West Virginia PSC asked to force AEP subsidiaries to issue power RFPs

Staff of the West Virginia Public Service Commission and the state’s Consumer Advocate Division (CAD) on May 24 asked the commission to require the Appalachian Power Co. (APCo) and Wheeling Power Co. (WPCo) units of American Electric Power (NYSE: AEP) to show cause why they should not be required to file Requests for Proposals (RFPs) for all future capacity and energy requirements above 100 MW.

Said their petition: “The Staff and the CAD believe that these Companies, especially in light of the inexorable collapse of the coal industry driven primarily by the availability of cheaper and more plentiful natural gas, continue to rely on acquisition practices that are not in the best interests of the consuming public and the economy of the State. Just a year ago, ratepayers were hit with a rate increase of $123.5 million. … This represents a 60% increase over the residential electric rates in effect in 2008. Industrial rates have increased almost 100% since 2006. Currently, the Companies have a request pending to increase their [yearly expanded net energy costs] ENEC rates by another $108.3 million.”

Staff and the CAD noted that the Joint Stipulation and Agreement for Settlement arrived at earlier this decade for the acquisition by Wheeling Power of half (about 780 MW) of the Mitchell coal plant in northern West Virginia contains a clause that if the AEP companies require additional long-term capacity and energy in excess of 100 MW, they must issue a request for proposals.

The AEP companies recently stated that because they sought to issue an RFP for 150 MW of wind power in December 2015, the requirement to issue an RFP under the Mitchell case has been satisfied.

Staff and the CAD said they believe “that the Companies are mistaken in their assertion that the RFP requirement has been discharged. The Commission’s orders in these cases require an RFP for any additional energy above 100 MW and above the 17.5 percent non-rate base portion of Mitchell without the limitation suggested by the Companies that, for all intents and purposes, would swallow the Companies’ obligation to do more than the bare minimum to meet its obligations to its customers. The Staff and the CAD recommend that the Commission reject the Companies’ assertion that the issuance of the Wind RFP satisfies the requirements of the Mitchell stipulation and Order. The Mitchell stipulation contemplates an RFP that will elicit proposals for capacity and energy from unlimited types of generation. The limited Wind RFP could not take full advantage of the competitive nature of the market because it focused on a specific type of generation. Had Staff known that the Companies would use the issuance of the Wind RFP to escape the requirements of the Mitchell Order, Staff would not have recommended the Commission approve the Wind RFP, and the CAD would have objected as well.

“The Mitchell Stipulation and Order do not state the Companies will issue an RFP for energy and capacity ‘of their choice.’ Because the Companies arbitrarily limited the scope of the RFP to wind, they deprived ratepayers of one of the chief benefits of the RFP process: a solicitation that would have allowed the Companies a variety of options from which to choose to service its customers. Thus, the issuance of the Wind RFP by the Companies does not discharge the obligation to issue an RFP as required by the Mitchell Stipulation and Order. If the Companies purchase capacity or energy in the future, they will undoubtedly seek rate relief for the cost of the purchased capacity or energy. If the Commission does not review the terms of the purchase contract prior to its execution the Commission will not be able to determine if the purchase of the additional capacity or energy was in the public interest.

“In the Mitchell case, WPCo limited its analysis to the available Mitchell assets and building a new 780 MW natural gas plant. By focusing on such a narrow universe of possibilities, the Companies were not asking the Commission to approve the least-cost means of meeting their load, but rather were seeking approval of the least-cost alternatives out of the narrow field they chose to evaluate. When the Companies narrow the field to such a limited range of possibilities, they increase the possibility that they failed to even evaluate lower-cost alternatives.

“In today’s market, it simply makes sense for the Companies to issue an RFP for their next acquisition of capacity and energy, excluding the non-rate base portion of Mitchell above 100 MW. The Companies could obtain competitive, cost-effective proposals for acquiring capacity and energy by using the RFP process. The use of an RFP could allow the Companies to move beyond past approaches and allow the competitive process to bring a variety of approaches to them.”

Notable is that the half of Mitchell that Wheeling Power acquired was purchased from an unregulated AEP subsidiary (AEP Generation Resources) after AEP’s regulated utility subsidiary in Ohio (Ohio Power) had to divest its stakes in several plants, including this one, under a utility deregulation program in Ohio. The other half of Mitchell wound up with AEP’s regulated Kentucky Power subsidiary.

The West Virginia PSC on Jan. 28 approved an application from APCo to issue the request for proposals for new wind capacity. APCo stated that it planned to issue its 2016 Wind RFP for 150 MW of wind power to be in service as of Dec. 31, 2017.

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.