Appalachian Power’s capacity deficit is significantly greater without the acquisition of 50% of the Mitchell coal plant in West Virginia, and the proposed Clinch River coal-to-gas conversion would only partially offset those expected capacity deficits.
Cody Walker, Assistant Director in the Virginia State Corporation Commission’s Division of Energy Regulation, was one of several commission staff members to supply testimony on Oct. 11 in Appalachian Power’s (APCo) ongoing case where it is seeking approval of the conversion of two of three Clinch River to gas. The other coal unit would be shut. The conversion application was filed with the Virginia commission on May 29.
This past summer, on July 31, the Virginia commission approved APCo’s proposed buy of part of the coal-fired Amos Unit 3 (represents 867 MW of capacity) in West Virginia, but rejected the companion request for a buy of 50% of Mitchell (represents 800 MW of capacity). That rejection only deepened APCo’s projected capacity deficit in future years.
Walker noted that APCo continues to pursue a merger with another American Electric Power (NYSE: AEP) subsidiary, Wheeling Power, and the acquisition of both the Amos Unit 3 and Mitchell stakes with the West Virginia Public Service Commission. “It is not clear how the Company would reconcile differing rulings in Virginia and West Virginia should it gain the sought after approvals in West Virginia,” Walker added. “The Staff believes that one possible scenario for reconciling differing regulatory decisions could include the dedication of the Mitchell capacity to the Wheeling load.” The Clinch River conversion would be expected to either eliminate or minimize APCo’s expected capacity deficit if the Mitchell capacity is dedicated to serving the Wheeling load, he added.
Even if the Mitchell capacity is dedicated to Wheeling, it appears that APCo will have a need for additional capacity that either approximates or exceeds the amount of capacity associated with the Clinch River conversion.
With 50% of Mitchell figured in, APCO’s capacity position would still fall from 8,391 MW in 2014 to 7,100 MW in 2024. Excluding the 50% of Mitchell, that capacity position starts at 7,682 MW in 2014 and falls to 6,378 MW in 2024.
Clinch River conversion would provide 484 MW of gas-fired capacity
APCo’s Clinch River plant is located in Russell County, Va., and began commercial operation in 1958 with the completion of Units 1 and 2. Unit 3 was added in 1961. The plant has a total nominal net capacity of 705 MW. The units are not equipped with needed emissions controls, so APCo plans to convert Units 1 and 2 to use natural gas and to retire Unit 3. Upon conversion, Units 1 and 2 are expected to each have a nominal capacity of 242 MW, for a total capacity of 484 MW.
The estimated cost of the conversion project excluding allowance for funds used during construction (AFUDC) and the cost of the associated natural gas pipeline lateral is $64.8m. The gas pipeline would be constructed by a third party and APCo anticipates entering into a transportation service agreement for gas supplies to the plant.
The commission staff believes that the public interest considerations associated with the Clinch River conversion include, among other things, determinations of whether: additional capacity is needed to ensure reliability or an economic supply of power; and, whether the conversion represents the optimal choice of alternatives given the company’s existing resources, potential alternative resources and future capacity and energy requirements.
With respect to the need for additional capacity to maintain reliability, Walker said the staff believes that APCo does have a need for additional capacity that approximates or exceeds the capacity of the converted units. The conversion also appears to be a least cost alternative under the company’s original Strategist computer model results as well as the additional optimization studies performed in response to staff data requests.
Everybody’s exiting the AEP pool, including Appalachian Power
Walker noted how AEP is breaking up its longstanding system interconnection agreement, where AEP subsidiaries traded electricity among themselves. Other AEP subsidiaries in the region include Ohio Power (which is divesting its power plants under an Ohio deregulation plan), Kentucky Power and Indiana Michigan Power.
“The dissolution of the Interconnection Agreement has resulted in a short turnaround time for obtaining new capacity,” Walker said. “This gives rise to a unique situation where the Company’s near term capacity needs cannot be met through conventional alternatives. Given the lead times associated with siting and constructing new units, APCo’s immediate needs must be satisfied through the acquisition of existing resources, short term purchases, or other projects like the Clinch River Conversion which have shorter lead times. The Clinch River Conversion is also unique in that the planned remaining life of the units after conversion is only 10 years.”
Under the Interconnection Agreement, the AEP companies planned and operated their power supply facilities on an integrated basis and allocated generation-related costs and benefits among the pool members. For a number of years, APCo has been a capacity deficit pool member and has made cost-based payments for capacity from pool members with surplus capacity.
“Changes within the electric utility industry have led the Pool Members to conclude that long-term reliance on the Interconnection Agreement was not viable,” Walker wrote. “Consequently, the Pool Members have taken action to terminate the Interconnection Agreement effective on January 1, 2014. As such, APCo plans to acquire additional capacity to meet its ‘stand-alone’ requirements.”
APCo to retire seven coal units in 2015
APCo’s capacity position falls as much as it does in future years because it plans to retire seven coal 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 other coal units have been proposed to be converted to natural gas operation: Clinch River Units 1 and 2. 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 conjunction with the federal Mercury and Air Toxics Standards compliance deadline.