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Who should be responsible for the Mitchell coal ash pond?

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Future liability for the Mitchell coal ash impoundment took prominence among a number of key issues as the Public Service Commission of West Virginia heard evidence July 16-18 on Appalachian Power's billion-dollar proposal to buy coal-fired generating capacity.

APCo needs a way to meet the growing power demand of its ratepayers.

Its solution, proposed in December, is to buy the two-thirds it does not own of John Amos power station unit 3 and one-half of the Mitchell power station, all coal-fired capacity located in West Virginia, from sister company Ohio Power. Kentucky Power proposes to buy the other half of Mitchell.

APCo has always operated Amos and the associated coal ash disposal impoundment.

But it has never operated Mitchell.

The issue raised by some intervenors in the case is, if the commission approves APCo's acquisition of Mitchell, should the company also have to assume liability associated with the Mitchell coal ash disposal impoundment?

The impoundment in question is the 71-acre Connor Run fly ash impoundment. Ohio Power uses the impoundment in cooperation with Consol Energy, which supplies coal to Mitchell from its adjacent McElroy mine.

Connor Run is a substantial facility. First commissioned more than 40 years ago and now more than 400 feet high, it is classified as one of 45 "high hazard potential" impoundments by the U.S. Environmental Protection Agency — a designation that reflects not the likelihood of a failure but the potential human life or property damage consequences of a failure.

APCo says the impoundment is well managed and in compliance with all regulations, an assertion no one disputed during the hearing. The company also says the impoundment and any associated liabilities come with the plant.

"Those liabilities, those risks, they transfer with the asset," said APCo President and CEO Charles Patton on the first day of the hearing. "That's the nature of a business where it's an industrial business."

But it doesn't seem quite so straightforward in this instance, because Ohio Power has begun the process of transitioning its wet fly ash management to dry fly ash management by 2015. Even if the commission approves APCo's acquisition of Mitchell on Jan. 1, 2014, as proposed, the company would use the impoundment for no more than one year of the 44 years it will have been in operation when dry ash management is fully in place.

PSC Staff witness Edwin Oxley testified that, while he has no objection to the asset transfer proposal as a whole, he feels it should be approved only under the condition of contractual protection to limit APCo's liability with regard to the impoundment.

"I know AEP had an incident in 2002, with the Gavin Plant in Cheshire, Ohio," Oxley said under questioning by PSC Chairman Michael Albert, referencing an incident that is not related to a coal ash impoundment but rather is more broadly an example of an unanticipated liability. "There were health concerns of citizens, and a subsidiary had to pay $20 million to buy the city of Cheshire, Ohio. I guess a plethora of things could cause a liability that Appalachian Power would be assuming on day one with the acquisition of the assets."

Albert asked Oxley to recall testimony from Patton, who observed that recovery from ratepayers of any liabilities associated with the assets would have to be brought before the commission.

"Does that not give you some level of satisfaction?" Albert asked Oxley.

"Some level of satisfaction," Oxley replied. "But it seems to me, when they bring it to us, what are we talking about? They're looking to recover the cost from ratepayers."

Lawyer William DePaulo raised concerns about the impoundment during the hearing on behalf of the West Virginia Citizen Action Group.

"Across the country, everybody's switching to dry storage. It's inherently safer," DePaulo said in an interview after the hearing.

"The ratepayers would stand as the involuntary backstop for any financial catastrophe that occurs," he said. "There is absolutely no reason for that liability to be transferred from the Ohio ratepayers to us."

Patton testified that any known level of liability is reflected in the net book value of Mitchell. But DePaulo said he didn't think removing responsibility for the impoundment would increase the plant's net book value.

"There's no number to associate with that liability at this time," he said. "Nobody has asserted a claim, nobody has identified an injury. … It's not on the books and records and won't be until some event occurs that causes damage in some amount unknown to us at this time."

Among other issues discussed during the three days of the hearing were the fact that APCo did not negotiate the price or terms of the proposed purchase from its sister company, the pros and cons of issuing a request for proposals to meet future power needs, and the validity of the company's commodity price forecasts that support coal as its best option.

Albert closed the hearing with a bit of lawyerly philosophy: "It's never too late to settle."

Filings in case number 12-1655 may be downloaded from the commission's website. The commission said a transcript of the hearing would be available by Aug. 1, initial briefs would be due Aug. 20 and replay briefs Aug. 30.