Appalachian Power and Wheeling Power told the West Virginia Public Service Commission on Sept. 3 that the commission should approve the transfer of coal assets from Ohio Power to Appalachian Power, despite the rejection by the Virginia State Corporation Commission of part of that transaction.
APCo is asking the West Virginia commission to approve the transfer of 1,647 MW of coal capacity, which is 50% of the Mitchell plant and two-thirds of Unit 3 at the Amos plant, to Appalachian Power. Ohio Power (OPCo), which is another unit of American Electric Power (NYSE: AEP), is giving up these assets under a deregulation plan from the Public Utilities Commission of Ohio.
“The qualitative stage of the assessment of resource options essentially determined what generation assets available from OPCo were best suited to the Companies’ needs,” said the Sept. 3 brief from the utilities. “OPCo will complete the corporate separation of its generation by the end of 2013 and the initial successor in interest to all of those generating assets will be AEP Generation Resources Inc. (‘GENCo’). One measure of the equitable nature of the proposed transfer of the Generating Assets is that it would leave APCo and GENCo (after OPCo’s corporate separation, after the 2015 retirement of various coal-fired units due to the impact of new environmental regulations, after the proposed conversion of two subcritical coal-fired units at the Clinch River Plant, and after the various proposed asset transfers) with a generation mix of approximately 69% coal-fired generation for APCo and approximately 70% for GENCo.”
Various parties have criticized aspects of the deal, including West Virginia PSC staff raising issues about unknown liabilities at Amos, a plant that APCo already owns part of. “The Staff has urged the Commission to require APCo to seek contractual protection against unknown liabilities associated with the Generating Assets,” the utilities said. “The Companies submit that such a requirement is unnecessary and ill-advised. There is little risk of material unknown liabilities with respect to either the Amos or the Mitchell assets. APCo has operated the Amos Plant since its construction and is thoroughly aware of all aspects of the plant. Given APCo’s experience with and knowledge of the Amos Plant, it is highly unlikely that there might be some unknown liability at Amos Unit 3.”
Also, the utilities said, despite the contentions of several parties, no request for proposals (RFP) for other power suppliers is necessary to demonstrate that the proposed transfer of the generating assets is the least-cost option to address APCo’s long-term capacity and energy needs. “[A]n RFP is unnecessary in this case because APCo has carried out a thorough analysis employing the very benchmarks that would be used by potential bidders in a large base load RFP, and that analysis unequivocally shows that the proposed transfer is by far the least cost option,” they said.
APCo and Wheeling Power noted that the Federal Energy Regulatory Commission has approved the whole asset transfer, and the Virginia commission approved the transfer of the Amos capacity, but not the Mitchell share. “The Companies respectfully propose that the Commission take the following steps in order to coordinate properly its decision with the FERC’s and the SCC’s authorizations of the transfer of the Amos asset, with the FERC’s and the SCC’s authorizations of the merger [of APCo and Wheeling Power], and with the FERC’s authorization and the SCC’s denial of the transfer of the Mitchell asset, while ensuring that customers of the merged company have an adequate supply of power to meet their needs.”
PSC staff says with Virginia voting no on Mitchell, the PSC should too
In their Sept. 3 brief, West Virginia PSC staff wrote: “As the Commission and Parties to this case are aware, the VSCC’s July 31, 2013 order denied APCo’s request to acquire an undivided fifty percent interest in the Mitchell generating plant. Unless and until VSCC’s order is reversed or otherwise modified to allow APCo to acquire an undivided fifty percent interest in the Mitchell generating plant, Staff recommends the Commission deny the Petitioners’ request to acquire an undivided fifty percent interest in the Mitchell generating plant in this case.”
Staff said it continues to recommend the commission grant approval to acquire a two-thirds ownership interest in Unit 3 at Amos. The commission should condition its approval by limiting the transfer of these assets to a purchase price of $565m approved by the VSCC, which is approximately $53.421m less than the projected recorded net book value of the assets at the date of the transfer, staff wrote. Staff further recommends that the commission grant its consent and approval of the transfer of the two-thirds interest in Amos Unit 3 without addressing rate recognition.
Staff recommends the commission not only grant consent and approval to the merger of WPCo and APCo, but it should direct the petitioners to consummate the merger by Jan. 1, 2014. “The Petitioners should not be allowed to continue to delay a merger that has time and time again been shown to benefit their West Virginia ratepayers,” staff added.
Consumer Advocate Division also recommends against Mitchell approval
Said the West Virginia Consumer Advocate Division (CAD), a critic of this deal, in its Sept. 3 brief: “The Virginia Order authorized the acquisition of Amos 3, rejected the acquisition of Mitchell, and approved the merger of APCo and WPCo. Without the approval of the VA Commission, APCo cannot acquire Mitchell as proposed in the Asset Transfer Case. In its August 8, 2013 Order, this Commission expressed interest in how the VA Order would affect APCo’s capacity position and asked parties to submit status updates. The Companies’ status update noted that the deadlines for rehearing and/or appeals of the Virginia Commission order had not passed. The Companies encouraged the Commission to review the full Asset Transfer based upon the record. The deadlines for requests for rehearing and appeals of the Virginia Commission order have now passed, and to the best of the CAD’S knowledge no party to the Virginia proceeding has filed for rehearing or appeal.”
The CAD testimony shows that acquiring both Amos 3 and one-half of Mitchell is a risky strategy, the division said. The CAD submits that because of the Virginia order the question of whether APCo should acquire one-half of the Mitchell plant is now moot. The CAD recommends approvaI of the transfer of that part of Amos Unit 3 to APCo. It also backed the merger of WPCo and APCo.
The West Virginia Energy Users Group (WVEUG), made up of major industrial power customers, said in its Sept. 3 brief that has no objection to a utility’s reasonable efforts to pursue least-cost capacity and energy resource additions that result in the lowest reasonable costs to customers, it doesn’t oppose these transfers. However, if the commission approves the proposed transaction it should also take certain important steps to insure that proper ratepayer protections are in place.
The West Virginia Citizens Action Group said in its Sept. 3 brief that it is opposed to this asset transfer in its entirety. “WVCAG urges the Commission to reject the Company’s petition for failure to satisfy statutory criteria to transactions among affiliates and as unreasonable in light of the evidence and the broad discretion afforded the Commission,” the group said. The group raised issues about the wet coal ash disposal pond at Mitchell, claiming that it presents a massive possible future liability.
Virginia SCC offered various reasons to reject Mitchell part of the deal
The Virginia commission in its July 31 decision cited various reasons to reject the Mitchell transfer, 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; and
- 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.
Also, the transfer of both Amos 3 and Mitchell would preclude APCo from further diversifying its generation portfolio, said the 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.”
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).