AEP: In Ohio restructuring, only transmission assets connected to generation to be transferred

No bulkhead transmission facilities or transmission facilities included in rate base will be transferred during Ohio Power‘s restructuring effort, the company said.

Parent company American Electric Power (NYSE:AEP) on Nov. 1 filed for FERC approval of the subsidiary’s Ohio transaction, in which Ohio Power will separate fully its generating assets from its distribution and transmission assets. The transaction will fulfill the company’s move toward fully competitive markets in that state.

Only those transmission facilities that need to connect generating units to the grid will be transferred, AEP said in the filing.

The Columbus, Ohio-based utility maintained that the transfer of facilities from Ohio Power to AEP Generation Resources will not have an adverse impact on Ohio Power ratepayers. Any change within the AEP pricing zone of PJM Interconnection’s open access transmission tariff (OATT) will be a decrease, the company said, as the only cost component that could be affected by the transaction is Ohio Power’s equity ratio used for determining the overall AEP return on equity component.

“[Ohio] Power’s equity ratio – and thus its cost of capital – will not increase as a result of the transaction; therefore, to the extent there is any effect on transmission rates, the transaction will cause them to decrease,” AEP said. “Consequently, there will not be any adverse impact on wholesale customers taking service under the PJM OATT.”

AEP also said it would hold harmless its wholesale transmission customers from any transaction costs related to the transaction for five years following the closing date. Further, the purpose of the transaction, to move to competitive markets, by definition enhances retail choice for customers, the company noted.

AEP makes FPA filings

AEP is making several simultaneous filings in connection with the transaction, including three Federal Power Act (FPA) Section 205 filings and three Section 203 filings, an AEP spokesperson told TransmissionHub on Nov. 1.

The Section 205 filings include an application for the termination of Ohio Power’s existing interconnection agreement, a proposal for a new power coordination agreement among Appalachian Power Co. (APCo), Kentucky Power Co. (KPCo) and Indiana Michigan Power Co., and an operating agreement related to the Sporn and Mitchell generating plants.

“In conjunction with the separation of Ohio Power’s generating and marketing businesses from its transmission and distribution businesses, AEP Generation Resources will have an interim partial requirements wholesale power sales agreement (PSA) with Ohio Power to allow Ohio Power to meet the capacity needs and the energy needs beyond those satisfied by energy auctions conducted by Ohio Power associated with retail customers that are not served by alternative retail suppliers, as well as Ohio Power’s capacity commitments associated with retail customers that choose to be served by alternative retail suppliers,” the company said.

AEP Generation Resources will also have an agreement with certain other AEP operating companies located in PJM to address transition issues associated with termination of the interconnection agreement, “such as how the companies will meet their PJM Fixed Resource Requirement obligations through May 31, 2015, and how they will address existing marketing and trading arrangements with third parties.”

Under the generating facility operating agreement, APCo will operate both the Mitchell plant, which it will own jointly with KPCo, and the Sporn plant, of which APCo owns Unit Nos. 1 and 3, and AEP Generation Resources will own Unit Nos. 2, 4, and 5.

Ohio Power and the other parties to the existing interconnection agreement have provided each other with notice of termination of that agreement effective Jan. 1, 2014.

The Section 203 filings include the Ohio Power separation, an application to merge Wheeling Power Co. into APCo., and the transfer of the John Amos and Mitchell generating plants from Ohio Power to APCo and KPCo, the spokesperson said.

The Amos and Mitchell transfer will enable APCo and KPCo to satisfy their capacity requirements in PJM and provide baseload generation to meet their customers’ energy requirements upon termination of the interconnection agreement, AEP said.

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.