The Appalachian Power (APCo) unit of American Electric Power (NYSE: AEP) applied Sept. 17 at the West Virginia Public Service Commission to take on a series of agreements, including an agreement to keep operating the partially-shut Sporn coal plant.
The application was largely triggered by the fact that AEP’s Ohio Power (OPCo) unit is getting out of the power generation business, so it needs to shed a number of agreements related to power generation. Over the last several decades, APCo has entered into various agreements with affiliates in the AEP system that allow the affiliates to share costs, facilities, resources, and expertise.
In October 2012, the Public Utilities Commission of Ohio entered an order authorizing and approving the corporate separation of OPCo. Under the corporate separation, OPCo will divest its generation assets from electric distribution and transmission assets by transferring its generation assets to AEP Generation Resources, subject to certain conditions, effective Dec. 31, 2013. APCo has a long-pending application with the West Virginia commission to get the Ohio Power stakes in the Mitchell coal plant and the coal-fired Amos Unit 3 as a result of this PUCO-approved divestiture.
APCo is now seeks the commission’s consent and approval for it to enter into ten affiliate agreements that reflect the substance of existing arrangements as well as the changes in the structure of the AEP system resulting from OPCo’s corporate separation. The agreements are:
- the Sporn Plant Operating Agreement;
- Assignment of Central Machine Shop Agreement;
- the Assignment of Gypsum and Purge Stream Waste Disposal Agreement;
- Urea Handling Agreement;
- Cook Coal Terminal Transfer Agreement;
- Rail Car Maintenance Agreement;
- Amendment No. 1 to Barge Transportation Agreement;
- Affiliated Transactions Agreement for Sharing Capitalized Spare Parts;
- Affiliated Transactions Agreement for Sharing Materials and Supplies; and
- Amendment No. 2 to AEP System Rail Car Use Agreement.
Copies of these agreements (in executed final versions or draft versions, depending on the status of each agreement) are attached to the Sept. 17 filing.
APCo will keep operating Sporn plant under new deal
As an example of an agreement, APCo and OPCo each own units at the Philip Sporn plant, located near New Haven, W.Va. APCo owns Sporn Units 1 and 3, while OPCo owns Sporn Units 2, 4, and 5. APCo currently operates the Sporn units. OPCo is transferring its ownership in Sporn Units 2, 4, and 5 to AEP Generation Resources as of Dec. 31, 2013. This new Sporn Operating Agreement sets forth the rights and responsibilities of the owners and American Electric Power Service Corp. in the operation of the Sporn Plant. APCo will remain the sole operator of the Sporn plant, as it is today, which will avoid the added costs of duplicate operation. The agreement noted that Sporn Unit 5 was retired in February 2012.
Another example is that OPCo disposes of synthetic gypsum (a by-product of the flue gas desulfurization process at the Mitchell coal plant) that it does not sell to a facility adjacent to the Mitchell plant, into a landfill maintained by APCo at the Mountaineer coal plant. Under the Gypsum agreement, APCo agrees to OPCo’s assignment of its rights to dispose of gypsum at the Mountaineer plant to Kentucky Power (KPCo) as of Jan. 1, 2014, assuming KPCo becomes the operator of the Mitchell plant under a pending request at the Kentucky Public Service Commission for Kentucky Power to acquire 50% of Mitchell. A new landfill to handle the gypsum waste is being developed near the Mitchell plant, and is expected to go into service in the summer of 2014. At that time no further gypsum will be transported from the Mitchell plant to APCo’s gypsum disposal facility and the gypsum agreement will not be necessary.
As part of OPCo’s corporate separation, AEP Generating Co. (AEPGCo) recently acquired OPCo’s ownership and lease interests in, and is the operator of, the Cook Coal Terminal. This facility is near Metropolis, Ill., and used for the unloading of mostly Powder River Basin coal from railcars, where it is then transferred to barges for transport via the Ohio River to certain AEP generating stations. Coal can also be stored at the terminal for short periods before it is loaded onto barges. The Cook transfer agreement establishes the terms under which the parties can use the Cook Coal Terminal and sets the fees for that use. OPCo will cease to be a party to the agreement on Dec. 31, 2013. At present, APCo does not ship coal through the Cook terminal, but the agreement allows APCo to do so in a cost-effective manner if it would be in the best interests of APCo’s customers.
Various affiliates in the AEP system, including APCo, own or lease rail cars for transporting coal, and AEPGCo operates the Cook terminal, to which rail cars deliver coal for loading onto barges. A Rail Car Maintenance Facility located at the terminal provides repair and maintenance services to railcar owners, including the affiliates. When railcars owned or leased by APCo are at the terminal, they can receive needed maintenance at cost. AEPGCo will inspect, maintain and repair railcars that are owned or leased by the other parties, and each participating affiliate will pay its share of the costs associated with the Rail Car Maintenance Agreement.
Under the existing Barge Transportation Agreement, Indiana Michigan Power (I&M) transports coal by barge to generating stations that are owned by APCo, OPCo, AEPGCo, and I&M and that are located along the Ohio and Kanawha rivers. Under the proposed barge amendment, these companies agree to add KPCo as a party, and to amend certain terms of that agreement.
APCo wants stakes in Mitchell and Amos to fill big coal hole
Under current plans, Kentucky Power would get 50% of Mitchell while APCo would get the other 50%. Mitchell, located near Moundsville, W.Va., has a total output of 1,560 MW. Kentucky Power would get 50% of the output of Mitchell’s 770-MW Unit 1 and 790-MW Unit 2, for a total transfer of 780 MW. Both Mitchell units are equipped with advanced environmental controls, including SO2 scrubbers, and meet all current EPA requirements.
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 also owns Unit 1 and 2. Under current plans, APCo would acquire OPCo’s two-thirds interest in Unit 3.
Notable is that APCo plans to retire Sporn Units 1 and 3, plus other coal units, by June 1, 2015, in keeping with its needs under the federal Mercury and Air Toxics Standards. These coal retirements, the utility has said, are a primary reason it needs half of Mitchell and two-thirds of Amos Unit 3. Other planned coal retirements are Kanawha River Units 1 and 2, Glen Lyn Units 5 and 6, and Clinch River Unit 3. Clinch River Units 1 and 2 are to be converted from coal to gas.