The generation of electricity is by far the largest single cost for a utility and its customers. Generation, including fuel costs, typically represents up to 70 percent of a residential or commercial customer’s bill. This percentage is much higher for large energy-intensive industrial customers.
In the last five years, Appalachian Power has seen rapidly rising costs for power. The company has been thrust into the political and regulatory limelight as it has navigated these increasing rates, caused almost solely by increasing generation costs.
As the company plots its future course, it is contemplating several changes in its generation mix. These actual and proposed changes are part of the company’s 10-year strategic plan designed to minimize generation costs and stabilize prices.
Coal - The cost of using coal has increased tremendously. Increased mining costs and global competition are drivers. In addition to the cost of the coal itself, the cost of
burning coal has increased due to EPA requirements. Still, Appalachian’s large, retrofitted coal plants will remain economical.
Since 2005, Appalachian Power has spent more than $2 billion on federally-mandated environmental improvements at its larger coal-fired plants. However, absent a technological breakthrough of less costly means of meeting existing and anticipated EPA rules, no new coal plants are likely in the foreseeable future. In fact, in 2015, we will close 1,735 megawatts (MW) of our older smaller units where environmental retrofit is uneconomical.
Natural Gas - Natural gas is the bridge fuel to America’s energy future and is likely to be the only source of new fossil-based generation. Shale gas is increasingly accessible in close proximity to our service territory. Lower prices now and a positive outlook for sustained low prices make gas generation a much more attractive option than it was just a few years ago.
Renewable Energy - Appalachian has 825 MWs of hydro and 376 MWs of wind generation. West Virginia and Virginia legislation supports renewable generation with targets currently being met by the company. More renewable generation will be considered as it becomes more competitive or is required by legislation. We will work closely with customers interested in installing alternative generation.
Demand-Side Management - Appalachian is committed to actively pursuing energy efficiency and demand response as a tool to meet our future generation needs. We have launched energy efficiency (EE) programs in West Virginia to provide both residential and business customers the education and incentives to man-age rising energy costs and control demand for electricity. In our first year we helped customers reduce usage more than 7 million kWh and are on track to reduce usage 24 million kWh in 2012. In Virginia, Appalachian re-ceived approval for a demand response tariff (DR) in 2011 for up to 500 MW of curtailable load, which reduces our generation need. Appalachian is seeking approval for a DR tariff in Tennessee and plans to file for EE/DR programs in Virginia to further enhance our demand side management portfolio. The size and scope of our offer-ings will be dependent on the regulatory treatment of the programs.
The Pool - Appalachian Power customers have for decades used more power than is generated here. To provide enough power for customers, the company purchased power from its sister AEP companies in a pool arrangement where the companies share generating capacity across state and company lines. Today, changing environmental and regulatory requirements have made continuation of the pool impractical. A new power-sharing pool is being proposed that will help stabilize Appalachian’s expenses in this area.
Wheeling Merger - Appalachian Power and sister company Wheeling Power, which serves Ohio and Marshall counties in West Virginia, have been directed by the W.Va. Public Service Commission to merge. Wheeling Power has the same rates as Appalachian Power in West Virginia and follows the same regulations. Wheeling Power requires more than 500 MW to serve its customers. While it brings no generation to the merger, all customers benefit because fixed costs are spread out among a larger customer base.
While aspects of the plan could change, here is Appalachian’s plan for replacing and increasing generating capacity. With this plan in place, Appalachian will have sufficient generation to meet all current and near-term needs.
- In early 2012, the company added Dresden Plant, a natural gas-combined cycle plant located in Dresden, Ohio.
- Two units at Clinch River Plant will be converted from coal-fired to natural gas-fired units.
- Appalachian plans to increase its coal-fired generation by purchasing at a discount from Ohio Power 50% of the capacity of Mitchell Plant, located in Moundsville, W.Va., and the remaining 2/3 of one unit at Amos Plant in Winfield, W.Va., which is the only portion of that plant not already owned by Appalachian. These generation assets are being made available because of Ohio’s move to competition and the required restructuring of our peer AEP company Ohio Power.
|Total Plant Capacity Gained:
Our plan to replace and increase Appalachian’s generating capacity is a cost-effective solution that will have little or no effect on customer rates. Basically, we will move from being a renter (buying electricity from others) to an owner.
By purchasing existing generation at Amos and Mitchell, we avoid the cost of purchasing power. Converting Clinch River to a gas-fired plant means we can take advantage of low natural gas prices.
Another option for addressing capacity needs would be to buy energy from the market; however this strategy could put ratepayers at risk of significant price fluctuations in energy markets.
Appalachian Power is pursuing this plan because it is the best way to increase our energy capacity at the lowest cost to our customers and our company. Additionally, because all of the coal fired plants in Appalachian Power’s plan already meet current and anticipated environmental regulations, we will not have to make expensive investments in additional environmental controls. This will keep customer rates down and allow us to continue the use of coal well into the future – another 30 years or more.
American Electric Power filed this a proposal with the Federal Energy Regulatory Commission in late 2012 to merge Wheeling Power with Appalachian and to transfer 50% of Mitchell and 867 MW of Amos to Appalachian. The West Virginia Public Service Commission, and the Virginia State Corporation Commission also must approve the plan, deciding Regulators must decide if our planned purchases and construction projects are prudent expenditures or if an alternative strategy will better serve customers.