UPDATE: Feb. 7, 2022: Under pressure from Kentucky utility regulators, American Electric Power Service (AEPS), on behalf of Wheeling Power and Kentucky Power, on Monday withdrew a request that the Federal Energy Regulatory Commission approve changes to an operating agreement for a coal-fired power plant the utilities own.

AEPS said it would file an amended operating agreement after it has been approved by Kentucky and West Virginia regulators, a move that could slow the approval process for Algonquin Power & Utilities’ pending purchase of Kentucky Power.

Dive Brief:

• The Kentucky Public Service Commission is considering fining an American Electric Power (AEP) utility for asking federal regulators to approve a change in ownership for a 1,560-MW, coal-fired power plant in West Virginia without the agency's prior approval.

• Kentucky Power, an AEP subsidiary, has a history of skirting the PSC's authority by seeking more favorable outcomes by going to the Federal Energy Regulatory Commission, which can preempt states, the state agency said in a Thursday decision.

• The dispute over the Mitchell Power Plant in Moundsville, West Virginia, could affect AEP's plan to sell Kentucky Power and AEP Kentucky TransCo to Liberty Utilities, an Algonquin Power & Utilities subsidiary, in a $2.85 billion deal that is expected to close in the second quarter.

Dive Insight:

AEP's pending deal with Algonquin Power is contingent on Kentucky Power selling its half of the Mitchell plant to Wheeling Power, another AEP subsidiary that owns the plant's other half and serves part of West Virginia, according to AEP's most recent quarterly report. 

The Mitchell plant's potential change in ownership could also affect the plant's retirement date and how much AEP's West Virginia customers pay for electricity.

"West Virginia customers will have to pay for buying the other half of the plant, and they have to pay for these [environmental] retrofits all by themselves," Raghu Murthy, an Earthjustice senior attorney who represents non-profit groups involved in the case, said Friday. "So rates are going to go up. They're going to go up significantly."

Kentucky Power's stake in the plant has a $586.5 million net book value and upgrades required to keep the plant running past 2028 would cost $132 million, according to AEP's quarterly report.

About a year ago, the utilities asked the Kentucky PSC and the West Virginia Public Service Commission for permission to install and recover the cost of equipment they said was needed to meet federal coal ash and water discharge requirements. Without the equipment, the plant will have to retire by the end of 2028. The utilities also filed a $25 million, coal-ash-related option to keep the plant in operation through 2028.

The Kentucky PSC in July approved the $25 million option and a month later the West Virginia commission signed off on the entire proposal, leaving Kentucky Power with conflicting decisions. The West Virginia regulators in October reaffirmed their decision and directed Wheeling Power to move forward with the full plan.

In late October, the Kentucky PSC ordered Kentucky Power to get the commission's approval before any changes are made to the Mitchell plant's operating agreement, which outlines how the plant's owners share its costs, among other things.

In its order last week, the Kentucky PSC said it directed Kentucky Power to get commission approval before amending the operating agreement based partly on the utility's history of pursuing FERC approvals that effectively evade the state agency's decisions, which leads to "poor outcomes" for Kentucky Power ratepayers.

AEP, however, changed the operating agreement and sought FERC approval for it in mid-November while it also asked for state approval, according to the Kentucky PSC. The revised agreement includes provisions so Wheeling Power can buy Kentucky Power's share of the plant.

The PSC ordered AEP Chairman, President and CEO Nicholas Akins, AEP Chief Financial Officer Lisa Barton and Kentucky Power President and Chief Operating Officer Brett Mattison to attend a Feb. 25 hearing to testify on the "process and justification for willfully violating" a commission order.

"In the unlikely event Kentucky Power's actions, in contravention of the clear language of the commission's order regarding approval of the amended Mitchell operating agreement, was inadvertent or an oversight, Kentucky Power can dispel of this proposed hearing by rectifying its oversight and withdrawing its amended agreements filed with FERC," the Kentucky PSC said.

AEP is working to address the PSC's concerns and ensure they have "an appropriate opportunity to review the agreement," Tammy Ridout, AEP director of external communications, said in an email Monday.

The West Virginia PSC, the Kentucky PSC, and, in a joint filing, the Kentucky attorney general and Kentucky Industrial Utility Customers have asked FERC to reject or put on hold AEP's request for an approved amended operating agreement.

In part, the state utility regulators and the Kentucky attorney general and Kentucky Industrial Utility Customers contend FERC lacks jurisdiction over the deal.

Citizen Action Group and Energy Efficient West Virginia (CAG/EEWV), represented by Earthjustice, want regulators to review whether Wheeling Power needs Kentucky Power's 780-MW share of the Mitchell plant, according to Murthy.

Wheeling Power had a projected peak load plus reserve margin last year of 617 MW while it had 668 MW of firm generating capacity, CAG/EEWV said in a Jan. 31 filing at FERC.

In testimony given to the West Virginia PSC, Wheeling Power and its sister utility Appalachian Power said retiring the Mitchell plant in 2028 would save West Virginia ratepayers about $27 million a year, according to CAG/EEWV.

CAG/EEWV asked FERC to consider how Kentucky Power's proposed sale of its stake in the Mitchell plant may have been affected by the pending Liberty Utilities deal.

"A careful evaluation of whether this affiliate transaction was impacted by AEP's negotiations with Liberty over the sale of [Kentucky Power's] ownership interest or otherwise skewed by the lack of an arms' length negotiation is warranted," CAG/EEWV said in a Jan. 31 filing at FERC.

"It seems very unlikely that [Wheeling Power] would have negotiated to purchase nearly 800 MWs of capacity it does not need if the other 50% of the Mitchell plant were owned by a regulated utility with a different parent company than AEP," the groups said.