AEP: Ky. Attorney General shouldn’t be allowed to gum up the works

Just three business days before the Federal Energy Regulatory Commission is set to rule in dockets that are critically important to a major American Electric Power (NYSE: AEP) corporate reorganization required under Ohio state law, the Kentucky Attorney General has filed a late protest.

American Electric Power Service Corp. added in a Dec. 11 filing at FERC that the Kentucky Attorney General submitted a lengthy protest that is 35 days out of time. “And, incredibly, the Attorney General suggests that accepting the late-filed protest will neither unduly prejudice any party nor cause any delay in these proceedings,” it added. “This is particularly egregious considering that the Attorney General previously filed an untimely motion to intervene in these proceedings (based on ‘administrative oversight’) in which it was represented to the parties and the Commission that ‘The Attorney General is willing to accept the record as it stands.’ On that basis, Applicants did not oppose the Attorney General’s untimely motion to intervene. Now, on the eve of the Commission’s rulings, the Attorney General seeks to set aside the commitment to ‘accept the record as it stands’ and asks this Commission to accept a lengthy protest.”

What the Attorney General is in part protesting is an Oct. 7 approval by the Kentucky Public Service Commission of a Kentucky Power proposal to buy 50% (about 780 MW) of the Mitchell coal plant in West Virginia to compensate for the shutdown in 2015 for clean-air reasons of the 800-MW Big Sandy Unit 2 of Kentucky Power (KPCo). The Attorney General said Dec. 4 that he has taken the PSC approval to a Kentucky court.

What the Attorney General has inserted himself into at FERC is a series of transactions related to restructuring of AEP generating assets caused by the divestment by Ohio Power of its generating assets (including the 50% of Mitchell going to Kentucky Power).

American Electric Power Service Corp. in the Dec. 11 filing urged FERC to reject this “extremely tardy” pleading from the Attorney General, or, if the commission accepts it, reject the arguments in that protest and approve the requests pending in the referenced dockets by Dec. 16, as originally requested by applicants and acknowledged by the Attorney General.

AEP said the Attorney General had his chance to make his case in Kentucky

In the proceedings before the Kentucky Public Service Commission, the Attorney General has gone to great lengths to block the transfer of an interest in Mitchell to KPCo, said the Dec. 11 filing.

The filing added: “The Attorney General actively participated in the Kentucky Commission proceeding in opposing the transfer, and, as the only party not to join an omnibus settlement, sought rehearing of the Kentucky Commission’s decision to approve the transfer (which was supported by overwhelming evidence), which was denied, and now is the only party seeking judicial appeal of that order. With the efforts to block the Mitchell transaction before the Kentucky Commission having been rejected, the Attorney General, at the eleventh hour, presents this Commission with a host of baseless challenges to Applicants’ proposed joint operating arrangements in an effort to complicate their ability to complete the Mitchell transaction by year-end. The Commission should not condone the attempt to inject these issues at this very late stage (i.e., just three business days before the date on which Applicants asked for Commission action).”

The transfer of 50% of Mitchell to KPCo is part of a larger corporate reorganization (required under Ohio law and approved by the Public Utilities Commission of Ohio) under which the majority of Ohio Power’s generating resources will be transferred to AEP Generation Resources, who will then transfer a 50% undivided interest in Mitchell to KPCo.

“This Commission approved these transactions earlier this year in Docket Nos. EC13-26 and -28,” AEP argued. “Consummation of the Corporate Reorganization, including the transfer of Mitchell Plant, has been scheduled for well over a year to occur on December 31, 2013, which is a mere 21 days from the Attorney General’s Protest. Thousands of employees are affected and a series of complex steps are underway to line up computer systems, business processes, RTO memberships and accounts, vendor contracts, permits, and a host of other matters necessary to enable closing to occur on December 31, 2013, the date mandated by the Ohio Commission. Any delay could seriously impact these carefully laid plans and upset the ability to close the Corporate Reorganization and efficiently and effectively operate over 9,000 MW of generation that is critical to the reliability of the grid.”

One problem is that Appalachian Power won’t get 50% of Mitchell

In an Oct. 15 waiver request at FERC, the AEP companies explained that the pending need for a waiver is necessitated by a required change to the proposed ownership structure of the Mitchell plant due to the Virginia State Corporation Commission’s decision to deny authorization for Appalachian Power (APCo), another AEP subsidiary, to acquire the 50% interest in the plant that Kentucky Power is not getting.

“Thus, instead of APCo and KPCo each owning an interest in the Mitchell Plant, AEP Generation Resources and KPCo will be the joint owners,” AEP noted. “Applicants explained that having joint ownership by KPCo, a franchised public utility with captive customers, and AEP Generation Resources, a market-regulated power sales affiliate, made it necessary to request a waiver of certain affiliate restrictions so that the parties could operate the Mitchell Plant in an efficient and cost-effective manner.”

In opposing the waiver request, the Kentucky Attorney General advances a number of arguments that are based on highly speculative and unrealistic scenarios in an effort to distinguish prior commission cases in which the commission granted similar waiver requests, AEP added.

One Attorney General complaint is that AEP Generation Resources could use the cheapest coal at Mitchell, leaving Kentucky Power and its ratepayers holding the bag on the more expensive coal. “There is no opportunity to divert lower cost fuel to AEP Generation Resources,” said AEP in the Dec. 11 filing. “In connection with the request to share certain AEPSC personnel to perform the fuel procurement function for the plant, Applicants proposed that KPCo and AEP Generation Resources incur the same per unit fuel cost. This safeguard fully protects captive customers, because there is no opportunity for the shared personnel to allocate lower-priced fuel to AEP Generation Resources while allocating higher cost fuel to KPCo. The arrangement fully comports with Commission precedent in ensuring that captive customers would not be harmed.”

AEP added: “The Attorney General acknowledges this safeguard, but argues that because the Mitchell Operating Agreement affords each party the right to elect to procure its own fuel supplies, AEPSC may identify low-cost fuel opportunities and quietly pass them along to AEP Generation Resources who then would elect to procure that fuel, leaving KPCo with higher cost-supplies. This argument is flawed for several reasons.”

  • First, under the Mitchell Operating Agreement, a party’s right to elect to supply its own fuel is not a right that can be exercised at will.
  • Second, the AEPSC employees who will be engaged in the fuel procurement process will undergo training on all the commission’s affiliate restrictions, including the requirement that they take no actions that would transfer benefits from KPCo to AEP Generation Resources; and
  • Third, the Attorney General ignores the fact that KPCo also has the right to elect to obtain its own fuel and, subject to the procedures in the agreement, may do so if it determines that this would be in the best interest of its customers, AEP said.
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.