American Electric Power (NYSE: AEP) reported in its Nov. 2 quarterly Form 10-Q statement that it has completed new air emissions controls at the coal-fired Welsh power plant in Texas, and that it earlier this year retired one of the units at the plant.
AEP management currently estimates that the investment necessary to meet proposed environmental regulations through 2025 for Welsh Units 1 and 3 could cost approximately $850 million, excluding AFUDC. As of Sept. 30, 2016, AEP’s Southwestern Electric Power Co. (SWEPCo) had incurred costs of $395 million, including AFUDC, and had remaining contractual construction obligations of $14 million related to these projects. As part of this investment, in 2016, SWEPCo completed construction of environmental control projects to meet federal Mercury and Air Toxics Standards for Welsh Units 1 and 3 at a cost of approximately $370 million, excluding AFUDC.
In March 2016, SWEPCo filed a request with the Arkansas Public Service Commission (APSC) to recover $69 million in environmental costs related to the Arkansas retail jurisdictional share of Welsh Units 1 and 3, which was approved by the APSC in August 2016. SWEPCo began recovering the Arkansas jurisdictional share of these costs in March 2016, subject to review in the next filed base rate proceeding.
In September 2016, SWEPCo filed an additional request to increase the Arkansas retail jurisdictional share of the environmental investment by $10 million, for a total of $79 million. SWEPCo implemented the increase in September 2016. SWEPCo will seek recovery of the remaining project costs from customers at the state commissions and the FERC.
As of Sept. 30, 2016, the net book value of Welsh Units 1 and 3 was $632 million, before cost of removal, including materials and supplies inventory and CWIP. In April 2016, Welsh Unit 2 was retired. Upon retirement, $76 million was reclassified as Regulatory Assets on the balance sheet related to the net book value of Welsh Unit 2 and the related asset retirement obligation costs. Management will seek recovery of the remaining regulatory assets in future rate proceedings.
The Welsh plant is located in Titus County, Texas. The generating capacity of each of the surviving two units is 528 MW. Unit 2 was also 528 MW in size. The plant burns low-sulfur coal from the Powder River Basin in Wyoming.