Mon Power, AMBIT officials argue for rescue plan for coal-fired power plant

Officials representing American Bituminous Power Partners LP (AMBIT) and Monongahela Power provided additional testimony filed July 31 at the West Virginia Public Service Commission in support of a June 5 petition for approval of an amended deal to sell power that will rescue AMBIT’s 80-MW, waste-coal-fired power plant at Grant Town in northern West Virginia.

Among those writing testimony for AMBIT was Kenneth Niemann, the President of North Ridge Resources LLC located in Alexandria, Virginia. He works for AMBIT as the Executive Director under a consulting agreement between AMBIT and North Ridge Resources.

He wrote: “On behalf of AMBIT, I am sponsoring the Joint Petition and the proposed Amendment Agreement amending the Electric Energy Purchase Agreement (‘EEPA’) originally entered into in 1988 between AMBIT and Monongahela Power Company (‘Mon Power’) regarding energy produced at the Grant Town Power Project (‘Grant Town Project’).

“The plant is located in Grant Town, Marion County, WV on 340 acres at the site of the former Federal #I mine. Construction of the plant began in 1990, and it commenced commercial operations in 1993. It is an 80 MW (net) electric generating facility that uses 100% waste coal sourced in West Virginia. There are two circulating fluidized boilers and one steam turbinelgenerator with a rated output of 95 MW (gross). Emissions controls consist of a baghouse for particulates, SNCR for NOx, and limestone injection into the boilers for SO2. The original project capital cost was approximately $185,000,000, which was financed with $35,000,000 of equity from the original partners, and $150,000,000 of Marion County Solid Waste Bonds maturing in September 2017 and guaranteed with a Letter of Credit from a group of banks. The current loan balance on the bonds is $26,300,000.

“Grant Town sells all its capacity and energy to Monongahela Power/FirstEnergy under a long-term EEPA which ends in 2036. It is a PURPA Qualifying Facility that generates approximately 640,000 Renewable Energy Credits annually. Grant Town is paid a fixed capacity rate (currently $34.25/MWh reducing to $27.00/MWh in October 2017), and a variable energy rate based on three proxy coal plants operated by FirstEnergy (Harrison, Pleasants, and Fort Martin).

“Payments under the EEPA are not sufficient to cover AMBIT’s current and future operating costs, and without an increase in the capacity rate the project is not viable and will be forced to shut down. In 2013 and 2014 AMBIT defaulted on the principal payments due under its loan agreements, and defaults will take place in 2015, 2016 and 2017 based on current financial projections. AMBIT has received temporary waivers from such defaults to date. Also, AMBIT has been unable to make rent payments to the site landlord since February 2013, which is the subject of ongoing litigation. The EEPA has no provision to adjust rates for increased costs due to unforeseen regulatory and environmental changes, which have significantly impacted AMBIT in past 5-6 years. Cash reserves are exhausted, including the Maintenance Reserve, and revenues are not sufficient to service the bond debt through maturity in September 2017 and pay the EEPA tracking account starting in 2020.

“[T]he bondholders continue to be paid as a result of a Letter of Credit (‘LOC’) provided by the bank group. This LOC provides payments in the event AMBIT is not able to cover the principal due each year. However, the LOC draws add to the debt burden that AMBIT faces because AMBIT must reimburse the bank group for those draws.

“Based on feedback received during settlement negotiations before filing the Petition in this case, AMBIT was able to defer about $10 million of accrued interest on prior partner loans, and about $6.5 million of accrued management fees. To the extent there is available cash flow in future years, payment of interest on the loans and ongoing annual management fees may be made. Since the initial organization of AMBIT, there have been no cash or other distributions to partners and such distributions are unlikely through the term of the EEPA even if the Amendment Agreement is approved. Notwithstanding the fact that the partners have not received a return on their investments and have not received payments on loans and fees provided in the partnership agreements to date and are not likely to through the remaining term of the EEPA, AMBIT’S partners will continue to provide management support to the project.

“Without the increased revenues provided for in the Amendment Agreement, the Grant Town plant will eventually be forced to seek financial reorganization and likely shut down permanently similar to the fate of several other waste coal facilities in the region over the years,” Niemann added.

Mon Power says this facility provides important local economic benefits

Among those filing July 31 testimony on behalf of Mon Power was Robert B. Reeping, employed by FirstEnergy Service Co. as Manager, Regulated Commodity Sourcing, working on behalf of the regulated electric utilities that are subsidiaries of FirstEnergy (NYSE: FE), including Mon Power.

Reeping said there are five EEPA modifications being proposed under the joint petition:

  • An amendment to the purchase price to 85% of the revenues received by Mon Power from PJM Interconnection subject to a floor and cap on the Capacity Cost Rate;
  • The elimination of the Tracking Account;
  • A cap on the Maintenance Reserve requirement;
  • A restructuring of the price for Additional Project Energy: and
  • An increase in the amount of Curtailment Hours and the price paid for output delivered during those hours.

Said Reeping: “[T]he Project not only provides energy and capacity to Mon Power and its customers, but provides macroeconomic benefits to the state of West Virginia including good paying jobs, millions of dollars in taxes, and environmental benefit through the reclamation of abandoned coal waste sites. Additionally, should the plant close it is unclear whether or not Mon Power’s customers will be better off if forced to make market purchases to replace the 80 MW of energy and capacity over the remaining term of the EEPA. Based upon these reasons, Mon Power feels it is appropriate for the Commission to have the opportunity to review the amendment request.”

Testimony also came from Raymond E. Valdes, employed by FirstEnergy Service as Rates Advisor.

Asked if this contract change will mean higher costs for Mon Power ratepayers, Valdes wrote: “Eventually, yes, the proposed amendments will result in higher costs than Mon Power would otherwise experience under the existing EEPA. Under the current EEPA, the capacity cost rate is set to decrease from the current $34.25 per megawatt-hour (‘MWh’) to $27.00/MWh in October 2017. The proposed amendment eliminates this reduction in the capacity cost rate, maintaining it at a minimum of the current $34.25/MWh for the remainder of the term of the EEPA. This will result in annual costs that are approximately $4.6 million higher than they would be under the current EEPA beginning in October 2017. The proposed amendment also eliminates the tracking account and AmBit’s corresponding one-time amortization obligation of $8.87 million that would have resulted in a reduction in the energy cost rate for approximately one year beginning in January 2020. There is also a potential for the capacity cost rate to increase to as much as $40.00/MWh depending on future market prices.”

Saying that the PSC has no power to adjust contract electricity prices for a PURPA project, commission staff on June 16 had recommended against approval of this change. “Staff believes regardless of previous Commission decisions that may appear contrary, it is clear that once the Commission sets the avoided cost rate for a [Public Utilities Regulatory Policy Act] project, the Commission no longer retains the jurisdiction to engage in rate regulation or financial and organizational regulation or any other ‘utility type regulation’ of PURPA projects,” said the staff brief.

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.