them quickly to get to their proposed generation “solutions.” Whoa there, guys. Many states have demonstrated that a strong commitment to controlling demand growth is the common sense first step here.
In their PSC filings both AEP and FirstEnergy push to the side demand management (shifting peak demand to off peak times to reduce the need for extra capacity) and investing in energy efficiency to reduce demand. Here is what the WV Department of Energy’s draft energy plan says about the relative costs of investment in efficiency compared with the cost of coal fired generation:
Increasing generation capacity and transmission and distribution (T&D) capabilities has been the traditional approach for meeting increased energy demand. However, the resources utilized in building new power plants and expanding T&D are often more expensive than resources needed to fund efficiency measures.7 Americans spend approximately $215 billion/year on the production of electricity at a price of 6 to 12 cents per kilowatt hour. Investments in efficiency only amount to approximately $2.6 billion/year at a cost of around 3 cents per kilowatt hour saved.
The Executive Summary of the efficiency section of the draft plan states that efficiency investment can be particularly useful in WV for meeting electric capacity needs:
EE should be considered a high priority resource within the West Virginia energy portfolio. Of the 13 Appalachian states, West Virginia leads the group with the highest residential energy consumption per household. In rankings of state-level energy efficiency efforts in the region, WV comes in near the bottom. This indicates that others states have characteristics that lead to lower consumption, such as more urban populations with more people per household and more incentives to deploy efficiency programs due to higher electricity costs. EE can help alleviate the impacts of increasing energy demand and rising electricity rates if it is done cost-effectively.
Utility programs are a primary way to deploy energy efficiency initiatives. State policy and state-sponsored workshops and training provide a foundation on which to institutionalize attention to EE. Third-party administrators can also manage very effective EE initiatives, although utility programs are more common due to existing demand-supply relationships and knowledge of consumption patterns. Presently the two state utility programs, offered through Appalachian Power and First Energy, constitute the largest state-level funding for EE efforts, at nearly $8 million per year. These efforts are new, having been initiated in 2011. WV’s programs are younger and less inclusive than similar utility programs in neighboring states.
Energy efficiency programs can confer substantial benefits to utilities and end-users when program implementation and maintenance is more cost-effective than increasing supply of energy. Future increases in investment costs can similarly be avoided for transmission and distribution infrastructure. Although demand response is not typically considered to be energy efficiency, effective EE programs also contribute to a decrease in peak demand due to the decrease in overall demand.
The WV PSC needs to send both AEP and FE back to the drawing board to come up with a plan to reduce long term power demand in our state. Only when we have a clear picture of real future demand estimates should the power companies be allowed to discuss power generation alternatives.