AEP about to complete major generation restructuring

American Electric Power (NYSE: AEP) is still deciding what exactly to do with the 50% of the Mitchell coal plant in West Virginia that West Virginia and Virginia regulators didn’t approve for transfer to Appalachian Power.

AEP said on Dec. 26 that it has received all necessary approvals to separate its AEP Ohio-owned generation assets from its Ohio distribution and transmission operations and complete transfer of that generation to a competitive generation company – AEP Generation Resources – and regulated affiliates Appalachian Power and Kentucky Power. The company received the final approvals from the Federal Energy Regulatory Commission (FERC) around Christmas and expects to complete transfer of those assets effective Dec. 31.

“The diligence of our employees and the cooperation of the affected state and federal commissions allowed us to execute our Ohio restructuring plan right on schedule, and we are well-positioned to operate two separate, sustainable businesses with our Ohio assets,” said Nicholas Akins, AEP president and CEO. “The majority of AEP’s operations remain regulated, including our Ohio wires businesses, and we’ve consistently demonstrated our ability to successfully operate regulated utilities. The assets in the AEP Generation Resources portfolio are competitively positioned to perform well in the market. We expect our competitive business to be cash-flow positive.”

FERC: accepted AEP’s application to terminate the interconnection agreement, or pool, that existed for many years among AEP’s utilities in the Midwest; approved a new Power Coordination Agreement among Appalachian Power, Kentucky Power and Indiana Michigan Power; and approved other tariff and financing-related filings. AEP’s applications for the generation transfers were approved by FERC on April 29.

Approximately 11,200 MW of AEP Ohio-owned generation will be transferred to AEP Generation Resources. AEP Ohio’s two-thirds ownership of the coal-fired John E. Amos Unit 3 (867 MW) will transfer to Appalachian Power, and 50% of Mitchell (800 MW) will transfer to Kentucky Power. Following the transfers and expected coal-fired retirements through 2015, AEP Generation Resources expects to own about 8,700 MW of capacity.

AEP received approval Dec. 13 from the West Virginia Public Service Commission for Appalachian Power to acquire AEP Ohio’s ownership of Amos Unit 3. The Virginia State Corporation Commission approved the Amos Unit 3 acquisition on July 31. The Kentucky Public Service Commission approved Kentucky Power’s acquisition of 50% of the Mitchell plant on Oct. 7.

AEP plans to make additional filings in the first quarter of 2014 to address a deferred decision from the West Virginia PSC on the merger of Wheeling Power, which has no generation of its own, into Appalachian Power and the acquisition of the remaining 50% of Mitchell by Appalachian Power. The Virginia SCC approved the Wheeling Power merger but not the transfer of the 50% of Mitchell generation to Appalachian Power. Wheeling Power customers will continue to receive generation service through a FERC-approved agreement, which will transfer to AEP Generation Resources effective with the closing of corporate separation on Dec. 31.

The Virginia SCC decided that APCo’s buy of the Amos Unit 3 stake was reasonable, especially since APCo already owned part of Amos. But it decided that APCo getting 50% of Mitchell was loading the utility up with too much coal capacity at a time when coal is not a exactly a favored fuel. The West Virginia PSC, with the Virginia SCC decision in mind, deferred its own decision on the 50% of Mitchell going to APCo.

“This non-approval is based on the VSCC denial, which places APCo in a position where it is not able immediately to proceed with the Mitchell acquisition,” said the West Virginia PSC decision from Dec. 13. “Normally, not granting Commission approval under [West Virginia code] is based on a finding that the action for which approval is sought would be contrary to the public interest. We do not make that finding with regard to the Mitchell acquisition at this time. We do, however, find that reliance on a transaction that is critical to an overall long-term capacity plan but which cannot go forward because of regulatory roadblocks in other jurisdictions, is not realistic or reasonable at this time.”

American Electric Power is one of the largest electric utilities in the U.S., delivering electricity to more than 5.3 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 MW of generating capacity in the U.S.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.