The Amos/Mitchell Plant Sale All About AEP, Not Charity for APCo Rate Payers

The FirstEnergy Harrison plant scheme is fast approaching its final hearing at the WV PSC on May 29, but there is another coal plant transfer scheme in the works by the other Ohio-based holding company that controls WV’s other electric companies.

AEP wants to “sell” one unit at the John Amos plant in Putnam County and half the capacity of the Mitchell plant near Moundsville to AEP’s Appalachian Power Company subsidiary in WV.  The cost of this “sale” will go directly into the rate base of APCo rate payers, raising their monthly electric rates for at least the next few decades.

There is two big differences between AEP’s situation and FirstEnergy’s situation.  The shares of the Mitchell plant and the Amos plant are not owned by merchant generating companies, such as FirstEnergy’s Allegheny Energy Supply which owns the Harrison plant, they are owned by Ohio Power, a utility operating in Ohio.

The second big difference is that, because AEP has operated its own wholesale power sharing pool among power plants in WV, KY, OH and IN, purchased power plant capacity from PJM’s RPM capacity market won’t be available to APCo for three years.  Power companies can only purchase plant capacity three years in advance on the PJM market, and APCo has not been a part of this market in the past.  By contrast, FirstEnergy is an active player in the PJM markets, and purchased capacity is available immediately from PJM.

Purchasing plant capacity on PJM, instead of owning coal fired power plants, has been, and will continue to be, a less expensive alternative.  This is true primarily because low cost natural gas generated electricity is now setting the price of energy on these markets.

So does APCo have a capacity problem?  They do have a generation shortage, compared with their projections of future demand.  This shortage has actually been a long term feature of AEP’s WV power companies, which have always just imported power from the AEP power pool, which no longer exists.

But wait a minute.  Note what I said above.  AEP’s Ohio Power owns one of three units at the Amos plant and all of the Mitchell plant.  These plants are both in WV.  So WV doesn’t really have a shortage at all, it’s just that AEP’s Ohio Power owned these power plants and was exporting APCo’s “shortage” to its OH customers.

If the Mitchell and Amos plants get transferred onto APCo rate payers’ electric bills, rate payers will be buying power plants for the next 30 years, but APCo really has only a three year problem with their generating capacity.  There are lots of things APCo could do for three years to solve this temporary problem.  Why do they want to put rate payers in hock for the next thirty years?

Now that Ohio has completed deregulation of its OH retail electricity markets, power from Ohio Power’s coal fired power plants can’t compete with electricity from the open market.  Ohio Power needs to dump the overhead costs of its coal fired power plants if it wants to cut costs to compete in OH.  That means their ownership of WV coal fired plants has to go.  That’s the real reason behind AEP’s rush to saddle APCo rate payers with these plants.

APCo’s CEO Charles Patton even admitted, in testimony to the WV PSC, that simply purchasing electricity, as opposed to reserving plant capacity, from PJM’s markets would probably be a cheaper short term solution for the next three years.  But then he turns around and claims that this short term problem is really a long term problem that can only be solved by dumping Ohio Power’s unwanted power plants on his WV customers:

A.  That could be done, and current market prices might make that appear an attractive option at the moment. But I think that such a course of action would be short-sighted. The Generating Assets are available now; they are unlikely to be available one, two, or three years from now. APCo’s analyses were predicated on determining the least-cost long-term option for APCo and its customers and I believe that is the most appropriate frame of reference.

Why would the Mitchell and Amos plants be “unlikely to be available one, two, or three years from now”?  Is Mr. Patton saying that if the plants can’t be dumped on APCo rate payers, they will have to close?  Is he saying that they are about to vanish into thin air?

No, what Mr. Patton is saying is that Ohio Power is desperate to dump these plants now, WV rate payers be damned.

If you read what AEP has been telling the WV PSC in its own power plant transfer case, the company is extolling all the wonderful benefits that its APCo rate payers will get from owning more of the Amos and Mitchell plants.  Like FirstEnergy, AEP wants West Virginians to think that the company is really a charity that exists only to help WV.

There is more evidence that AEP is only looking out for AEP in this power plant scheme.  In the discovery phase of the WV PSC case, AEP responded to a question from the WV Consumer Advocate Division this way:

Request IRP-18 –
In the APCo/WPCo merger docket, Case No 11-1775-E-P, the Company planned to acquire 80% of the Mitchell units. Why has the Company reduced the transfer capacity to 50% of the Mitchell units in this docket? Provide any analyses, workpapers, memoranda, or internal correspondence describing and/or supporting the reason and purpose of this change.
Response IRP- 18 –
The percentage was reduced from 80% to 50% due to updated resource planning.  See the testimony and exhibits of Company witness Torpey.

The CAD’s request refers to a separate case in which APCo is seeking to merge with Wheeling power.  In that case, APCo said it was acquiring 80% of the Mitchell plant’s capacity.  Then, when they filed the power plant transfer case a little while later, APCo said they would purchase only 50% of the plant.  CAD wanted to know what caused the change.

In response, AEP provides a non-answer.  They say the reasons for the reduction can be found in testimony by their employee “witness Torpey.”  Here is a link to his testimony.  Go ahead, read Mr. Torpey’s testimony.  You won’t find any explanation of why AEP decided to reduce APCo’s share of Mitchell from 80% to 50%.  After all, Mr. Patton, in the same document says the Mitchell plant is a great “Generating Asset.”  I guess the capital letters were to emphasize just how Great the Asset is.

So what really happened in the time between APCo’s merger filing and its new application for the Mitchell/Amos transfers?  This happened.

AEP decided that it was going to shut down two coal burning units at its Kentucky Power coal burner, Big Sandy.  Now Kentucky Power was short on generating capacity.  The original plan was to “sell” 20% of the Mitchell plant to Kentucky Power and 80% of the plant to APCo.  But with the closing of Kentucky Power’s two Big Sandy units, Kentucky Power needed more power.  So APCo bumped up Kentucky Power’s share of Mitchell to 50% and dropped APCo’s share to 50%.

Where were the supposed needs of WV rate payers in this equation?  Nowhere, that’s where.  It was all about AEP playing monopoly with its wholly owned state utilities.  No charity for WV here, just flat out profit calculation by AEP.

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