West Virginia PSC okays Wheeling Power buy of half of Mitchell coal plant

The West Virginia Public Service Commission, while waxing somewhat philosophical, on Dec. 30 approved a deal for the Wheeling Power unit of American Electric Power (NYSE: AEP) to buy 50% of the coal-fired Mitchell plant in northern West Virginia from an unregulated AEP subsidiary.

Subject to certain terms, conditions and modifications imposed by the commission, the Dec. 30 order adopts a Joint Stipulation and Agreement for Settlement recommending the transfer to Wheeling Power of an undivided 50% interest in the Mitchell plant, excluding the Conner Run Fly Ash Impoundment and Dam.

Said the order: “There have been innumerable variations of the theme that the ‘Mills grind slowly, but fine.’ In the legal profession, it is frequently quoted as ‘The Wheels of Justice turn slowly but exceedingly fine.’ For some time, the Commission has been considering and evaluating the power supply needs of the Appalachian Power Company (APCo) and Wheeling Power Company (WPCo). Much of this consideration took place in the formerly consolidated Transfer and Merger Cases (see below for a brief history of those cases). The Commission’s December 13, 2013 Order in those cases resolved a number of issues related to the power supply needs of the Companies by approving the transfer of a two-thirds interest in Unit No. 3 of the John E. Amos Plant (Amos 3), but it left a number of issues to be resolved, significant among which were the potential merger of APCo and WPCo and the location of a long-term source of power to serve WPCo’s needs.”

The PSC said a lot of things have happened since then, like a “polar vortex” last winter that underlined the need for secure energy supplies and last June’s CO2-reducing Clean Power Plan proposal from the Obama Administration.

The order added: “It would be great if we had the opportunity to wait for crystal clarity and for all of these issues to resolve themselves. We do not. In fairness to the parties, and consistent with our statutory obligation, we are required to rule on the transaction now and not at some future, more ‘propitious’ or more nearly perfect time. We can only exercise our best judgment and take a path that seems fair and reasonable and consistent with our statutory obligations. It is in that context that the Commission has examined this record, including the Joint Stipulation executed by virtually all of the parties (and objected to by none), relating to the possible sale of a fifty percent interest in the Mitchell plant to WPCo.” 

In a plan filed March 4, in order to address the power supply needs of WPCo, the AEP companies proposed the transfer to WPCo of 780 MW of generating capacity (800 MW nominal capacity) currently owned by AEP Generation Resources, which amounts to half of Mitchell. About a year ago, the other half of Mitchell was transferred by AEP Generation Resources to AEP’s regulated Kentucky Power unit.

Final deal is subject to several stipulations

Said the final order about the terms of the stipulation deal:

  • “First, the Conner Run Impoundment is excluded from the interest in the Mitchell Plant to be transferred.”
  • “Second, under that arrangement, WPCo will have no responsibility for future Conner Run Impoundment costs and will have no ownership interest in water discharged into the Conner Run Impoundment.”
  • “Third, although the full Mitchell Settlement Interest will be conveyed to WPCo, only 82.5 percent of the Mitchell Settlement Interest will be included in the Companies’ rates for a period of up to five years after the transfer.”
  • “Fourth, there are provisions for the sharing of energy and capacity margins from PJM sales from the rate-based portion of the Mitchell Settlement Interest between Companies and their West Virginia customers during this five-year period.”
  • “Fifth, Companies will issue a request for proposals (RFP) for certain future power supply needs, contribute to the Dollar Energy Fund, and take certain measures relating to energy efficiency and demand response (EE/DR).”
  • “Sixth, the transfer will take place at the net book value of the Mitchell Settlement Interest at the time of transfer, and WPCo will remit $20 million to Generation Resources as a regulatory adjustment.”

Said the commission about the value of Mitchell as an asset: “The Commission is not without prior experience and exposure to the concept of the significance the Mitchell Plant could play in the West Virginia operations of AEP. In its December 13, 2013 Order in the Transfer Case, the Commission concluded that the Mitchell Plant, like the Amos Plant, is a high-quality, environmentally-compliant, base-load coal plant that has performed well for the AEP system for decades. The Commission observed that the Mitchell Plant has ample coal supply options because of its location on the Ohio River and its close proximity to the Appalachian coal fields, substantially complies with current EPA standards with relatively minor upgrades, and is expected to continue to provide competitive generation well into the future. The operational characteristics of the Mitchell Plant have not changed since the December 13, 2013 Order in the Transfer Case. Although certain maintenance issues affected the Mitchell Plant performance in 2013 and early 2014, those issues have been resolved.”

Deal includes condition covering a 100-MW RFP

The order also said that in the Joint Stipulation, the Stipulating Parties agreed that if WPCo or APCo require additional long-term capacity and energy to meet the future needs of West Virginia customers, on the next occasion after a final order is issued in this proceeding on which WPCo or APCo seek energy and capacity in excess of 100 MW for their West Virginia customers, APCo or WPCo would issue an RFP for such energy and capacity.

“The Joint Stipulation addresses the requirement of APCo and WPCo to obtain the next increment of needed energy and capacity above 100 MW subject to the RFP process,” the commission added. “It is not clear, however, whether the 17.5 percent share of the Mitchell capacity being designated as non-rate base during the initial five years after closing is subject to the RFP process if it is needed to address the load requirements of APCo or WPCo during that five-year periods. The Joint Stipulation is clear that before WPCo can seek rate base treatment for all or any portion of the 17.5 percent share of the Mitchell Settlement Interest, WPCo must notice the parties to this proceeding and seek approval for such action before the Commission. The parties to this proceeding are then free to take whatever position they choose.

“Because of this provision, the Commission clarifies that the acceptance of this settlement provision is conditioned as follows: should either APCo or WPCO have need for all or some portion of the 17.5 percent non-rate base portion of Mitchell to meet load growth, acquisition of that remaining Mitchell capacity is not subject to the RFP process. Any use of the 17.5 percent share of Mitchell as rate base and any agreements necessary for that portion of the Mitchell capacity to be available to APCo are subject to further Commission approval as provided in the Joint Stipulation. The Commission accepts the Stipulating Parties’ proposal respecting the issuance of an RFP by APCo or WPCo for any additional energy or capacity of more than 100 MW, and above the 17.5 percent non-rate base portion of Mitchell, is subject to the RFP process. The Commission will require that any future RFP issued because of this Stipulation condition, be filed for review and approval by the Commission.” 

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.