AEP deal would end or limit coal use at several units over the next few years

AEP Ohio, a unit of American Electric Power (NYSE: AEP), filed Dec. 14 with the Public Utilities Commission of Ohio (PUCO) a stipulated agreement in support of the company’s expanded Purchase Power Agreement (PPA).

The agreement will be signed or unopposed by 11 parties, including the PUCO staff, Sierra Club, Ohio Partners for Affordable Energy, Ohio Energy Group, Ohio Hospital Association, Mid-Atlantic Renewable Energy Coalition, as well as three competitive retail energy suppliers.

“We are pleased to have reached an agreement on a comprehensive plan that helps ensure more stable electricity prices for Ohio consumers and promotes a reliable and diverse generation supply to support the Ohio economy,” said Pablo Vegas, AEP Ohio president and chief operating officer. “This agreement addresses many of the concerns raised by a diverse group of parties including advocates for low-income customers, environmental organizations, industrial and commercial customers and competitive energy suppliers. We appreciate the willingness of everyone involved to work together to support the state economy, preserve jobs, improve the environmental impact of Ohio’s electricity generation resources and protect Ohio customers from electricity price volatility.”

The stipulated agreement, expected to be ruled on by the PUCO early in 2016, would require AEP Ohio to enter into an eight-year power purchase agreement (ending May 31, 2024) for the capacity, energy and ancillary service output of AEP’s 2,671 MW ownership share of nine generating units and AEP Ohio’s 423 MW contractual share of Ohio Valley Electric Corp.‘s (OVEC) generation.

The nine generating units include Cardinal Unit 1 in Brilliant (Jefferson County); Conesville Units 4, 5 and 6 in Conesville (Coshocton County); Stuart Units 1-4 in Aberdeen (Brown County); and Zimmer Unit 1 in Moscow (Clermont County). All of these units are fired by coal. OVEC, which is owned by several parties besides AEP, owns the coal-fired Kyger Creek and Clifty Creek plants.

The agreement includes significant environmental improvements to AEP-owned generating units including converting Conesville Units 5 and 6 to co-fire natural gas by Dec. 31, 2017, subject to regulatory approval, and retiring, refueling or repowering Conesville Units 5 and 6 and Cardinal Unit 1 to only use natural gas by the end of 2029 and 2030, respectively – a significant acceleration in ceasing coal operations at these units.

AEP Ohio also committed to develop at least 900 MW of wind and solar energy projects in Ohio over the next five years; continue its strong support of energy efficiency programs; move forward with grid modernization efforts, including the installation of smart meters, distribution automation and Volt-VAR optimization; and provide up to $100 million in customer credits during the term of the agreement.

AEP Ohio delivers electricity to nearly 1.5 million customers of AEP’s subsidiary Ohio Power in Ohio.

William A. Allen, employed by American Electric Power Service Corp. (AEPSC) as Managing Director of Regulatory Case Management, said in Dec. 14 testimony that under this deal, AEP’s commitments include:

  • AEP Ohio commits to file a carbon reduction plan by Dec. 31, 2016, indicating how the company and its affiliates intend to promote fuel diversification and carbon emission reductions.
  • AEP Ohio commits to develop 500 MW of wind energy projects and 400 MW of solar energy projects in Ohio, subject to commission approval and full cost recovery. The projects will be proposed over the next five years with the goal of having the projects completed by 2021.
  • AEP Ohio and its affiliates will provide information in a commission docket by March 2017 with the purpose of identification and timely removal of barriers to retiring, refueling or repowering the co-owned units (Conesville Unit 4, Zimmer Unit 1; Stuart Units 1-4 and the OVEC units).

The deal says that the target is to co-fire natural gas with coal in Conesville Units 5 and 6 by the end of 2017, with that co-fire period to run until the end of 2029. During the co-fire period, coal use will be limited to 37.5% of the design level in each unit, with an AEP commitment to maximize gas use. Then as of the end of 2029, Conesville 5 and 6 will be retired, refueled with natural gas, or repowered.

Notable is that the deal only covers Cardinal Unit 1, which AEP owns, and doesn’t cover the coal-fired Cardinal Units 2 and 3, which AEP operates on behalf of their owner, Buckeye Power.

AEP will work over the next few years with the co-owners of Conesville Unit 4, Zimmer Unit 1, Stuart 1-4 and the OVEC plants to work out deals to retire, refuel or repower this capacity. If it can’t win those approvals from co-owners by January 2024, then AEP agreed to try and consolidate ownership so that these goals can be accomplished.

The Conesville station consisted of six units with a total generating capacity of 1,745 MW. All of the units except Conesville 4 were 100% owned by AEP. Conesville 4 is jointly owned by Dayton Power & Light (16.5%) and Duke Energy Ohio (40%), which sold its share to Dynegy in 2015. Conesville Units 1 and 2 were retired in 2005. Conesville 3 was retired in 2012. Conesville Unit 4 was retrofitted with a scrubber in 2009. 

Dynegy slams this deal

Dynegy (NYSE: DYN), a competitive power supplier in Ohio, said Dec. 14 that PUCO staff has once again supported anti-market subsidies to a large investment grade company, the cost of which will be borne by Ohio residents and businesses in favor of AEP shareholders. It said this PPA guarantees power prices significantly higher than today’s market prices. This agreement, along with the one with FirstEnergy (NYSE: FE) agreed to on Dec. 1, will result in higher power costs for the citizens and businesses of Ohio for years to com, Dynegy said.

Similar to FirstEnergy, recent publicly-available information reveals that AEP has been awarded more than $1.2 billion in revenues over the next three planning years through the PJM Capacity Auction, with all of the generating plants covered by the PPA agreement receiving awards, Dynegy said. This amount is more than $660 million over and above the amount expected at the time of AEP’s original subsidy request. And, as part of the Capacity Auction results, AEP’s plants are now obligated to run through May 31, 2019, even without the PPAs, meaning the risks of near-term retirements at these facilities are virtually nonexistent.

Dynegy co-owns the Conesville, Stuart, and Zimmer stations with AEP, which are included in AEP’s PPA agreement with the PUCO. Dynegy pointed out that, while having an ownership share of these plants, it will not receive any of the above market revenues from the proposed AEP PPAs.

“Ohio has thrived through its competitive retail and wholesale markets, which AEP favored when they were adopted. This ill-advised action of the PUCO staff only hurts the citizens and competitive profile of Ohio in the long run,” said Robert C. Flexon, President and CEO, Dynegy Inc. “Dynegy will continue to fight for market-based policies that treat all forms of power generation equally through advocacy and litigation, if necessary, to prohibit these power purchase agreements from being enacted. Public policy should always put the interests of Ohioans first, not those of AEP shareholders. We continue to strongly encourage the PUCO commissioners to oppose and vote down this adverse anti-market public policy.”

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.