Opponents ask FERC to review AEP’s plan to protect Ohio coal plants

The Electric Power Supply Association (EPSA), the Retail Energy Supply Association (RESA), Dynegy Inc., Eastern Generation LLC and affiliates of NRG Energy on Jan. 27 asked the Federal Energy Regulatory Commission for an expedited review that would deal with an imminent Public Utilities Commission of Ohio decision over a power plant protection plan from American Electric Power.

The PUCO has signaled that the idea of protecting this coal-fired capacity in a deregulated Ohio market with a power purchase agreement (PPA) is legal, with the question then being what form the PPA would take. AEP in December filed with the PUCO a settlement with various parties that may clear the way for Ohio commission approval.

The appealing parties told FERC they are seeking to ensure that an “abusive affiliate power sales contract” (called the “Affiliate PPA”) involving subsidiaries of American Electric Power does not evade commission review. “Under the Affiliate PPA, captive Ohio consumers would be forced to fund a massive bailout of AEP’s ‘unregulated’ generation subsidiary through a non-bypassable charge assessed to all retail customers, even those served by competitive suppliers,” they told FERC. “The Commission should rescind the waiver of its affiliate power sales restrictions that it previously granted to AEP’s market-based rate subsidiaries, as that waiver relates to the Affiliate PPA, and thus ensure that the Affiliate PPA is reviewed under Section 205 of the [Federal Power Act] and in accordance with the standards for evaluating proposed affiliate power sales set forth in [FERC precedents].”

They added: “The Affiliate PPA strikes at the heart of the Commission’s longstanding restrictions on affiliate transactions. Indeed, this contract threatens exactly the harm to both captive consumers and markets that prompted the adoption of those restrictions in the first place. The Affiliate PPA would saddle captive Ohio consumers with hundreds of millions or even billions of dollars in above-market costs and would artificially distort prices in the PJM Interconnection, L.L.C. (‘PJM’) markets by subsidizing the continued operation of nearly 3 GW of generation that, according to AEP, would otherwise retire.

“The fact that AEP has devised, and that the PUCO may approve, a clever scheme to shift costs of this abusive affiliate contract onto consumers does not alter the Commission’s statutory duty to protect consumers from the effects of unjust and unreasonable wholesale rates or in any way make it less critical to ensure the integrity of the PJM markets. There have been fundamental changes in circumstances since the Commission granted the waiver that make it unjust, unreasonable and unduly discriminatory to allow AEP Generation Resources, Inc. (‘AEP Generation’) to enter into the Affiliate PPA pursuant to its blanket market-based rate authorization.

“Expedited Commission action granting this Complaint and providing for review of the Affiliate PPA under the Edgar/Allegheny standards is essential. The Public Utilities Commission of Ohio (the ‘PUCO’) is poised to authorize the parties to enter into the Affiliate PPA as early as next month, and PJM will conduct the Base Residual Auction for the 2019/2020 Delivery Year (the ‘2019/2020 BRA’) in May 2016. A Commission order making clear its intent to review the Affiliate PPA in accordance with the Edgar/Allegheny standards will provide needed assurance to consumers and other market participants that the Affiliate PPA is not going to evade Commission review. It would also afford AEP sufficient time to file the Affiliate PPA with the Commission and obtain Commission guidance in advance of the 2019/2020 BRA.”

The Dynegy companies have approximately 5,332 MW of generation in Ohio. Dynegy also has two retail electricity subsidiaries serving businesses and residents in Ohio and other states. Eastern Generation is managed by ArcLight Capital Partners LLC and recently indirectly acquired generation facilities with an aggregate generating capacity of approximately 4,953 MW, including an approximately 825 MW natural gas-fired generation facility in Vinton County, Ohio. In Ohio, NRG’s affiliates sell electricity and capacity from its Avon Lake generating facility, facilitate the sale of Ohio demand response into PJM’s market, and sell retail electricity in Ohio.

The PPA covers eight years; AEP agreed to reduce coal capacity to get it approved

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

The stipulated agreement 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 coal 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). 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.

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.

On Jan 27, the same day as the complaint was filed with FERC by the plan opponents, the Office of the Ohio Consumers’ Counsel (OCC) filed with FERC to intervene in the case on the side of the plan opponents. “The OCC moves for leave to file a motion to intervene and comments supporting the consumer protection that could save these Ohioans billions of dollars in unwarranted charges. Consistent with Ohio Power Company’s (‘AEP Ohio’) pending plan at the Public Utilities Commission of Ohio (‘PUCO’), if the involved generation clears the PJM Interconnection LLC (‘PJM’) capacity auction, the cost to Ohio’s customers would be approximately $700 per customer and approximately $1.9 billion in total over its eight-year term. However, if the involved generation does not clear the PJM capacity auction the projected cost to Ohio customers could balloon to over a staggering $1,000.00 per customer and approximately $3.1 billion in total over the eight-year term.”

It added: “The OCC fully supports the relief sought in the Complaint, in the interest of Ohio consumers. The AEP PPA would impose on captive Ohio retail consumers unduly discriminatory and preferential costs that should be borne by AEP Ohio’s marketing and generation affiliates. And the intended implementation of the AEP PPA could have a deleterious effect on wholesale markets operated by PJM.”

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.