AEP files somewhat ambiguous plan in W.Va. for merger of two utilities

The Appalachian Power Co. and Wheeling Power Co. units of American Electric Power (NYSE:AEP) filed a Dec. 16 petition with the West Virginia Public Service Commission covering a proposed merger of the two utilities.

The utilities said that in a June 2008 order, the commission approved a Joint Stipulation, one term of which was agreement to a general investigation by the commission to explore options for meeting the future power supply requirements of Wheeling Power (WPCo). In a November 2009 order, the commission concluded that the companies should make every reasonable effort to accomplish the merger as quickly as possible, including appropriate filings in West Virginia and Virginia. Events since then distracted the utilities, but they said in the Dec. 16 filing that they are now, more or less, ready to pursue the merger.

Two things have emerged clearly from the most recent analysis and discussions about a possible merger between Appalachian Power (APCo) and WPCo, said the filing. One is that it is difficult to model with confidence the impacts of the merger at this time when so many other significant matters affecting the future operating conditions of APCo and WPCo remain in flux. The other is that some filing needs to be made to bring the issue of the merger back before this commission for evaluation and to comply with the direction given in the commission’s November 2009 order.

So the companies are filing the merger petition, but said they are not confident that they could make one of the three showings required under West Virginia code for approval of a merger, namely that the merger would not adversely affect the public in West Virginia. “The Companies therefore present the issue of the prospect of a merger for evaluation by the Commission and the parties in the hope that some resolution can be reached about how best to move forward on this matter,” they added.

If the commission concludes, upon re-evaluation under present circumstances, that the companies should pursue the merger, it can grant its approval and direct the companies to proceed. If the commission determines that additional time is needed to allow the resolution or clarification of any number of currently unsettled circumstances, it can modify in such fashion as it sees fit the direction which it gave the companies with respect to the merger in its November 2009 order.

One development in the near future which may produce some clarification is a filing or series of filings, which one or more of the AEP operating companies intend to make at FERC, probably during the first quarter of 2012. One filing will seek FERC approval of a reconfiguration of the AEP-East Pool in a way compatible with the changed needs and circumstances of the various AEP operating companies. That filing, or a contemporaneous filing, will also seek FERC approval of an APCo/WPCo merger.

The resolution of the power pool matter should enable the companies to make a more reliable evaluation of merger impacts insofar as pool relationships and transactions are concerned, the utilities noted. The resolution of the second matter will provide the needed federal approval of a possible merger and leave the West Virginia commission and the State Corporation Commission in Virginia free to conduct their own assessments and determine whether a merger is in the best interests of affected stakeholders, they added.

If the companies can get regulatory approvals and move forward with the merger, the separate corporate existence of WPCo would cease as of the effective date of the merger and APCo would be the surviving corporation.

The advantages of the merger include: elimination of separate financial and regulatory accounting and reporting for WPCo; elimination of separate periodic FERC compliance audits and annual audits by independent external auditors for WPCo; and streamlined rate proceedings because of the elimination of separate analyses, studies, terms and conditions, and rate schedules for WPCo.

In addition to the efficiencies created by the proposed merger, it would involve actions to ensure a reasonable source for the future power supply needs of the customers currently served by WPCo. That utility currently relies on a wholesale contract with another AEP company, Ohio Power Co. (OPCo), for all of its power supply needs. By its terms, that contact would terminate on the date an alternative supply mechanism is implemented for WPCo or, beginning in 2011, on December 31 of any year, with at least one-year advance written notice by either WPCo or OPCo.  

APCo has sole or joint ownership of 18 power plants with a total capacity of 6,989 MW of nominal electric generation. The 6,989 MW includes APCo’s one-third share of Amos Unit 3, ownership of Sporn units 1 and 3, and its ownership of 580 MW of nominal electric generation from its newly-acquired Dresden plant, which is expected to go online around the end of January 2012. Dresden’s 580-MW rating is subject to testing after start-up, the utilities noted. APCo owns 52,022 total overhead circuit miles of transmission and distribution lines including 734 circuit miles of 765 kV transmission lines.

WPCo, on the other hand, owns no generation facilities. WPCo owns 1,705 total overhead circuit miles of transmission and distribution lines. WPCo also owns tracts of real property for transmission and distribution needs and possesses rights of ways and easements over the property of others to fulfill its transmission and distribution obligations.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.