APCo intervenors to PSC: just one unit, efficiency, RFP - WBOY.com: Clarksburg, Morgantown: News, Sports, Weather

APCo intervenors to PSC: just one unit, efficiency, RFP

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Appalachian Power's proposal to buy additional coal-fired generation capacity from a sister AEP subsidiary is bigger than necessary, some intervenors said in testimony filed June 18 with the Public Service Commission of West Virginia.

The utility proposes to buy parts of three units, but the intervenors said just one would be enough.

APCo also should take a harder look at energy efficiency to help meet future demand, some said. And the utility should put out a request for proposals to solicit bids on solutions to its needs.

APCo faces a generation capacity shortfall beginning in June 2015.

If its current proposal to merge with Wheeling Power Co. is approved by the West Virginia and Virginia commissions, that shortfall will be bigger — but that approval is by no means certain.

APCo filed a proposal with the commissions in December to address the shortfalls. The proposal: to buy, for more than $1 billion, 50 percent of Ohio Power Co.'s interest in the Mitchell 1 and 2 coal units at Moundsville and two-thirds of its interest in the John Amos 3 coal unit near Charleston for generation capacity totaling about 1,650 megawatts.

The company looked at five alternatives through 2040 and concluded that this, often referred to as the "asset transfer," is the least-cost alternative.

Following some already-planned adjustments and not including this proposal, the utility soon will have a generation mix of about two-thirds coal, one-quarter gas, and a small amount of hydropower and wind, plus some purchased power.

If the proposal is approved, the generation mix would be more like three-quarters coal — a heavy reliance on one fuel.

Just one unit

The scrubbers installed on Amos and Mitchell that enable them to meet air pollution requirements while burning inexpensive high-sulfur coal have limitations on the sulfur content they can handle, according to former PSC consumer advocate Billy Jack Gregg, now a consultant testifying for the PSC's Consumer Advocate Division. The limitations require the plants to continue burning a mix, half of which is more-expensive low-sulfur coal.

Gregg recommended that the commission approve the acquisition of only one of the plants in order to limit ratepayers' exposure to high-priced coal.

To buy both the Amos and Mitchell units, he wrote, "would be inherently risky and would lock APCo and its customers into higher and more volatile coal prices for the long term."

Also testifying for the CAD, industry consultant J. Richard Hornby concluded that the proposal represents far more capacity than APCo needs at this time, given the uncertainty of the merger with Wheeling Power — VSCC staff have filed testimony opposing the merger, he noted.

Hornby also felt that APCo overestimated the cost of a natural gas power plant and of future power market prices, making the coal units appear relatively to be a better deal.

Given all that, he recommended that APCo acquire Amos unit 3 only, a little more than half of the proposed total at 867 megawatts, and obtain additional capacity as needed through purchases and new construction. That approach would provide flexibility, giving the best balance for ratepayers between minimizing and stabilizing rates, he wrote.

PSC Consumer Advocate Byron Harris agreed with the recommendation that the purchase of Amos 3 only be approved.

He recommended additionally that the commission require APCo to issue a request for proposals, or RFP, to solicit bids for any additional solutions.

Engineer and industry consultant David Schlissel, filing on behalf of the West Virginia Citizen Action Group, said the proposal is too much capacity and too inflexible for too far into the future.

Among risks for ratepayers, he lists the risk that greenhouse gas emissions will be regulated, driving up the cost generation from coal relative to other power sources.

"Increased investments in energy efficiency and supply side resources such as a Request for Proposals for a Power Purchase Agreement would be in the best interest of ratepayers and a lower cost and lower risk approach than committing to the proposed Asset Transfer portfolio," Schlissel wrote.

Energy efficiency

Others argue with Schlissel that energy efficiency could address part of the capacity shortfall.

Filing also on behalf of CAG, policy analyst Cathy Kunkel testified that APCo has not sufficiently considered energy efficiency and other demand-side solutions and so cannot claim that its proposal is the least-cost solution.

"A recent overview of utility energy efficiency programs conducted by the American Council for an Energy Efficient Economy found that (efficiency) portfolios cost on average 2.5 cents per (kilowatt-hour), with a range of 1.6-3.3 cents/kWh," Kunkel wrote. "This is much less than the approximately 6.5 cents/kWh that the company calculated as the … cost of the Amos 3 and Mitchell units."

The known capacity shortfall is a short-term problem, yet the company's proposed asset transfer is a long-term solution, Kunkel said; if the company wants to look at the long term, then the potential for ramping up efficiency programs should be considered with all other possible long-term strategies.

The utility has assumed its existing efficiency programs will bring savings of about four-tenths of 1 percent of sales each year through the coming decade, she wrote, and compared that with AEP's expectation in Ohio to achieve much larger efficiency savings of 1 percent of sales each year starting in 2014.

Harris noted that, because the proposal would give APCo excess capacity, it would remove any incentive through the decade to implement cost-saving energy efficiency programs beyond the basic ones the utility already has in place.

In support of the utility's own concerns about recovering the cost of efficiency programs, he argued for ratemaking treatment that would pay for the utility's investment in efficiency programs and would, additionally, allow it to earn a rate of return on that investment — making efficiency about as equally appealing to the utility as, say, investing in a new power plant.

Déjà vu, sort of

These and other expert witnesses in this case testified before the commission last month on the very similar proposal by FirstEnergy subsidiary Mon Power to buy the Harrison power station from a sister subsidiary.

Although the two cases have aspects unique to themselves, many of the broad observations of intervenors are similar: the proposals are too big, too inflexible, further dependence on coal rather than promoting fuel diversity, and give too little consideration to demand-side solutions.

And, in both cases, suspicions are raised that the parent companies are dumping coal-fired assets that may be subject to rising fuel prices and environmental regulation out of their competitive Ohio market and into the regulated West Virginia market, where they will be guaranteed a return from ratepayers.

AEP's rebuttal testimony is due by July 8 and the evidentiary hearing will take place in Charleston on July 16 - 18. Follow case number 12-1655 on the commission's website