Appalachian Power readies for coal asset transfer out of Ohio

Appalachian Power’s capacity needs for years to come will be met in part by the transfer of coal-fired capacity from an American Electric Power (NYSE: AEP) subsidiary in Ohio, said APCo in a June 4 integrated resource plan update filed at the Virginia State Corporation Commission.

The preferred plan is dependent upon the outcome of other federal and state regulatory proceedings, the company noted. It pointed out in the cover letter that on May 31 the Kentucky Public Service Commission allowed AEP’s Kentucky Power unit to withdraw, without prejudice, its application to, among other things, install an SO2 scrubber on Unit 2 of its Big Sandy coal plant in eastern Kentucky. “In its motion filed on May 30, Kentucky Power had stated that it wished to re-evaluate alternatives to meet its environmental obligations at its Big Sandy Plant and that it would file a new application when that evaluation is complete,” APCo wrote.

In September 2011, APCo filed its bi-annual IRP with the Virginia State Corporation Commission. On March 5, the commission directed APCo to file an update to detail its plans regarding changes to the AEP Interconnection Agreement (East Pool) and any planned corporate reorganization, including any proposed transfer of generating facilities to APCo.

“This update of the IRP will incorporate the Company’s plans regarding changes to the East Pool and asset transfers as currently envisioned,” the update said. “It must be pointed out, however, that these proposed changes and asset transfers may be influenced by ongoing proceedings in the state of Ohio and other states served by East Pool Member Companies, as well as yet unfiled proceedings at the Federal Energy Regulatory Commission (‘FERC’). Also, certain indicated actions in this IRP affecting APCo resources and demand initiatives will be subject to approval, in separate future dockets, from the Virginia SCC and the Public Service Commission of West Virginia (WVPSC).”

This update presents the results of the modified analysis for the long-term capacity and energy resource alternatives that were presented in the 2011 IRP. These analyses indicate that the lowest cost strategy for the company would be to proceed with the new Asset Transfer Plan. The Asset Transfer Plan assumes that, as part of a required corporate separation under Ohio law, certain generating assets of APCo affiliate Ohio Power would be transferred to APCo and Kentucky Power – two of the three East Pool members that would remain following the corporate separation. Under that plan, APCo would receive 80% of the Mitchell coal plant in West Virginia, in addition to 66.67% of the coal-fired Amos Unit 3 in West Virginia (APCo already owns the balance of Amos Unit 3) for a total of over 2,100 MW of baseload capacity. Kentucky Power would receive 20% of the Mitchell units.

Asset transfer fixes APCo’s historic capacity deficit

APCo and Kentucky Power have historically been capacity and/or energy deficit members of the pool, the updated IRP pointed out. AEP unit Indiana Michigan Power, the other East Pool Member Company, which has historically been in capacity and energy surplus, would not receive any assets from OPCo. The transfer of these baseload assets would allow each of the three remaining AEP Pool Member Companies to meet their near-term capacity obligations under the PJM-Reliability Pricing Model capacity construct, in addition to their internal energy requirements. These three companies would then form a new energy sharing pool.

The planned asset transfer provides a mix of coal, natural gas, hydro, wind and demand side/energy efficiency resources, and adds efficient super-critical coal units which have been retrofitted with equipment to control SO2, NOx, mercury and other hazardous air pollutants, APCo noted.

On Feb. 10, a number of subsidiaries of AEP, including APCo, made various filings at FERC regarding the Pool Agreement, the corporate separation of OPCo’s generation from its transmission and distribution business, and the proposed transfer of certain generation assets. As a result of a Feb. 23 order by the Public Utilities Commission of Ohio, the AEP operating companies withdrew their FERC cases on Feb. 28. While AEP intends to refile with FERC at a later time, that filing may be influenced by the outcome of regulatory proceedings in other states, APCo wrote in the updated IRP.

John E. Amos is a three-unit coal-fired power plant located in Winfield, W.Va., with an average annual capacity rating of 2,896 MW. OPCo has an undivided two-thirds interest in Unit 3 of that station (864 MW). APCo currently holds the remaining undivided one-third interest in Unit 3 (432 MW) and owns Units 1 and 2. Mitchell is a two-unit coal-fired plant located in Moundsville, W.Va., with an average annual capacity rating of 1,560 MW. Ohio Power currently owns the entire station.

Clinch River in Virginia targeted for shutdown, gas conversions

The updated IRP also touches on the impacts of new U.S. Environmental Protection Agency rules, including the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS), on APCo’s coal-fired capacity. One feature of CSAPR that makes it more stringent than the prior Clean Air Interstate Rule (CAIR) is the restraint imposed on interstate trading of emission allowances in Phase 2 of the program, the company wrote.

APCo’s coal-fired units at the Amos and Mountaineer plants were retrofitted with flue gas desulfurization (FGD) and selective catalytic reduction (SCR) to comply with the NOx State Implementation Plan (SIP) Call and CAIR. The resulting emissions profile for APCo’s units in West Virginia would have allowed the company to comply with its CSAPR obligations in that state, APCo said. CSAPR is currently on hold as a federal court decides various appeals of the rule.

The discontinuance of unrestricted interstate trading and lower emission budgets in Phase 2 of CSAPR could require additional emissions reductions from APCo units in Virginia, depending on expected emission levels from those units. However, environmental compliance planning for the Clinch River coal units also will be driven by MATS, and the company’s current plans include retiring one Clinch River unit and re-fueling the remaining two units to burn natural gas. With these retirements, the company would be positioned to meet expected obligations under the CSAPR in Phase 2 (if the program is upheld by the federal court) in both Virginia and West Virginia.

Under the proposed Asset Transfer Plan in Ohio, APCo would gain 80% of the CSAPR SO2 and NOx emission allowance allocations for the Mitchell plant and all of the SO2 and NOx emission allowance allocations for the Amos plant. Like the Amos units, the coal-fired units at Mitchell were retrofitted with FGD and SCR system technologies and the resulting emissions profile for the addition of Mitchell in West Virginia would still allow APCo to comply with its CSAPR obligations in that state. Additionally, the company would still be positioned to meet expected obligations under the CSAPR in Phase 2 in both Virginia and West Virginia.

Based upon preliminary review, potential modifications to APCo plants due to the new MATS rule include, but are not limited to, the natural gas refuel at Clinch River Units 1 and 2. The MATS compliance end-date for APCo’s units is April 16, 2015, unless an administrative one-year extension for units requiring major retrofit(s) or replacement projects is requested from, and granted by, the state environmental agency in which the unit is located. An additional one year enforcement order extension may be available to units identified as “critical for reliability purposes,” APCo noted.

As for new generation, the Dresden natural gas plant went into service in January. The coal-to-gas switch at Clinch River Units 1-2 is expected by Jan, 1, 2015. Clinch River Unit 3 is due to be retired by June 1, 2015. The coal-fired Glen Lyn Units 5-6 are also due for retirement by June 1, 2015, as are the coal-fired Kanawha River Units 1-2 and Sporn Units 1-3.

With the addition of Dresden and the proposed asset transfers, APCo will not need to construct new capacity until 2025 when the converted Clinch River units are assumed to be retired, at which time a new natural gas combined cycle facility is recommended.

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.