AEP advances Ohio separation plan following PUCO approval

In a move that has been long in the making, with some twists and turns along the way, American Electric Power (NYSE: AEP) said Nov. 1 that it has asked FERC to approval full separation its Ohio generating assets from its Ohio distribution and transmission operations.

This follows an Oct. 17 decision from the Public Utilities Commission of Ohio (PUCO) in a corporate separation case.

“These FERC filings are an important next step in our transition to full competition in Ohio,” said Nicholas Akins, AEP president and CEO. “We have requested approval to transfer ownership of a portion of our Ohio generation-related assets from AEP Ohio into a separate unregulated generation company, to transfer other generation assets currently owned by AEP Ohio to Appalachian Power and Kentucky Power to help satisfy their long-term capacity requirements in the PJM Interconnection, and to end the current system interconnection agreement for our Midwest utilities. If the process moves forward as we expect, we will be in a position to fully separate our Ohio generation from our Ohio utility operations at the beginning of 2014.”

AEP requested approval to transfer about 9,200 MW of AEP Ohio-owned generation to a new wholly owned company – AEP Generation Resources (AEPGenCo). AEP also requested FERC approval to transfer AEP Ohio’s current two-thirds ownership (867 MW) in the coal-fired John E. Amos Unit 3 in West Virginia to Appalachian Power and to transfer 800 MW of the 1,600-MW generating capacity of the Mitchell plant in West Virginia to Appalachian Power and the remaining 800 MW to Kentucky Power.

Additionally, AEP asked FERC to terminate the existing interconnection agreement, or pool, that exists among AEP’s utilities in the Midwest and to approve a new Power Coordination Agreement among its Appalachian Power, Kentucky Power and Indiana Michigan Power units. AEP also requested approval to merge AEP’s Wheeling Power utility into Appalachian Power.

AEP said it anticipates a decision on the FERC filings by mid-2013, with implementation of corporate separation and the other items in the related filings Jan. 1, 2014. Appalachian Power and Kentucky Power will submit necessary state regulatory filings in the fourth quarter of 2012.

West Virginia commission wants answers on latest separation plan

Wheeling Power (WPCo) and Appalachian Power (APCo) need to file a report by Dec. 3 with the West Virginia Public Service Commission advising the commission about how the Oct. 17 PUCO order will impact the power generation assets the two utilities might have in the future. The Dec. 3 filing needs to report on the status of the capacity and energy supply options under consideration by the two utilities, and needs to indicate whether the companies are ready to go forward to address their capacity and energy needs, either through merger or as separate corporate entities, said an Oct. 29 order from the West Virginia commission.

In December 2011, APCo and WPCo filed a petition with the West Virginia commission for a possible merger. In an April 2 order, the commission concluded that considerable uncertainty existed with respect to a future merger and future power supply options to meet the needs of APCo and WPCo customers either with or without a merger and put the case on hold.

But, in the meantime, the West Virginia Consumer Advocate Division (CAD) has continued to look at the possible coal-fired capacity transfers to APCo and WPCo as part of the merger plan. On Sept. 21, CAD told the West Virginia commission that it had engaged an expert consultant for this case. CAD also stated that for a number of reasons, APCo and WPCo could be without sufficient resources to meet the capacity and energy requirements of their retail customers as of Jan. 1, 2014. CAD stated that the companies are no closer to resolving the “looming crisis” than when this case was filed, the commission noted in the Oct. 29 order.

CAD also stated that the commission must gain a complete and thorough understanding of the options available to APCo and WPCo individually and on a merged basis. The CAD consultant found that APCo’s acquisition of a gas-fired combined-cycle facility would be its most economic supply alternative, but that AEP has not included existing gas-fired generation in the portfolio that APCo will acquire. CAD said it believes that AEP/Ohio Power will retain the most economic generation and transfer more expensive generation to West Virginia.

CAD also stated that to date APCo has not analyzed the capacity and energy available in the bilateral contract market through a request for proposals (RFP) process. CAD recommended that the commission require it to do so. CAD said the commission should also permit comments on the terms of the RFP to ensure that it is designed to produce the most salient results. CAD urged that time is of the essence and that unless the commission requires the companies to issue an RFP, the commission will lack important evidence necessary to determine the appropriate resolution of this case.

CAD concluded by requesting that the commission order APCo to issue an RFP for capacity and energy to satisfy the capacity deficiencies of APCo and WPCo as of Jan. 1, 2014, and further require that APCo request that AEP offer it existing gas-fired generation in addition to the Amos and Mitchell coal-fired generation.

