AEP strikes settlement deal for Ohio plant subsidy proposal

Dive Brief:

In an abrupt about-face, American Electric Power has reached a settlement deal to guarantee income for selected coal generating units in Ohio in exchange for promises to cease coal use at other facilities and develop 900 MW of renewable energy.
The settlement, filed yesterday with state regulators, will reportedly be signed or unopposed by 11 parties to the regulatory docket concerning the income guarantees, including the regulatory staff, large energy users and the Sierra Club.
Under the agreement, AEP would ink eight-year power purchase agreements to support 2,671 MW of generation the utility says is essential for reliability, but at risk for retirement. The deal would see the utility either retire or convert 1,503 MW of coal generation to natural gas.
The settlement is still opposed by consumer advocates, and Dynegy, one of AEP's competitors, has threatened to sue if the plant subsidies are approved. A final regulatory decision is expected early next year.

Dive Insight:

The debate over AEP's proposal to support its struggling generation has taken a swift turn, with the utility reaching a settlement that guarantees income for selected coal units in exchange for promises to take others out of service and develop new renewable generation.

It is a stark departure from the bitter fight environmental advocates had taken up against the generation subsidies, in which they called the plan to guarantee income at AEP's plants a coal "bailout." The Sierra Club and Earthjustice remain opposed to a similar subsidy proposal put forth by FirstEnergy in Ohio, though the settlement deal struck in that case earlier this month does not include promises to retire coal generation or support renewables.

Dan Sawmiller, who works on Sierra Club's Beyond Coal campaign, praised the AEP deal as an important step for the state's efforts to transition away from carbon-emitting energy sources.

“This settlement is an important step to cut dangerous carbon pollution, reinvigorate the clean energy economy in Ohio and ensure workers are treated fairly during the transition," Sawmiller said in a statement. "It also forcefully demonstrates the feasibility for Ohio to meet the modest goals of the Clean Power Plan."

Under the agreement, AEP's power purchase agreements would end in May 2024. The deal covers 2,671 MW from nine AEP generating units — Unit 1 at the Cardinal coal plant, Units 4-6 at the Conesville plant, Units 1-4 at the Stuart plant and Unit 1 at Zimmer. The PPAs would also cover the utility's 423 MW contractual share of Ohio Valley Electric Corp. generation.

In exchange, the utility would convert Units 5 and 6 at its Conesville plant to co-fire natural gas by the end of 2017 and retire or repower those units to use only natural gas by the end of 2029 and 2030, respectively. That retirement or repowering deal would also apply to Unit 1 at Cardinal.

AEP also committed to develop at least 500 MW of wind and 400 MW of solar energy projects in Ohio over the next five years, and said it would continue its support of energy efficiency programs, move forward with grid modernization efforts and and provide up to $100 million in customer credits.

Pablo Vegas, AEP Ohio president and COO, said the deal will help ensure stable energy prices and promotes a more diverse generation mix.

“This agreement addresses many of the concerns raised by a diverse group of parties including advocates for low-income customers, environmental organizations, industrial and commercial customers and competitive energy suppliers," Vegas said in a statement. "We appreciate the willingness of everyone involved to work together to support the state economy, preserve jobs, improve the environmental impact of Ohio’s electricity generation resources and protect Ohio customers from electricity price volatility.”

AEP said the plan is expected to save consumers $721 million over the life of the agreement.

Not everyone was pleased by the settlement, however. The Office of the Ohio Consumers’ Counsel issued a statement calling the deal a "sad day" for the state's consumers.

"Sixteen years after the 1999 deregulation law, the government is being asked to impose charges on consumers for a bail-out of deregulated power plants. Consumers should not be charged a penny more than the cost of power in the market," said Bruce Weston, counsel for the group.

Independent power producer Dynegy, one of AEP's competitors in Ohio, has threatened to sue if Ohio regulators approve the plant subsidies for AEP or FirstEnergy. Last week, company CEO Bob Flexon used his keynote slot at a leading generation conference to call for FERC and grid operator PJM to intervene to PPAs are approved.

“You either need to be regulated company or an unregulated company," he said. "You can’t have a market that starts combining these things.”