Clinch River Unit 1 and Unit 2, which have been converted from burning coal to using natural gas, were placed in service on March 21 and April 25 of this year, respectively, and after undergoing tuning, both units are anticipated to be commercially available by the end of May.
That is among the points from May 26 rebuttal testimony filed at the West Virginia Public Service Commission by the Appalachian Power Co. (APCo) and Wheeling Power Co. (WPCo) subsidiaries of American Electric Power (NYSE: AEP). Various AEP officials were responding to criticisms leveled by parties in their annual Expanded Net Energy Cost (ENEC) case, which acts something like a fuel adjustment clause in that it allows the utilities quicker cost recovery from ratepayers than would be possible under a full rate case.
AEP representative Amy E. Jeffries said that Clinch River Unit 3 in Virginia was permanently retired on May 31, 2015, and the plant last burned coal at Units 1 and 2 in late September of 2015. APCo has converted the coal-fired steam boilers of Units 1 and 2 to natural gas-fired boilers. The combined, nominal capacity rating for the converted Units 1 and 2 will be approximately 480 MW.
AEP’s John J. Scalzo said that Clinch River Unit 1 and Unit 2 were placed in service on March 21, 2016, and April 25, 2016, respectively. After undergoing tuning, both units are anticipated to be commercially available by the end of May. As of April 30, 2016, APCo has spent $86,705,379 on the Clinch River conversion project. The total completion cost is expected to be approximately $95.5 million, since it generally takes several months after a project is completed to receive final billings from contractors.
Scalzo also testified about the tough time that APCo, which serves coal-production reliant areas of southern West Virginia, is having, compared to the relative success of WPCo in northern West Virginia. “Even after the implementation of new base rates following the Companies’ last general rate case, the Companies are still struggling to earn their authorized return on equity (‘ROE),” Scalzo wrote. “Currently, the Companies (in aggregate) are experiencing significant load decline. APCo’s service territory has experienced and continues to experience a significant decline in both residential and industrial customer load. APCo’s load losses have eclipsed the load growth in the WPCo service territory related to the Marcellus Shale Gas expansion, which is winding down from a new load perspective.
“APCo’s load is declining every month and is expected to decline for the foreseeable future. This declining load, in combination with the earning degradation from increased capital and operating costs, is eroding and will further erode the Companies’ ROE. In the Companies December 31,2015, Quarterly ROE Filing that the Companies filed with the Commission, the APCo/WPCo combined per books ROE was 7.161%. It should be noted that this study reflects the fixed cost shifting from West Virginia to Virginia which is caused by load losses. This can affect the Companies’ ability to attract the capital that they need to make necessary investments in infrastructure.”
West addresses coal supply costs, issues
Other testimony came from AEP fuels official Charles F. West, who was rebutting testimony of the state Consumer Advocate Division (CAD) written by Emily S. Medine of the consulting firm Energy Ventures Analysis. Medine said in part that the results of APCo’s spot coal purchasing program were “mixed” and “problematic.” West said that Medine also implied that having longer term rail agreements in place at the Amos power plant in early 2015 would have resulted in lower fuel costs.
Said West about more usage lately of spot coal: “APCo increased its tolerance for spot coal in the past few years in part to better manage APCo’s inventory and to position APCo to be able to take advantage of potentially lower spot market prices in an over-supplied market. This decision to increase spot purchases was reached by APCo in 2013 around the time the CAD recommended more reliance on spot coal in the Companies’ 2013 ENEC case.”
West added: “APCo’s burn by quarter in 2015 was extremely volatile. The total coal burn for Amos and Mountaineer went from a high in the 1st quarter of 2.9 million tons to a low in the 4th quarter of 1.3 million tons. This quarter by quarter change in demand can only reasonably be handled by purchasing more spot coal using shorter term contracts as coal is needed.
“CAD witness Medine’s assertion that fuel costs were increased based on the decision to use spot rail agreements at Amos rather than barge agreements is incorrect. Barge coal at Amos is typically a less expensive option than rail coal, but the barge unloader has a physical limit on unloading capabilities. APCo had a rail agreement in place with CSX to provide some rail coal to meet the demand above the barge capacity, as well as to provide a backup transportation method during times of barge unloader or river outages. In early 2015, the river flooded and left rail as the only transportation mode to provide coal to Amos. Increasing spot purchases of rail coal was essential to get coal into Amos at that time of increased coal consumption. A long-term contract for rail coal would not have been beneficial in this situation.’
West also addressed a Medine recommendation that APCo better manage the financial conditions of its suppliers by increasing the diversification of its supplier base, considering the number of coal industry bankruptcies lately. Arch Coal, Peabody Energy and Alpha Natural Resources are the more recent companies to seek bankruptcy protection, with producers like Patriot Coal and James River Coal dismembered earlier this decade in bankruptcy.
Said West: “APCo diligently monitors the financial and operational situation of each of these suppliers. and any known risks are evaluated as part of the decision process when coal purchases are made. Three out of the four largest coal companies in the United States have filed Chapter 11.
“If APCo only purchased coal from approved suppliers, it would not be able to secure the needed coal requirements to operate its plants and would likely incur much higher coal costs. It should be noted that to date, APCo has experienced no issues with deliveries from the coal company specifically mentioned by Ms. Medine or any other supplier, and expects no issues going forward.
“The Commission should not require APCo to change how it manages the conditions of its coal suppliers. APCo diligently monitors and manages the financial and operational situation of each of its suppliers; it also monitors the availability of alternative coal sources should they be needed. By maintaining business with the companies identified by Ms. Medine, while planning for contingencies, APCo supports these businesses, which benefits APCo and its customers, who receive the lowest priced coal based on competitive offers.”