Under the deal backed by more than a dozen key stakeholders in AEP’s controversial power purchase agreement case before the commission, the Columbus, Ohio-based company would receive customer support to keep running power plants it mostly co-owns with utilities that generate more than 3,000 megawatts of electricity.
They include AEP’s ownership interest totaling 2,671 megawatts in the Conesville, Cardinal, Stuart and Zimmer plants, as well as the company’s 423-megawatt share of the Ohio Valley Electric Corp., operator of the Kyger Creek and Clifty Creek coal plants in Ohio and Indiana, respectively.
Critics of the proposed settlement, including other environmental and consumer groups, point out that AEP has not definitely said it will close the affected plants over the next several years and therefore does not need what they consider to be a “subsidy” to keep them open. During the past two years, the company has retired more than 6,000 megawatts of coal generation, primarily to comply with the federal Environmental Protection Agency’s new pollution control rules.
But the plants in question are “merchant” facilities, selling their power into the wholesale market of PJM Interconnection, a regional electric grid operator based in Pennsylvania. If the PUCO approves the deal, the plants ostensibly would be re-regulated.
Because the plants are baseload operations, meaning they are able to produce power around the clock, AEP insists they are needed to ensure reliability and diversity of supply for its nearly 1.5 million customers in Ohio.
The proposed settlement reached with the PUCO staff, Ohio Energy Group, Ohio Hospital Association, Mid-Atlantic Renewable Energy Coalition and others would require AEP to convert Conesville Units 5 and 6 to co-fire natural gas with coal no later than December 31, 2017, subject to regulatory approval.
AEP also would retire, refuel, or repower Cardinal Unit 1 and Conesville Units 5 and 6 to only use gas by the end of 2029 and 2030, respectively. And, among other provisions, AEP agreed to develop at least 900 megawatts of solar and wind energy projects in Ohio over the next five years.
Largely because of the solar/wind and co-firing concessions by AEP, the Sierra Club agreed not to oppose the settlement. The group for several years has waged a national “Beyond Coal” campaign and feels the settlement will aid in moving AEP away from its historically heavy emphasis on coal power sooner rather than later.
Not everyone agrees. In a late December filing with the commission, the Environmental Law & Policy Center, Ohio Environmental Group and Environmental Defense Fund argued the premise of the settlement regarding noncore issues such as energy efficiency, repowering, research and development, and grid modernization “could all produce economically suboptimal outcomes not in tune with market forces.”
The settlement provides for AEP Ohio, an AEP subsidiary, to recoup from its customers the entire cost of running the plants, and the company would earn at least a 10% return on their operation. AEP contends the power could be sold at sufficient above-market prices to provide up to $100 million in customer credits over eight years.
One of the most vocal opponents is Dynegy, a Houston-based merchant generator that, along with Dayton Power & Light, co-owns some of the plants included in the settlement.
Dynegy complained to the commission in December that, unlike AEP, it does not have the ability to force customers to subsidize the operation of inefficient or unprofitable plants.
“Ohio has thrived through its competitive retail and wholesale markets, which AEP favored when they were adopted,” said Dynegy President and CEO Robert Flexon. “This ill-advised action of the PUCO staff only hurts the citizens and competitive profile of Ohio in the long run.”
Dynegy has threatened to sue if the commission approves the settlement.
Although it is uncertain precisely when the PUCO will issue a final order in the AEP case, it likely will be in January or February. It is possible, however, it could be delayed until spring.
