AEP units settle energy cost case with West Virginia parties

The Appalachian Power (APCo) and Wheeling Power (WPCo) units of American Electric Power (NYSE: AEP) on Aug. 26 filed with the West Virginia Pubic Service Commission a settlement in their latest annual expanded net energy cost (ENEC) case.

The settlement deal is with PSC staff, the state Consumer Advocate Division and the West Virginia Energy Users Group (WVEUG) which for purposes of this proceeding includes E.I. du Pont de Nemours and Co., Bayer Cropscience and Bayer Materialscience.

On April 1, the AEP companies filed a petition to initiate the annual review of (ENEC) rates. The companies proposed to keep overall West Virginia retail rates unchanged, while modifying the rates’ composition over time to reflect various adjustments, including: costs associated with the possible merger of APCo and WPCo; and asset transfer costs associated with APCo’s ongoing request with the PSC to acquire a 50% interest in the coal-fired Mitchell plant and a two-thirds interest in the coal-fired John E. Amos Unit 3; an increase to a Construction Surcharge to reflect additional costs associated with the gas-fired Dresden plant and the Flue Gas Desulfurization (FGD) facilities at the John E. Amos plant Unit 1; and corresponding decreases in ENEC rates.

Among other things, the settling parties agreed that $20.5m associated with certain low-sulfur coal inventories at the Amos plant regarded as excessive by the CAD should be removed from the ENEC recovery balance existing at Dec. 31, 2012, and deferred in a separate account. If APCo’s inventory of low-sulfur coal at Amos is at or below 625,000 tons during any month after Dec. 31, 2012, then the parties agree that APCo may restore one-twelfth of the disputed coal inventory to the ENEC recovery balance.

Low-sulfur coal, which is relatively expensive compared to high-sulfur coal, is something f a hot-button issue at Amos because the plant is now fully scrubbed. But, since going to entirely high-sulfur coal at the plant would have caused certain operating issues, AEP under-designed the maximum SO2 spec at the plant’s FGD systems, as compared to the relatively new FGD at the nearby Mountaineer coal plant, meaning that it needs to burn a certain amount of relatively expensive low-sulfur coal at Amos.

Factoring into the future planning of these companies is the planned transfer, by the end of 2013, of 1,647-MW of coal-fired capacity at Mitchell and Amos Unit 3 to APCo from another AEP subsidiary.

Richard Riley, employed by American Electric Power Service Corp. (AEPSC) as a Staff Financial Analyst Coordinator, testified in this case that fuel expense is projected to increase in the July 2013-June 2014 Forecast Period versus calendar year 2012 because of a 5,724 GWH increase in fossil generation. Out of the total increase in fossil generation, 4,916 GWH is projected to occur during the six months ending June 30, 2014. The AEP Pool Agreement, a longstanding deal for AEP subsidiaries to share power, is no longer expected to be in place during this period.

Over the spring and summer of 2011, APCo’s inventory of low-sulfur coal reached below-target inventory levels at some plants. Consequently, APCo entered into agreements, both short and long-term, to purchase additional low sulfur coal. As a result, the inventory of low-sulfur coal was returned to levels much closer to target by the end of 2011. In 2012, because of the reduction in demand for coal-fired generation, APCo experienced an increase in the inventory of low-sulfur coal. High-sulfur coal inventories have generally decreased throughout 2012 and remained at or slightly below target levels. the companis said in opening testimony in this case.

Amos and Mountaineer scrubbers call for different coal specs

The scrubbers at the Amos and Mitchell plants are each designed to burn coal with a maximum content of 4.5 lb SO2/MMBTU. The scrubber at the 1,300-MW Mountaineer plant is designed to burn a coal with a maximum sulfur content of 7.5 lb SO2/MMBTU.

The Mitchell plant consists of two 800-MW boilers, which are of similar design to Units 1 and 2 at Amos. The design of the 800-MW boilers is not conducive to burning coal with a sulfur content greater than 4.5 lb SO2/MMBTU, and the ash chemistry typical of such coals. The boilers have proportionally less heat transfer area than the 1,300 MW units (Amos Unit 3 and Mountaineer’s single unit), and this design aspect creates more potential for slagging in the furnace, and limits the sulfur content of the coal, the companies told the commission during the course of the ENEC proceeding.

Amos Unit 3 is a 1,300 MW unit, and is of similar design to the Mountaineer plant. These boilers do have the capability of consuming coal with a sulfur content over 4.5 lb SO2/MMBTU, but even these two similarly designed units are not identical. Amos Unit 3 does not have gas recirculation and tempering equipment, which would be a significant and necessary capital investment to allow it to consume coal with a sulfur content of up to 7.5 lb SO2/MMBTU. Other capital investments, such as improved soot-blowing capability, would also be necessary to consume a coal with a sulfur content of up to 7.5 lb SO2/MMBTU at Amos Unit 3.

Also, as the sulfur content of coal increases, so does the capital cost of the scrubber associated with removal of the increased level of SO2. The removal of more SO2 requires larger absorber vessels, larger fans due to increased pressure drop across the absorber vessel, larger reagent handling and disposal systems, and increased pump capacity for circulation of scrubber liquor. For these reasons, the FGD system for Amos Unit 3 was designed for a coal with 4.5 lb SO2/MMBTU.

Separate storage piles are maintained for low-sulfur and high-sulfur coal at both Amos and Mitchell. Blending operations mix the coals at approximately 50% low-sulfur and 50% high-sulfur prior to being consumed at both Amos and Mitchell.

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.