AEP Ohio Loses Bid to Potentially Subsidize Ohio Coal Plants, with More at Stake in Ohio and Beyond

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Researched by Industrial Info Resources (Sugar Land, Texas)--Last month, the Public Utilities Commission of Ohio (PUCO) ruled that AEP Ohio (Columbus, Ohio), a subsidiary of American Electric Power (NYSE:AEP) (Columbus), could not pass coal-powered plant cost differentials on to consumers. Although the PUCO approved AEP's overall "Electric Security Plan" for electricity distribution, it rejected a proposal under which AEP would tie customer's bills to uncertain generation costs at two of its three coal-fired Ohio plants.

Under that proposal, AEP would refund customers any surplus, or charge customers any deficit, when costs were compared to the market rate. The PUCO ruled against this, meaning that AEP Ohio would have to cover any deficit caused by its coal-fired plants. AEP owns three coal-fired plants in Ohio: Conesville Power Station, with a 1,892-megawatt (MW) capacity (first operational in 1959); James Gavin Power Station, with a 2,600-MW capacity (first operational in 1974); and Picway Power Station, with a 26-MW capacity. Picway was first operational in 1926, but is scheduled to shut down in June of this year.

Other Older Plants in Ohio
The ruling has implications for older plants in Ohio and beyond. For the Ohio power market, a case in point is the W.H. Sammis Power Station in Stratton, Ohio. The plant is owned by FirstEnergy Corporation (Akron, Ohio) and first became operational in 1967--almost 50 years ago. FirstEnergy has a proposal pending with the PUCO that includes a similar cost comparison rider that would subsidize W.H. Sammis.

It is not just older coal-fired plants that this ruling implicates. FirstEnergy's Davis-Besse Nuclear Power Station (operational since 1977) is part of a similar plan that will come before the PUCO in the next few weeks. For a full listing of operational coal-fired plants in Ohio see previous article: Ohio: Part Four of Coal-Fired Profiles of Nine States Suing EPA Over Clean Power Plan.

Big Picture Around the Country
The costs of keeping power plants running increase as plants age. This is true for all fuel types. Eventually, the costs of operation exceed a plant's potential to generate revenues and the plant is shut down. This is, of course, not news to power plant owners or builders, and the expected lifetimes of plants are calculated long before the first watt of electricity is generated.

The age of coal-fired plants in the U.S. power generating sector is a growing concern for plant owners and consumers. As seen with Ohio, utility commissions are paying attention as well. The big picture is that the average age of coal-fired plants in the U.S. is almost 43 years, and there are many considerably older than that. These plants are less efficient than newer coal-fired plants and more expensive than natural gas-fired plants. Many of them are also base-load plants that need more time to start up and shut down.

The long-term issue is the need to replace many older base-load plants, but the short term problem is a combined difficulty, or near impossibility, of building new coal-fired plants that have to comply with stringent new pollution regulations and compete with cheaper natural gas as well. Industrial Info will continue to follow these topics and post regular updates.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.