Due to the shifting around of the ownership and lifespans of some coal-fired capacity, AEP Generation Resources on Oct. 15 filed an update with the Federal Energy Regulatory Commission related to its market-based rate tariff.
AEP Generation Resources is a unit of American Electric Power (NYSE: AEP) that is, at least temporarily, getting some of the coal-fired capacity of AEP’s Ohio Power unit, which is getting rid of capacity as part of an Ohio deregulation plan. For example, AEP Generation Resources would get all of the Mitchell coal plant in northern West Virginia, then was supposed to transfer 50% of the plant to AEP’s Kentucky Power subsidiary and the other 50% to AEP’s Appalachian Power unit. But that Appalachian Power transfer has run into a hitch.
On July 5, AEP Generation Resources submitted in this docket a proposed market-based rate tariff, and a request that AEP Generation Resources be permitted to sell energy, capacity, and ancillary services at market-based rates.
Appalachian Power (APCo), Kentucky Power (KPCo) and AEP Generation Resources had also sought authority for: APCo to obtain from AEP Generation Resources Ohio Power’s interest in Unit 3 of the John E. Amos coal plant in West Virginia and a 50% undivided interest in the Mitchell plant; and KPCo to obtain from AEP Generation Resources the remaining 50% undivided interest in Mitchell Plant. The commission approved both of these applications on April 29.
In the July filing, AEP Generation Resources submitted the affidavit and exhibits of Julie Carey, an economist and a Director and Principal of Navigant Economics, who performed the pivotal supplier and market share screens that the commission uses to evaluate whether an applicant can exercise horizontal market power. Carey listed the generation capacity that was expected to be owned by AEP Generation Resources and the AEP East utilities in the 2015 Study Period. The chart reflected the generation that AEP Generation Resources expected to obtain from Ohio Power and the retirement of older coal-fired units.
Virginia decision has left 50% of Mitchell with AEP Generation Resources
Since Carey prepared her analyses, three changes have occurred that affect the generation information shown for the 2015 Study Period.
- First, on July 31, the Virginia State Corporation Commission issued an order in which it approved APCo’s acquisition of a two-thirds undivided interest in Unit 3 at Amos but denied APCo’s request to acquire a 50% undivided interest in Mitchell. The Kentucky Public Service Commission authorized KPCo’s acquisition of an undivided 50% interest in Mitchell on Oct. 7 As a result of the Virginia order, AEP Generation Resources will retain the 50% undivided interest in Mitchell. So upon consummation of the approved transactions, KPCo and AEP Generation Resources (rather than APCo) each will own a 50% undivided interest in Mitchell.
- Second, on Sept. 17, parent AEP announced that it planned to retire Indiana Michigan Power’s coal-fired Tanners Creek Unit 4 in mid-2015. AEP previously had announced its plan to retire the coal-fired Tanners Creek Units 1-3 by mid-2015, which was reflected in the Carey testimony. At that time, Tanners Creek Unit 4 was listed as a gas-fired resource in the 2015 Study Period because AEP planned a coal-to-gas conversion project, which it has now dropped in favor of outright retirement.
- Third, AEP had previously indicated that, as part of the Ohio restructuring, Ohio Power’s contractual entitlement to purchase power from generating resources owned by Ohio Valley Electric Corp. (OVEC) would be transferred to AEP Generation Resources. It has since been decided that Ohio Power will retain that entitlement and any power purchased thereunder will be bid into the PJM Interconnection market. OVEC controls the coal-fired Clifty Creek and Kyger Creek power plants for a consortium of utilities.
Carey’s analyses for the 2015 Study Period included all the generation that will be owned or controlled by AEP Generation Resources and its affiliates in the PJM balancing authority area (BAA) and the cumulative load obligations of those companies in order to determine the total amount of uncommitted capacity and whether that amount would permit AEP Generation Resources to clear the commission’s indicative screens. It shows that AEP Generation Resources indeed easily cleared both market power screens in the 2015 Study Period. The three changes discussed above do not affect that result. In fact, the overall market shares decrease, AEP said.
- First, reclassifying 780 MW (50% of the rated capacity of Mitchell) from AEP East utilities’ generation to AEP Generation Resources does not change the overall generation owned or controlled by those entities (e.g., 21,080.2 MW (summer) and 21,568.7 MW (winter)). The change related to the OVEC entitlement likewise has no effect, because it changes neither the overall generation owned or controlled by AEP entities in the PJM BAA nor the overall loads of those entities.
- Second, the retirement of Tanners Creek Unit 4 decreases the overall generation by 482 MW. That in turn reduces the overall market shares (from a range of 10.2% to 15.8% to a range of 9.6% to 15.0%).