PSC starts hearings on AEP power plant deal
CHARLESTON, W.Va. -- Members of the state Public Service Commission on Tuesday began hearing testimony on Appalachian Power's proposal to take a greater stake in two coal-fired power plants, in the second in a pair of cases that could help determine the future of West Virginia's energy industry.
Appalachian Power wants approval to acquire more of the John Amos plant near St. Albans and half of the Mitchell plant near Moundsville from a sister American Electric Power subsidiary, Ohio Power.
As they did with a similar proposal by FirstEnergy to transfer ownership of its Harrison plant to its West Virginia subsidiary, Monongahela Power, environmental organizations and consumer advocates have joined in questioning the plan.
They worry about the impact on customer rates, argue that the power companies ignore potential gains from better demand-side energy efficiency programs, and complain the plan locks West Virginia into a long-term electrical generation mix that is too narrowly focused on coal.
During testimony that lasted much of the day Tuesday, Appalachian Power President Charles Patton repeatedly defended his company's proposal, saying it was the best deal for the company, its customers and the state.
"Assets like these are going to be very valuable going into the future," Patton told commissioners. "These assets make sense for us."
The Appalachian Power proposal can be confusing, but basically has three major parts.
-- Appalachian Power would acquire the last 867 megawatts of the 2,900-megawatt Amos plant that it doesn't already own.
-- Appalachian would get half of the 1,600-megawatt Mitchell plant.
-- Finally, Appalachian would merge with sister AEP company Wheeling Power.
Patton said the proposal grows out of his company's efforts to emerge stronger following the breakup of a generation-sharing pool among it and other subsidiaries of Ohio-based AEP.
Along with the closure of several smaller power plants, the pool breakup -- happening amid evolving environmental regulations, increased competition in power generation markets and a variety of other changes -- leaves ApCo short of the generation it needs to serve its West Virginia customers.
"There was all of this confusion, all of this uncertainty," Patton testified. "I wanted to get certainty."
But former top PSC consumer advocate Billy Jack Gregg submitted written testimony on behalf of his former office arguing that the PSC should only approve one of the two plant transfers Appalachian wants.
Gregg explained that while both Amos and Mitchell have "scrubbers" to remove sulfur dioxide air pollution, the equipment at both facilities is limited, requiring the plants to burn a mixture of both high- and low-sulfur coals. These limits put the plants -- and if the transfers are approved Appalachian's customers -- at greater risk of the growing volatility in the coal market, Gregg said.
"If the proposed acquisition is approved, the amount of ApCo's capacity with limited scrubbing capability will rise to 3,700 megawatts, or approximately 48 percent of ApCo's total capacity," Gregg said. "I believe this course of action would be inherently risky and would lock ApCo and its customers into higher and more volatile coal prices for the long term."
And other groups, including the Sierra Club and Energy Efficient West Virginia, argue that the PSC should be forcing power companies to spend more effort and money on energy efficiency programs that could cut electrical bills and create jobs.
"It is just common sense for Appalachian Power to invest in energy efficiency before going out and purchasing expensive coal power plants," said Stacy Gloss, project manager for Energy Efficient West Virginia.
The Appalachian Power hearings are scheduled to run through at least Thursday, and the PSC hearing room in Charleston was initially packed Tuesday morning with lawyers, witnesses and spectators.
PSC Chairman Michael Albert said the commission expects to hear from 19 witnesses as it tries to sort out the more than $1 billion transaction. Commissioners held hearings in the similar FirstEnergy case in late May, but have yet to issue a ruling.
In PSC cases, most of the evidence comes through prepared testimony that is filed prior to the in-person hearing. At the hearings themselves, lawyers for various sides focus on cross-examining other parties' witnesses.
So for most of Tuesday's session, lawyers for the PSC's Consumer Advocate Division, the West Virginia-Citizen Action Group and a collective of large energy users grilled Patton about Appalachian Power's proposal.
For example, WV-CAG lawyer Bill DePaulo tried unsuccessfully to get Patton to explain how - or if - Appalachian Power's review of the deal had taken into account the potential costs of cleaning up coal-ash impoundments at both John Amos and Mitchell.
Patton didn't explain exactly how those costs were factored into the finances of the deal, instead answering several times that he believed Appalachian Power complies with federal and state coal-ash rules, and is upgrading its disposal practices to meet any new government regulations.
"Yeah, something could happen with the fly ash fill," Patton said. "We don't think it will, because we've managed it and we've managed it for years. There's risk in whatever you do."
Eventually, Albert -- a former utility lawyer -- ordered DePaulo to move on to another topic, and to stop trying to enter media accounts and U.S. Environmental Protection Agency documents about the dangers of coal ash into the PSC's hearing record.
Under cross-examination by West Virginia Energy Users Group lawyer Derrick Williamson, Patton conceded that the power plant ownership transfers themselves could prompt a $130 million increase in base rates for Appalachian customers.
Patton, though, said that sort of a rate hike could be avoided if the commission instead agrees to simply not give customers a separate rate decrease that they would otherwise have coming in a separate proceeding.
Williamson pressed Patton on whether Appalachian Power would move forward with the power plant ownership transfers if the PSC didn't provide that sort of immediate cost recovery for the company.
"I can't agree to that," Patton said. "I don't know how my company supports that."
Tuesday's hearing also featured several public comments, including one in which Senate President Jeff Kessler, D-Marshall, offered strong support for the Appalachian proposal, saying it would help preserve jobs in his area.
"It seems to be a win-win situation," said Kessler, who added, "I fail to see any of the downside. I'll leave it to the numbers-crunchers to make that argument."
West Virginia Coal Association President Bill Raney and United Mine Workers member Roger Horton, who formed a group called Citizens for Coal, also testified in favor of the proposal, saying it would help protect coal jobs.
Later, Patton testified that the Amos and Mitchell plants appear to be in no danger of closing, regardless of whether the PSC approves their transfer to Appalachian.
Robin Wilson, with the group West Virginia 350, urged commissioners to consider coal's contributions to global warming. "Rather than spending money on coal power, we should be spending it dealing with climate change," Wilson said.
Reach Ken Ward Jr. at email@example.com or 304-348-1702.