In its final order issued yesterday afternoon, the WV PSC approved the transfer of 2/3s of unit 3 of the John Amos plant from AEP subsidiary Ohio Power to AEP subsidiary Appalachian Power Company (APCo). The PSC put off ruling on any merger between Wheeling Power (WPCo) and APCo. The Commission also deferred ruling on AEP’s plan to have APCo buy 1/2 of the Mitchell plant near Moundsville from Ohio Power.
Before we get into some details, let’s look at the basics of why this happened. Wheeling Power operates only in WV and is only governed by the WV PSC because it has no operations in any other state. Wheeling Power buys all of its electricity from Ohio Power which, until 2014, owns all of the coal-fired Mitchell plant. The Mitchell plant is located in Wheeling Power’s geographic territory. Because of deregulation in Ohio, Ohio Power is getting rid of all of its ownership of generating plants. Earlier this year, the KY PSC approved the transfer of 1/2 of the Mitchell plant to AEP subsidiary Kentucky Power. If you are puzzled by why Ohio and Kentucky power companies own a plant in WV’s northern panhandle, I’ll just say that it’s basically an AEP corporate shell game to keep their existing coal-fired plants operating, no matter where they are.
APCo has complicated things further, because this AEP subsidiary operates in WV, TN and East VA. For this reason, the East VA SCC (their PSC) had to approve any merger or plant acquisition by APCo, because it would have an impact on East Virginia rate payers through APCo. In July 2013, the SCC refused to go along with APCo’s plans. The SCC approved the merger of WPCo and APCo, but refused to allow APCo to purchase any part of the Mitchell plant.
That threw a monkey wrench into the WV PSC case. AEP must obey the East VA SCC ruling on APCo, and the WV PSC has no authority over the SCC. State PSCs always respect each others’ decisions, so there will be no negotiation or settlement between the two Commissions.
From the point of view of power plant capacity, here is AEP’s problem. If APCo goes ahead with only buying the Amos plant part of the deal, APCo will have enough plant capacity IF it doesn’t merge with WPCo. WPCo would then have to purchase electricity and/or capacity on a contract basis from the Mitchell plant or another company. AEP already has what is called a bridge agreement in place to cover WPCo for the next few years from its own plants. If APCo goes ahead and merges with WPCo, and cannot purchase the Mitchell plant, then the new merged APCo will be short of plant capacity, just as a separate WPCo would have been.
For those reasons, the WV PSC approved the Amos transfer, as did the East VA SCC, but deferred on approving the merger of APCo and WPCo. The WV Commission told AEP to go back to the drawing board and figure out some way to cover the electricity needs of a merged APCo/WPCo without the purchase of the Mitchell plant.
The WV PSC has brought on a lot of these problems itself by taking such a passive approach to power company regulation in WV. In particular, the Commission seems to have some kind of fetish for coal-fired power plants. Commissioner Albert made repeated references to “steel in the ground” in the one day of hearings I attended in the AEP case. In both this order and the FirstEnergy plant transfer order, the Commissioners (with the exception of Commissioner Palmer in the FirstEnergy case) rejected out of hand any consideration of meeting future electrical capacity needs through aggressive demand reduction through energy efficiency.
Even more astonishing, the Commissioners continue to blindly accept power company assurances that power and energy prices in the open market are going to rise in the immediate future, and that purchasing electricity from PJM’s open markets would cost rate payers too much money. In fact, almost every expert on PJM electricity prices says we are entering a long term period of low wholesale prices. When WV CAG experts David Schlissel and Cathy Kunkel testified in the AEP case that purchasing coal-fired power plants will be more expensive than simply buying cheaper electricity from the PJM markets, the Commission played semantic games in the current final order to find an excuse to reject their argument.
FirstEnergy made similar bogus claims about the value of the Harrison plant over purchasing electricity. FirstEnergy’s experts claimed throughout the case that buying electricity would become very expensive very soon. So Commissioners Albert and McKinney went along. Within weeks after the WV PSC decision, Commissioners Albert and McKinney were punked by FirstEnergy CEO in his next quarterly investor call:
As you know, our competitive operations have been challenged. Not by operational performance, but by capacity and energy markets that do not support investment in, or in some instances, the operation of generating units. While we can debate the reasons this is occurring, the fact is, power prices have been weak for the last couple of quarters and we may be facing continued soft power prices for at least the next several years.
So you would think that the WV PSC would have learned its lesson. Nope. Here is what they said in Friday’s order about AEP’s claims that market prices were set to rise:
The Commission agrees with the APCo rebuttal testimony that the current [low] capacity costs in the PJM capacity market cannot be expected to continue.
This statement is particularly funny because the testimony by APCo was rebutting testimony by intervenor WV Citizen Action Group that APCo had failed to include recent declines in PJM capacity prices in any revisions of their modeling for the PSC case. When challenged, APCo’s witness claimed that because the transaction wasn’t due to be completed until 2015, any price changes before that time were irrelevant and their predictions of the future were just ducky as they were.
So, where does all this leave us? One thing is certain, one way or another it will leave APCo and WPCo rate payers burdened with expensive and obsolete coal-fired electricity on their electric bills. The WV PSC’s myopia and fetish for coal-fired power plants has assured that much.
In Friday’s order, the PSC never mentioned the issue that the East VA SCC highlighted in its July order: resource diversity. While the WV PSC is willing to bet the farm on coal-fired electricity, the SCC is not. This is from the SCC’s press release on their July order:
In denying the Mitchell acquisition, the SCC also cited the risks associated from a lack of diversity in APCO’s generating fleet. Approving both acquisitions would raise the percentage of coal-fired electricity produced by APCO’s generation fleet to a projected 87 percent by 2017.
Of course, in East Virginia, APCo, like all other power companies, is required to file an integrated resource plan with the SCC every year. The SCC can then monitor directly what steps power companies are taking to insure that their planning for capacity minimizes risk by increasing resource diversity. Not in WV. Our legislature and PSC have failed miserably and have shackled WV electric rates to the vagaries of the coal markets and obsolete technologies that now need expensive add-ons to continue operating safely.
AEP now has to come up with a plan to cover WPCo’s power and energy needs without APCo’s purchase of 1/2 of the Mitchell plant. The PSC set a deadline in March 2014 for AEP to submit that plan. AEP has a number of alternatives, but I’ll bet that none of them will involve aggressive expansion of their energy efficiency programs or investment in new renewable power generation, as we are seeing with other power companies around the US.
The only possibilities that the WV PSC appears willing to accept are: merge APCo and WPCo and buy the extra electricity APCo needs on long term contracts, or keep WPCo separate and transfer the Mitchell plant to WPCo, because WPCo is not governed by the East VA SCC.
Given what we know about the PSC’s silly fetish for “steel in the ground” and AEP’s desperation to dump the Mitchell plant on captive rate payers in WV, I think we could very likely see WPCo remain separate as a fake shell company that would own 1/2 of the Mitchell plant as a way to evade the East VA SCC’s restrictions on APCo.