AEP bids again for Ohio ratepayers to support coal

OREANDA-NEWS. May 20, 2015. American Electric Power (AEP) is asking Ohio state regulators to take another look at the utility holding company's proposal for state-sponsored power purchase agreements that will support 3,100MW of coal fired capacity.

The proposal is keenly watched by rival companies Duke Energy and FirstEnergy, which have made similar requests.

The Public Utilities Commission of Ohio in February rejected AEP's previous proposal to allow ratepayers in its Ohio utility territory to support parts of the company's merchant coal fleet, saying they were not convinced it would benefit ratepayers. But state regulators left the door open for "a reasonable [power purchase agreement] rider proposal that provides for a significant financial hedge that truly stabilizes rates."

AEP on 15 May filed an amended version of a power purchasing agreement with the state commission. AEP says its amended application meets all of the conditions state regulators enumerated in their February order: regulatory oversight and periodic reviews of the coal generation rider; full information sharing; and splitting the financial risk equally between AEP and its Ohio ratepayers.

The proposal involves power purchase agreements for 2,671MW at nine units in AEP-owned Cardinal, Conesville, Stuart and Zimmer plants in Ohio. The coal rider would include 440MW of AEP's share at two coal plants operated by Ohio Valley Electric, the 1,085MW Kyger Creek plant in Ohio and the 1,203MW Clifty Creek plant in Indiana. Duke Energy and FirstEnergy share ownership in those plants.

AEP Ohio customers would pay the company's merchant generating arm for the costs of owning and operating coal units. The utility in exchange will receive all of the capacity, energy and ancillary services revenues collected from those units' participation in the PJM Interconnection regional transmission organization.

The potential cost to Ohio ratepayers of committing to the power purchasing agreements for the AEP plants is \\$11.3bn over the next decade, while those units can receive \\$11.8bn in PJM markets, according to estimates provided by AEP. The company says Ohio ratepayers stand to gain at least \\$574mn in 2015-24 from the arrangement; the amount can rise to \\$770mn if PJM pushes through a reform of its capacity market later this year.

The proposal "can truly stabilize retail customer rates" and offers hedging against spikes in power prices, AEP Ohio president Pablo Vegas said.

AEP is asking for an expedited review of its proposal as its three-year electric security plan, sourcing its standard service load, goes into effect on 1 June.

FirstEnergy executives in recent weeks expressed hopes for Ohio's eventual approval of coal rider proposals, which they say is crucial for backing up merchant generation in PJM.

PJM capacity prices have risen but energy markets revenue is flat because of the natural gas glut in the mid-Atlantic region.

AEP's latest filing will face guaranteed opposition from environmental groups opposed to any sort of support for coal units.

Twelve large corporations that operate in Ohio, including Costco, Lowe's Home Improvement, Staples and Macy's, also intervened in the case, saying the proposal would stifle competition and increase costs.