Appalachian Power (APCo) and Wheeling Power (WPCo) on Aug. 12 told the West Virginia Public Service Commission that a transfer of some coal-fired capacity to APCo could proceed, despite a partially adverse decision from the Virginia State Corporation Commission (VSCC).
On July 31, the VSCC issued an order approving the transfer of Ohio Power’s (OPCo) interest in the coal-fired Amos plant to APCo, approving the merger of APCo and WPCo, but denying the transfer of a one-half interest in the coal-fired Mitchell plant to APCo. The Amos and Mitchell interests to be transferred come to 1,647 MW of total coal capacity.
All of these utilities are units of American Electric Power (NYSE: AEP), which is stripping Ohio Power of generating assets as part of utility deregulation in Ohio and turning those assets over to its AEP Generation Resources unit in the meantime. AEP has been pursuing parallel approval cases for these transactions at the West Virginia and Virginia commissions.
On Aug. 8, the West Virginia commission issued an order in which it stated that it “believes it requires more information from APCo about its options under the VSCC Order and whether the options modify any of the scenarios and projections presented in this proceeding.”
“The short answer to the specific question posed by the Commission is that the record in these proceedings does not need to be reopened in order for the Commission to determine whether it shows that the Companies have made their case for approval of their merger, the transfer to APCo of the proposed Amos Unit 3 and Mitchell generating assets, the approval of the Mitchell Operating Agreement, and the assumption by APCo of various agreements associated with the operation of the Mitchell Plant,” the AEP companies told the West Virginia PSC in an Aug. 12 filing. “The Companies submit that the record is clear and complete regarding each of the foregoing matters and that the Commission should rule upon them on their own independent merits, irrespective of what any other regulatory authority may have determined in another proceeding, on the basis of another record, and in the exercise of of its own analysis and judgment.”
The July 31 VSCC order may or may not prove to be the final decision on the relevant matters in APCo’s Virginia jurisdiction, the utilities noted. Under the laws and regulations of Virginia, the parties have 20 days to request reconsideration of and 30 days to appeal the VSCC July 31 order. No party to this point has pursued either option, said the AEP utilities.
With respect to two of the three principal issues, the VSCC approved the Amos Unit 3 transfer and the merger of APCo and WPCo, while, in the consolidated proceedings before the West Virginia commission, no party has opposed that transfer or the merger. “The Commission may well perceive, therefore, a clear path to the consummation of the Amos Unit 3 transfer, which, because of the need for it and the advantages it offers, should not be delayed,” the AEP utilities said. “A more problematic situation may well need to be confronted with respect to the merger.”
The merger is a desirable eventuality and appears to command widespread support, AEP said. But, as the West Virginia commission noted in its August 8 order, the consummation of the merger (which, by the terms of the merger agreement, brings an end to WPCo’s existing power supply agreement), without the capacity and energy provided by the transfer of half of the Mitchell generating assets, will leave the merged company in a deficit position. It is that situation which calls for creative consideration of potential options (such as delaying the consummation of the merger and continuing the operation of WPCo’s power supply contract) that could solve the dilemma posed by approval of a merger without approval of the resources needed to support the needs of the customers of the merged companies.
The AEP companies said they have already begun the process of examining possible options, but such a process is complex and will require considerable time and effort, the involvement of multiple stakeholders, and, ultimately regulatory assessment and determination.
Consumer Advocate says Virginia decision shouldn’t worry West Virginia PSC
The West Virginia Consumer Advocate Division (CAD) said in its own Aug. 12 comments on the VSCC decision that the West Virginia commission need not be concerned with the availability of supply for a merged APCo/WPCo. The so-called Bridge Agreement will enable APCo to meet its capacity needs from January 2014 through May 2015.
The CAD also noted that the companies’ modeling of various alternatives to the proposed asset transfer assumed the acquisition of other capacity resources. The Amos 3 transfer and the Mitchell transfer scenarios assumed purchases of capacity from 2015 through 2017. Nothing in the VSCC’s order changes any of those factors that the companies and the CAD have already reviewed in the form of the transfer projections, the division said.
“There is nothing in the VSCC order which should cause the Commission to delay the approval of the Apco/Wpco merger,” CAD wrote. “The Companies’ testimony demonstrates that the merger is in the best interest of West Virginia. The only entity disadvantaged by the VSCC order is AEP Generation Resources (AEP Gen), Apco’s unregulated affiliate. AEP Gen now finds itself owning one-half of the Mitchell plant without a certain market for that capacity. This does not affect the interests of Apco. Although Apco and Wpco are understandably concerned about the impact of the VSCC order on AEP Gen, the Commission should not be.”
Virginia commission says half of Mitchell is too much coal
The Virginia commission cited various reasons to reject the Mitchell trasfer, including:
- that APCo, along with Virginia ratepayers, already has a connection to the Amos units that does not exist with Mitchell and so Virginia ratepayers already have made substantial investments in the Amos units;
- APCo proposes to assume both known and unknown pre-purchase liabilities of the transferred units, with risks being greater for Mitchell than for Amos 3;
- APCo would have to assume new potential unknown future liabilities associated with Mitchell’s Fly Ash Impoundment Agreement that the VSCC found are not justified under the Affiliates Act and the Transfers Act; and
- Mitchell comes with other contractual risks not shared by Amos 3, with APCo having to assume from Ohio Power the obligations and risks related to hundreds of contracts associated with the operation of Mitchell.
Also, the transfer of both Amos 3 and Mitchell would preclude APCo from further diversifying its generation portfolio, said the VSCC’s July 31 decision. “The transfer of both facilities would fill APCo’s current capacity need and would continue to fill such need through 2024. If both facilities are transferred, the Company estimates that by 2015 coal would represent 68% of its capacity and 73% of its energy, with the energy percentage increasing to 87% by 2017. We are not satisfied that filling the entire need herein with both of these coal plants (i) will serve the public interest, and (ii) will not impair or jeopardize adequate service to the public at just and reasonable rates. Eliminating the possibility for additional fuel diversity at this time unreasonably increases customers’ risks related to coal. Those risks include, for example, the price impacts on customers, decreases in the supply of coal, and – as discussed below – the likelihood of increased federal regulation of carbon dioxide emissions from existing coal plants.”
Mitchell is a 1,560-MW plant located near Moundsville, W.Va., with APCo proposed to get half (780 MW) of that capacity. Amos is located near Winfield, W.Va., with APCo to get two thirds of Unit 3 (representing 867 MW).