On Oct. 17, the PUCO entered an order authorizing and approving OPCo’s modified application for structural corporate separation. Under the corporate separation, the electric distribution utility will divest its generation assets from its noncompetitive electric distribution utility assets by transfer to its separate competitive retail generation subsidiary, AEPGenCo, on certain conditions. Furthermore, subsequent to the transfer of the generation assets and liabilities from OPCo to AEPGenCo, AEPGenCo would transfer to APCo an interest in Unit 3 of the Amos plant and 80% of the Mitchell plant.

“The generation asset transfers from AEPGenCo to APCo that are discussed in the PUCO Order will require a formal petition proceeding at this Commission and may require proceedings in other jurisdictions including Virginia and the FERC,” the Oct. 29 West Virginia PSC order said. “As part of the [Dec. 3] status report, the Companies will describe the filings that will be made, or have been made as of the filing of the status report, and the timing of such filings. This Order does not dictate a power supply portfolio for the Companies, but the Companies are on notice that they must demonstrate they have considered all reasonable power supply options in future filings.”

To be transferred also is coal-fired capacity at Sporn plant

American Electric Power Service Corp. (AEPSC), on behalf of APCo, KPCo and AEP Generation Resources, on Oct. 31 filed with FERC the Sporn Plant Operating Agreement among APCo, AEP Generation Resources and AEPSC, and the Mitchell Plant Operating Agreement among APCo, KPCo, and AEPSC.

The filing noted that the PUCO on Oct. 17 approved the comprehensive restructuring of AEP’s Ohio utility affiliate, Ohio Power. Among other things, that restructuring provides for Ohio Power to separate its generation facilities from its transmission and distribution facilities. In a separate Section 203 application with FERC, APCo, KPCo, and AEP Generation Resources are seeking authority for:

  • APCo to obtain from AEP Generation Resources Ohio Power’s former interest in Unit 3 at Amos and appurtenant interconnection facilities (APCo already owns an interest in Amos Unit 3) and an 50% undivided interest in Mitchell and appurtenant interconnection facilities; and
  • KPCo to obtain from AEP Generation Resources the remaining 50% undivided interest in the Mitchell plant.

“Once these transactions are consummated, AEP Generation Resources will operate the former Ohio Power generating facilities (other than Amos Unit No. 3, the Mitchell Plant, and the Philip Sporn Plant (‘Sporn Plant’)) as a standalone generating company,” said the filing. “As discussed below, APCo will operate the Sporn Plant and the Mitchell Plant in accordance with the operating agreements that are the subject of this filing. APCo also will own and operate all the units at the Amos Plant. Therefore, as of the consummation of the transaction under which APCo will obtain Ohio Power’s former interest in Amos Unit No. 3, the current operating agreement among APCo, Ohio Power, and AEPSC will be terminated.”

The generating facilities covered by this filing are:

  • four 150-MW coal-fired units (Sporn Units 1-4) and one 450-MW coal-fired unit (Sporn Unit 5) at the Sporn plant near New Haven, W.Va.; and
  • two 800-MW coal-fired units at the Mitchell plant in Moundsville, W.Va.

Under the current arrangements, APCo owns Sporn Units 1 and 3, and Ohio Power owns Sporn Units 2, 4 and 5. Sporn Unit 5 was retired on Feb. 13, 2012. Notable is that Sporn Units 1-4 are on AEP’s list of coal-fired facilities to be shut during or prior to 2016.

Because the plant is located in West Virginia in APCo’s service territory, APCo has operated and maintained Sporn, including the units owned by Ohio Power, under the terms of an existing agreement between APCo and Ohio Power. Under the Ohio corporate separation plan, AEP Generation Resources will obtain Sporn Units 2, 4, and 5. APCo and AEP Generation Resources have agreed that APCo will continue to operate the Sporn plant under the terms and conditions of the Sporn Agreement.

The Mitchell plant ultimately will be transferred to APCo (which will acquire a 50% undivided interest) and KPCo (which will also acquire a 50% undivided interest). APCo and KPCo have agreed that APCo will operate the Mitchell plant under the terms and conditions of the Mitchell Agreement.

AEP is one of the largest electric utilities in the U.S., delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 MW of generating capacity in the U.S. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Co. of Oklahoma, and Southwestern Electric Power Co. (in Arkansas, Louisiana and east and north Texas). AEP’s headquarters are in Columbus, Ohio. 

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.