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    AEP hails strong earnings, notes Mitchell plant approval discrepancy amid $297 million rate hike request


    August 3, 2022 - Mike Tony, The Charleston Gazette-Mail, W.Va.

     

      Aug. 3—The soundtrack to American Electric Power's summer is set.

      "What's going on today at AEP is a perfect blend of the execution of Bachman — Turner Overdrive's 'Takin' Care Of Business' with the edge of Prince's 'Let's Go Crazy,' in a good sense, of course," AEP chairman, president and CEO Nick Akins said during the company's latest quarterly earnings call.

      Appalachian Power customers have been singing a different tune after the AEP subsidiary proposed a $18.41 monthly increase for residential customers using 1,000 kilowatt-hours to cover fuel costs.

      AEP has secured approval from both West Virginia and Kentucky regulators for new ownership and operating agreements for the company-controlled Mitchell Power Plant in Marshall County, is closing in on a sale of one its subsidiaries, Kentucky Power, to Liberty Utility Company, and saw its quarterly sales jump 5.1% from last year's second quarter.

      "We have an incredible market position, a bold mission and the foundation in place to achieve our goals to deliver on our vision of further modernizing our energy grid in order to supply reliable, cleaner, low-cost resources for all the communities serve," Akins said.

      The Kentucky Public Service Commission in May approved the sale of Kentucky Power to Canada-based Liberty for $2.846 billion. AEP expects to close on the deal this summer.

      The West Virginia Public Service Commission approved ownership and operating agreements for the Mitchell plant last month, two months after the Kentucky Public Service Commission did the same.

      But Akins acknowledged that the states' approval came in different formats and included "divergent" plant provisions for beyond 2028, an expected inflection point in the facility's future.

      In October, the West Virginia Public Service Commission issued a ruling supporting long-term operations of the Mitchell plant past 2028 as part of an order granting approval for environmental upgrades federally required to keep Mitchell and two other AEP-controlled in-state coal-fired plants operating past that date.

      The commission's order approved West Virginia ratepayers picking up a burden of nearly $22 million per year from Kentucky and Virginia customers to pay for wastewater treatment upgrades deemed uneconomic by those states' utility regulators.

      AEP subsidiaries Wheeling Power and Kentucky Power have each owned half of the 1,560-megawatt Mitchell plant.

      The Kentucky Public Service Commission said it expects Kentucky Power's sale of its share of the Mitchell plant to be at approximately net book value, which is how much shareholders could get if assets were liquidated and liabilities were paid.

      The Kentucky commission said it expected Wheeling Power to buy Kentucky Power's interest in Mitchell at its remaining net book value.

      The West Virginia Public Service Commission subsequently said that West Virginia ratepayers should pay no more than net salvage value, or the estimated value at the end of depreciation minus the cost of removal, of any plant and equipment that would have to be abandoned or demolished but for Wheeling Power's investments allowing the plant to keep operating. That value is likely to be far less than the net book value.

      James Van Nostrand, director of the Center for Energy and Sustainable Development at the West Virginia University College of Law, said it's not clear how the discrepancy will be resolved.

      Van Nostrand anticipates that Kentucky Power would be unlikely to submit an application to the Kentucky commission under the terms dictated by the West Virginia commission, noting that if it did, the Kentucky regulators would reject the application if the transfer price is anything other than net book value.

      Kentucky Power did not respond to a request for comment.

      "We continue to work with the Kentucky and West Virginia regulatory agencies to develop a path forward that addresses their respective concerns and ensures that investments in the plant can be performed that allow it to continue to operate, AEP spokesman Scott Blake said in an email.

      West Virginia Public Service Commission spokeswoman Susan Small declined comment, saying the agency speaks through its orders.

      Akins observed that both the West Virginia and Kentucky commissions "indicated an ability to use the existing agreement as a basis to operate" the Mitchell plant going forward.

      Final approval from the Federal Energy Regulatory Commission is required.

      Regulatory approval of the new Mitchell operating agreements is a prerequisite in AEP's contract with Liberty for closing the deal.

      "In the absence of such proposal, we are working with Liberty on the commercial solution for Mitchell-related operations and both parties remain optimistic about reaching a resolution and closing the transaction," Akins said.

      AEP reported a 6% to 7% long-term growth rate in operating earnings, which exclude one-time transactions.

      Akins emphasized the company's goal of adding roughly 16,000 megawatts of regulated renewable generation by 2030 and achieving its goal of net zero emissions by 2050.

      Akins reported that Appalachian Power recently received approval to own 409 megawatts of wind and solar.

      In June, the West Virginia Public Service Commission approved Appalachian Power's request to purchase and recover the costs of buying a 50-megawatt solar facility in Berkeley County.

      AEP welcomed the Inflation Reduction Act championed by Sen. Joe Manchin, D-W.Va., last week.

      AEP spokeswoman Tammy Ridout said in an email that the bill would spur the manufacturing of components necessary to achieve clean energy goals and provide "good clean energy jobs for communities that have powered the nation for decades."

      Still pending before the commission is Appalachian Power's request filed in April for a approve a $297 million increase in the rate that the companies charge for buying power or fuel to generate electricity, known as an Expanded Net Energy Cost rate.

      Appalachian Power cited rising energy and fuel costs as reasons for the proposed increase, which comes six weeks after the Public Service Commission ordered a $31.4 million Expanded Net Energy Cost rate increase to reflect a recalculation by the commission of reduced purchased power costs and additional fuel-handling costs incurred by Wheeling Power.

      The companies' combined under-recovery balance for fuel costs was $283.3 million as of April, according to a recent filing with the commission.

      AEP's 2022 proxy statement, a document reporting proposed executive compensation and other information for shareholders, noted earlier this year that Akins received $15 million in total compensation in 2021, including $9.9 million in stock awards.

      Akins' $15 million compensation as CEO and board chair in 2021 was 135 times the 2020 total compensation of the company's median employee ($111,771), per the proxy statement.

      Mike Tony covers energy and the environment. He can be reached at 304-348-1236 or mtony@hdmediallc

      .com. Follow @Mike__Tony on Twitter.

      ___

      (c)2022 The Charleston Gazette (Charleston, W.Va.)

      Visit The Charleston Gazette (Charleston, W.Va.) at www.wvgazette.com

      Distributed by Tribune Content Agency, LLC.

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