Utilities seek consumer funds for coal plants

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Utilities seek consumer funds for coal plants

DP&L generation by the numbers

2,897 megawatts of electricity

2,465 megawatts are from coal-fired units

432 megawatts are from solor, natural gas and diesel peaking units

Source: DP&L

Several electric power companies have asked the Public Utilities Commission of Ohio to allow them to pass some of the costs to operate coal-fired power plants to consumers, according to state documents.

American Electric Power Co. officials said regulatory relief is needed to stabilize customer rates by providing a hedge against market volatility. If approved, the utilities could get more money for power plants that could not compete as well against other resources in the electric capacity market.

Dayton Power & Light and Duke Energy officials support AEP Ohio’s proposed Power Purchase Agreement rider.

“If market prices increase significantly, a PPA would be a safety net protecting customers from the full effect of the increase,” said Mary Ann Kabel, a DP&L spokeswoman.

“Additionally, PPA’s would ensure that critical generation units remain available to supply power, thereby reducing the chance of shortages and the accompanying price spikes.”

Derek Porter, DP&L president and chief executive, said the AEP rider also would help address the energy supplier’s concerns about providing customers with reliable service and stable pricing in the event of extreme cold weather like January’s “polar vortex,” which broke peak winter electric use records for Ohio’s power grid.

AEP officials said 89 percent of coal units slated for retirement in mid-2015 ran during the polar vortex.

Porter said the coal plants to be retired represent 12,000 megawatts, versus about 4,000 megawatts of new-build natural gas plants. “The simple math is, where is that power going to come from when you need it,” he said.

“What this PPA concept does in address that. It will provide revenues that will allow those plants to run,” Porter said.

DP&L supplies power to 515,000 customers in 24 area counties from Champaign to Warren. DP&L derives 85 percent of its power generation from coal-fired plants, according to company data.

PUCO staff, the Office of the Ohio Consumers’ Counsel, and consumer and environmental groups oppose the AEP rider, according to testimony in the case.

“Electric utilities are proposing that their customers guarantee utility shareholders a profit from plants that produce high-cost electricity,” said Scott Gerfen, an Ohio Consumers’ Counsel spokesman.

“These power plants are supposed to be deregulated without profit guarantees from government regulators. Customers have already paid billions in above-market prices to support utilities in the transition to deregulation. Customers should be spared from paying for these new utility proposals,” Gerfen said.

PUCO is expected to rule by the end of the year on AEP Ohio’s pending Electric Security Plan application, which includes the Power Purchase Agreement rider, said Matt Schilling, a spokesman for the state utilities commission. Commission hearings were competed last month for AEP’s application. Briefs from all intervening parties are due July 23, and reply briefs are due Aug. 15.

Duke Energy Ohio has requested a similar action in its own Electric Security Plan application, although that case is much earlier in the process, Schilling said.

AEP’s proposed rider would initially apply to coal plants owned by the Ohio Valley Electric Corp. AEP reportedly owns nearly 40 percent of that corporation’s shares. Other shareholders include utilities owned by DP&L, Duke Energy and FirstEnergy.

Ohio’s electric capacity costs are set by periodic auctions run by PJM Interconnection, the wholesale electric market that serves Ohio, 12 other states and Washington, D.C. Suppliers are paid for their available “capacity” to meet a portion of anticipated electricity demand, as well as for the cost of the energy actually produced.

Ohio’s PJM-administered market is volatile and unpredictable, which makes it difficult for utilities to sustain power generation and invest in new plants, said Phil Herrington, president of Competitive Generation for DP&L’s parent company, AES Corp. Building a typical natural gas power plant costs about $1 billion, but the market makes that a “speculative” investment, he said.

“You say, I’m going to build a plant because I think the power revenues are going to be sufficient to pay me back,” Herrington said. “Unfortunately, in this business, these are 30- or 40-year assets, at least. So you are making a very long-term bet and you are putting a lot of money on the line.”

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