AEP's Commitment to Commercial-Scale CCS Unaffected by Negative Ruling from Virginia Regulators

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Despite a recent negative ruling from Virginia state utility regulators, American Electric Power (NYSE:AEP) (Columbus, Ohio) remains committed to constructing a commercial-scale carbon capture and sequestration (CCS) project at the company's Mountaineer Power Station in West Virginia.

On July 15, the Virginia Corporation Commission (VCC) denied the request by AEP subsidiary Appalachian Power Company (Roanoke, Virginia) to recover and earn a return on its investment in a CCS technology-validation project at Mountaineer. The validation project is capturing, chilling, and injecting carbon dioxide emissions from a 20-megawatt (MW) slipstream of flue gas at Mountaineer, a 1,300-MW power plant in New Haven, West Virginia.

The project began operating last October and seeks to validate the post-combustion, chilled-ammonia carbon-capture process patented by Alstom Power, a unit of Alstom SA (EPA:ALO) (Levallois-Perret, France). The project is expected to capture and sequester about 100,000 metric tons of carbon dioxide annually, a small fraction of Mountaineer's estimated annual CO2 emissions of 8.5 million metric tons. The validation project seeks to capture more than 90% of the CO2 emissions from a 20-MW "slipstream" of Mountaineer's flue gas, chill it, process it, and inject it into two saline formations located more than a mile underneath the power plant. For more information on the project, see October 26, 2009, article - Power Plant Carbon Sequestration Era Begins at Mountaineer.

In July, Virginia regulators denied Appalachian Power's request to recover its investment in the validation project, triggering a $54 million asset impairment charge to earnings and lowering AEP's second-quarter earnings by 7 cents per share. AEP has requested a rehearing of the Mountaineer portion of the VCC order.

In that decision, Virginia utility regulators acknowledged that it was "reasonable for AEP to evaluate and explore options regarding potential federal legislation or regulation regarding greenhouse gas (GHG) emissions." But the regulators also said that it was not reasonable for Appalachian Power's Virginia customers to pay the full costs for a project that, by AEP's own testimony, would bring benefits to customers located in other AEP service areas, other parts of the U.S., and even other parts of the world.

AEP serves 5 million customers in 11 states. Beyond Virginia, the company operates utilities in West Virginia, Ohio, Texas, Indiana, Michigan, Kentucky, Tennessee, Oklahoma, Arkansas and Louisiana. Virginia regulators wanted to see AEP customers in other states pay for a portion of the costs of the validation project.

Separately from the technology-validation project, AEP is continuing plans to construct a 235-MW, commercial-scale CCS project at Mountaineer. "The ruling in Virginia will have no effect on our plans to build a commercial-scale CCS project at Mountaineer," AEP spokesperson Pat Hemlepp told Industrial Info in an interview. "We are in the engineering phase of that project now, and we expect to begin operations by 2015."

The commercial-scale CCS project will cost an estimated $668 million, he said. About 50% of the project cost will be covered by a clean-coal grant from the U.S. Department of Energy.

"By 2015, when the commercial-scale project is operating, we expect there would be some type of federal rule--either regulation or legislation--to reduce CO2 emissions from power plants," Hemlepp said. "So we plan to seek recovery of those outlays, as they will be spent to comply with rules we expect to be enacted on CO2 emissions."

Returning to the technology-validation project now operating at Mountaineer, Hemlepp said AEP was paying the price for being an early leader in the effort to demonstrate and commercialize CCS technology. Separate from the Virginia ruling, AEP has filed a request with West Virginia regulators to recover a portion of the validation project from its customers in that state; a ruling is expected early next year.

"Because of today's hard economic times, utility regulators are pushing back hard on utility rate cases," Hemlepp said. "Anything that is not absolutely necessary to keep the lights on today is being questioned or rejected. Our technology validation project was a necessary step to commercializing CCS technology. There may never be a time when regulators welcome rate increases, but they might have ruled differently if the economy was healthier."

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