AEP Coal Plant Dump: The Wheeling Power Bombshell

Regular readers of The Power Line know that AEP has also filed with the WV PSC for approval to transfer ownership of shares of its WV coal-fired plants from AEP subsidiaries that are not supported by WV rate payers to APCo, an AEP company whose costs and rate of return on equity are all paid for by WV rate payers.

We also know that FirstEnergy has filed for similar, but different, transfers of its own.

On June 18 (I know, I’m a little late with this post.), experts in the AEP case filed their written testimony critical of AEP’s claims that they need the transfer of ownership shares in the Mitchell and Amos plants.  I have covered the AEP transfer case, but testimony, particularly on behalf of the WV Consumer Advocate, as well as Energy Efficient WV, provided some new wrinkles that significantly undermine AEP’s plan to dump its obsolete and expensive plants on APCo’s rate payers.

So here’s the bombshell.  The Consumer Advocate’s expert Richard Hornby made a stunning revelation in his testimony:

My concern arises from the capacity acquisition implications of a rejection of, or multi-year delay in, the merger of APCo and WPCo.

There is possibility that the merger may not be approved, or if approved that its effective date may be delayed. For example, APCO must have approval of the Virginia State Corporation Commission to implement the merger.

However, staff of the Virginia State Corporation Commission has filed testimony opposing the merger. [emphasis mine]

Here is a link to the East VA SCC testimony Mr. Hornby cites.

Because AEP Wheeling Power buys all of its power from the Mitchell plant near Moundsville from the plant’s current owner, AEP subsidiary Ohio Power, APCo has proposed a merger between APCo and Wheeling Power, largely to prepare for the transfer of the Mitchell plant to AEP subsidiaries APCo and Kentucky Power.  In fact, the WV PSC has allowed the APCo/Wheeling Power merger case to be combined with the power plant transfer case.

Until June 18, I had always assumed that the Wheeling Power merger case was a done deal, which is exactly what AEP has been assuming throughout its planning for the Mitchell/Amos transfer case.  Here in WV, we think of APCo as a WV company and its merger with another WV company probably makes sense.  But APCo isn’t just a WV company.

The deal looks very different from the perspective of East Virginia.

The first thing you have to know about the East Virginia situation is that APCo also operates in western Virginia (that is not West Virginia for those of you who don’t know the geography of our region).  That means that APCo also needs approval from the East VA SCC for the merger with Wheeling Power, because there could be rate impacts on East Virginia rate payers.  Apparently, the SCC staff people think that those rate impacts are negative, and are opposing the merger.  Ruh, roh.

Hornby goes on to point out that even if the Wheeling Power merger with APCo is eventually approved by the East VA SCC, there could be significant delays.  If the merger is never approved, then AEP’s whole grandiose plan to dump its coal plants on its WV rate payers goes out the window.

Hornby states that instead of needing 1335 megawatts of new capacity by 2020, as AEP assumes with the Wheeling Power merger, APCo would only need 776 megawatts of capacity by 2020 if the Wheeling Power merger fails in East Virginia.

Both Mr. Hornby and WV Consumer Advocate Bryon Harris point out that with the possibility of delays or failure of the merger approval, it doesn’t make sense for the WV PSC to approve a plan based on the assumption that APCo will need to be providing electricity to Wheeling Power’s customers as well.

Hornby and Harris support a plan in which the PSC would approve the transfer of ownership of unit 3 at the John Amos plant to APCo, to serve APCo’s projected needs alone.  Then, if and when a Wheeling Power merger is approved, APCo could come to the PSC with a plan to serve Wheeling Power’s capacity needs.

Ultimately, Consumer Advocate Harris supports the same common sense approach he took in the FirstEnergy coal dump case:

The Commission’s order should not be limited to determining which assets, if any, are to be acquired by Apco. Apco may need additional generating capacity in 2018.

The CAD recommends that the Commission order Apco to issue a Request for Proposal (RFP) in order to determine the most cost-effective means of meeting their customers’ future electricity needs. An RFP process will allow the Commission to review multiple real-world alternatives rather than the single alternative proposed by the Companies. For example, an RFP issued in 2012 by Louisville Gas and Electric and Kentucky Utilities garnered more than 30 proposals with a  wide variety of capacity and resource options.  As I will discuss later in my testimony, the Companies have not offered any credible reasons why it should not issue an RFP.

The Commission should also require Wpco to issue an RFP for capacity and energy. It is unclear whether or when Wpco will be merged with Apco. An RFP process will help to clarify the options available to serve Wpco’s customers in the future.

There are other important points made by experts in the AEP case, but I will take them up in my next few posts.  The growing uncertainty surrounding the APCo/Wheeling Power merger is a big deal that the WV PSC will have to address in this case.

The failure of AEP management to address this problem in their planning is a major failure, along with some other failures I will point to in discussing other testimony in this case.

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