AEP’s stability plan for two coal plants rejected by Ohio commission

In a blow to the long-term future of certain coal-fired capacity, the Public Utilities Commission of Ohio (PUCO) on Feb. 25 modified and approved an electric security plan (ESP) for AEP Ohio that doesn’t include help for the Kyger Creek and Clifty Creek coal plants.

“Today’s decision adopts a comprehensive plan that will promote a competitive environment for AEP Ohio’s customers and support future electric reliability in Ohio,” said PUCO Chairman Thomas W. Johnson in a Feb. 25 statement.

In reaching its decision, the commission declined to adopt the company’s proposed purchase power agreement as it relates to the company’s interests in Ohio Valley Electric Corp., which controls the Kyger Creek and Clifty Creek plants and is owned by several power generating companies. Although the commission found that the proposed power agreement (PPA) mechanism was permitted under Ohio law, after weighing the evidence of record, it was not persuaded that the proposal would benefit ratepayers.

Ohio, with its deregulated structure, holds a lot of uncertainties for aging coal-fired capacity. The rejected PPA rider would have assured the future of this capacity for several years, allowing it stability that the open market doesn’t provide. AEP Ohio, a unit of American Electric Power (NYSE: AEP), had said the PPA would have provided rate certainty to customers.

Said the PUCO decision about this proposal: “In this ESP, AEP Ohio requests approval of a non-bypassable PPA rider to be used as a hedge against future market volatility, in order to stabilize customer rates. Initially, the proposed PPA rider would be based solely on AEP Ohio’s OVEC contractual entitlement from the Kyger Creek and Clifty Creek generating stations, although the Company seeks to reserve the opportunity to include additional PPAs in the rider. As proposed, AEP Ohio’s OVEC contractual entitlement, including energy, capacity, and ancillaries, would be sold into the PJM Interconnection, LLC (PJM) market and, after deducting all associated costs from the revenues, the proceeds from the OVEC contractual entitlement, whether a credit or a debit, would accrue to Ohio ratepayers.

“AEP Ohio submits that selling the OVEC entitlement into the PJM market eliminates any adverse impact on the [standard service offer] auctions and does not affect the opportunity of competitive retail electric service (CRES) providers to compete for customers. OVEC’s costs, according to AEP Ohio witnesses Vegas and Allen, are relatively stable, in comparison to the wholesale power market, and rise and fall in a manner that is counter-cyclical to the market, thereby creating the PPA rider’s hedging effect for ratepayers. AEP Ohio proposes that the PPA rider would be adjusted annually to reconcile projected expenses and revenues with actual data. AEP Ohio also notes, regarding the possible expansion of the PPA rider, that the Company is only considering the inclusion of future PPAs with its affiliates.”

But the PUCO said in rejecting this proposal that this rider would limit the ability of ratepayers to shop for their power and would be a net cost to ratepayers. “In sum, the Commission is not persuaded, based on the evidence of record in these proceedings, that AEP Ohio’s PPA rider proposal would provide customers with sufficient benefit from the rider’s financial hedging mechanism or any other benefit that is commensurate with the rider’s potential cost. We conclude that AEP Ohio has not demonstrated that its PPA rider proposal, as put forth in these proceedings, should be approved under [state code]. Nevertheless, the Commission does believe that a PPA rider proposal, if properly conceived, has the potential to supplement the benefits derived from the staggering and laddering of the SSO auctions, and to protect customers from price volatility in the wholesale market. We recognize that there may be value for consumers in a reasonable PPA rider proposal that provides for a significant financial hedge that truly stabilizes rates, particularly during periods of extreme weather. As we have consistently emphasized in AEP Ohio’s prior ESP proceedings, rate stability is an essential component of the ESP. Accordingly, the Commission authorizes AEP Ohio to establish a placeholder PPA rider, at an initial rate of zero, for the term of the ESP.”

OVEC operates the Kyger Creek plant in Cheshire, Ohio, which has a nameplate capacity of 1,086 MW. It also operates the Clifty Creek in Madison, Ind., with a nameplate capacity of 1,304 MW.

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.