Sierra Club: AEP income-guarantee plan for Ohio powerplants could cost ratepayers $2.5 bil

Posted by Laura Arnold  /   September 29, 2015  /   Posted in American Electric Power (AEP)  /   No Comments

New AEP projections show 'drastic' losses for Ohio customers in income-guarantee proposal, Sierra Club says

New forecasts by American Electric Power Company Inc. show the company’s income-guarantee plan for most of its Ohio power plants could cost ratepayers nearly $2.5 billion through 2024, according to the Sierra Club.

The environmental group’s attorneys tangled with the Columbus utility’s corporate counsel Monday morning at the Public Utilities Commission of Ohio to get its expert's testimony on AEP's 2015 market price projections into the record.

Until now, AEP’s latest projection was from 2013, predicting ratepayers would benefit to the tune of $574 million to $770 million.

But Sierra Club attorney Kristin Henry said AEP has been hiding updated price projections – she used the term “sandbagging” – that reflect far more costs for AEP Ohio’s ratepayers. Henry said AEP (NYSE:AEP) knew it had an updated model when asked about it in April.

“They sat on this information for five months,” Henry said at the hearing.

AEP attorney Steve Nourse bristled at suggestions the company was being less-than-truthful. The projections were not completed yet in April, he said, and AEP’s counsel was not aware of its existence until late August. The company provided the projections to the Sierra Club and other interested parties on Sept. 1.

Nourse said the Sierra Club expert Paul Chernick's testimony is not based on modeling and isn’t substantive analysis. He said Henry was being dramatic and hyperbolic, and AEP had no bad intentions.

“The fact is it’s not compelling evidence that the commission needs to hear,” he said.

The PUCO attorney examiners took a brief recess before deciding to allow the testimony, which was filed on Friday, after a Sept. 11 deadline.

The new information could be a boon for opponents of AEP’s power purchase agreement proposal, which would keep open 3,100 megawatts of the company’s Ohio coal-fired power plants that aren’t competing on the open market. AEP, like Akron utility FirstEnergy Corp.(NYSE:FE), say they want the agreements because Ohio needs fuel diversity and a hedge against up-and-down pricing.

“It’s drastic,” Henry said during a break in the hearing.
AEP’s worst previous prediction projected a ratepayer loss of $927 million. The Sierra Club’s witness testimony said that could quadruple to $3.8 billion. More in-the-middle projections from the Sierra Club put the losses between $1.8 billion and $2.4 billion.
The new projections last until 2024. AEP wants the contracts to last for the life of the plants, which vary in length but are all further out than 2024. A centerpiece of the argument is whether future energy prices will make a long-term agreement a benefit or burden to ratepayers, who are taking on all the risk of the agreement if it's approved.
AEP Ohio Spokeswoman Terri Flora said the Sierra Club doesn't consider "the many variables which ultimately impact the price of electricity and the profitability of AEP's generating units" in the regional grid in which it operates. "They are focusing only on a ultimate worst-case scenario, which is a highly unlikely outcome," she said in an email.
The updated projections are a lot different than just two years ago – the energy market is anything but staid, as fracking's recent boom-and-bust cycle demonstrates.
AEP projects a 20 percent drop in natural gas prices and higher capacity prices than it did in 2013. A big part of the company’s argument had been that prices for natural gas – a major contributor to the decline in coal – would only go up.
The Office of the Ohio Consumers’ Counsel, the state’s residential customer advocate, and the Retail Energy Supply Association also supported allowing the testimony.
“This is important information and it should come into the record,” said Howard Petricoff, a Vorys Sater Seymour and Pease energy attorney representing the retail energy group.
AEP Ohio President Pablo Vegas was the first witness at the hearing, which is expected to last weeks.

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