The latest integrated resource plan (IRP) from the Appalachian Power (APCo) unit of American Electric Power (NYSE: AEP) has a huge question mark in it due to a decision by the Virginia State Corporation Commission to not allow one part of a coal asset transfer to APCo.
APCo, which serves a relatively small area in Virginia, as opposed to its main operating area in West Virginia, filed the IRP on Aug. 30 with the Virginia commission. The problem is that on July 31, when the IRP was basically written already, the Virginia commission turned down one coal asset transfer involving 50% of the Mitchell plant in West Virginia. The commission did approve a transfer to APCo from another AEP subsidiary of two-thirds of Unit 3 at the Amos coal plant in West Virginia.
APCo said in the IRP that it was “infeasible” to adjust the assumptions underlying the IRP to take into account the July 31 decision. “Consequently, this IRP assumes the transfer of 50% of Mitchell Unit Nos. 1 and 2, as well as Ohio Power Company‘s two-thirds interest in Amos Unit No . 3 and the merger of APCo and [Wheeling Power (WPCo)].”
The company said it intends to engage the staff of the Virginia commission in discussions regarding updating its 2013 IRP “within a reasonable time after circumstances become more certain.” APCo is still urging the West Virginia Public Service Commission in a separate case to approve both the Mitchell and Amos transfers.
Looming coal retirements will create a big hole for APCo
As a result of the termination of the AEP power pool agreement on Jan. 1, 2014, and APCo’s retirement of about 1,200 MW of coal-fired capacity by mid-2015, even without the effect of the proposed merger with Wheeling Power, APCo said it recognized that, on a “stand-alone” basis it would not have adequate capacity to meet its PJM Interconnection load obligation, and its generating assets would not be able to meet its energy requirements.
Consequently, APCo participated in filings made at the Federal Energy Regulatory Commission and with the Virginia commission and the West Virginia PSC to transfer to it, at cost, OPCo’s two-thirds ownership interest in the 1,300 MW Amos Unit 3, and a 50% interest in OPCo’s 1,560 MW Mitchell plant, for a total of 1,647 MW of additional capacity. In addition, APCo has proceedings pending before the Virginia commission and the West Virginia PSC which propose to convert Clinch River units 1 and 2 from coal to natural gas-fired operation, and to shut Clinch River Unit 3.
APCo’s internal energy requirements (before demand-side management) over the IRP planning period ending 2027 are forecasted to increase at a compound annual growth rate (CAGR) of 0.3%, while the corresponding summer and winter peak internal demands are forecasted to grow at CAGRs of 0.4%. Recognizing the PJM planning focus on summer peaks, that 0 .3% summer growth rate approximates roughly a 450 MW demand increase by 2027.
This amount of increase is over and above the incorporation of the proposed merger with Wheeling Power on Jan. 1, 2014, which would initially add approximately 480 MW of summer peak demand. Notable is that Wheeling Power is basically a wires company with no generation of its own.
APCo’s ability to serve this increasing demand will be compromised due to the fact that, by mid-2015, it is anticipated to retire over 1,200 MW of older, sub-critical coal-fired units as a direct result of the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS). Coupled with that, the AEP power pool, which APCo has historically relied upon to provide capacity and energy to supplement its own generation, will terminate on Dec. 31, 2013.
As a result of these events, APCo will not have adequate capacity resources to meet its peak demand-plus PJM-required reserve margin-obligation. Further, APCo’s owned (and purchased) generating portfolio will not be able to meet the company’s internal energy requirements. To meet these capacity and energy needs, this IRP assumes the Amos/Mitchell asset transfer, effective Jan. 1, 2014. In addition, this IRP assumes the Clinch River Gas Conversion, in 2015/2016, to effectively “preserve” roughly 450 MW of APCo’s generating assets, in order to meet peak demand and PJM reserve requirements.
APCo serves a population of about 2 million (960,000 retail customers) in a 19,260 square-mile area in the southwestern portions of Virginia and West Virginia. Wheeling Power serves about 41,000 retail customers in West Virginia.
APCo’s internal load, excluding WPCo, usually peaks in the winter; the all-time peak internal demand of 8,308 MW occurred on Jan. 16, 2009. On Aug. 9, 2007, an all-time summer peak internal demand of 6,755 MW happened.
Seven old coal units to be shut, two others converted to gas
An important initial process within this 2013 IRP cycle was the establishment of a long-term view of disposition alternatives facing APCo’s older, smaller, currently uncontrolled coal units. APCo has a total of nine units that fall into this category and plans to retire seven of those units, which have a cumulative PJM (summer) rating of 1,245 MW. The retirements are:
- Clinch River Unit 3, (230 MW), Virginia;
- Glen Lyn Unit 5, (90 MW), and Unit 6, (235 MW), Virginia;
- Kanawha River Units 1 and 2, (400 MW), West Virginia; and
- Sporn Units 1 and 3, (290 MW), West Virginia.
Two units have been proposed to be converted to natural gas operation: Clinch River Units 1 and 2 (484 MW), in Virginia.
Kanawha River Units 1 and 2, Sporn Units 1 and 3, Glen Lyn Units 5 and 6, and Clinch River Unit 3 are projected to be retired by June 1, 2015, in keeping with MATS. The retirement of these units will reduce APCo’s capacity position as a stand-alone company in PJM. The company said it looked at the option of preserving capacity at these locations by switching the fuel source from coal to natural gas. To switch to natural gas, a number of factors must be considered, most importantly access to firm gas supply and the cost to upgrade the gas infrastructure. Clinch River is the only in-process gas conversion project.
The John E. Amos plant is a three-unit coal-fired facility located in Winfield, W.Va., with an average annual capacity rating of 2,896 MW. OPCo has an undivided two-thirds interest in Unit 3 (867 MW), while APCo currently holds the remaining undivided one-third interest in Unit 3 (432 MW), and it owns Unit 1 and 2.
The Mitchell station is a two-unit coal-fired plant located in Moundsville, W.Va., with an average annual capacity rating of 1,560 MW. OPCo, which is getting out of the power generation business under a deregulation plan in Ohio, currently owns the entire station.