American Electric Power puts $668 million plan on hold
American Electric Power is putting its $668 million carbon-capture and storage project in Mason County on hold and is giving back a $334 million federal grant it had to help finance the work.
"The commercialization of this technology is vital if owners of the coal-fueled generation are to comply with potential future climate regulations without prematurely retiring efficient, cost-effective generating capacity," Michael Morris, American Electric's chairman and chief executive officer, said Thursday in a prepared statement.
"But as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place."
An effort to impose limits on greenhouse gas emissions died last year when Congress failed to pass so-called cap-and-trade legislation.
Carbon-capture and storage, or CCS, has been widely viewed as the best way for coal-fired power plants to meet future carbon dioxide emissions standards. Therefore, American Electric Power's decision raises an as-yet unanswered question: How can coal-fired plants comply with those standards if carbon-capture technology isn't commercially available?
"I think that's a valid question," said Bill Raney, president of the West Virginia Coal Association. "Perhaps it is a time for a review about what really needs to happen with carbon control.
"When you look at what other countries are doing, perhaps there was an overreaction in the United States as to what the proposed regulation ought to be here in America for carbon capture," Raney said. "The risk is you punish the consumers if you have a utility doing that."
Sen. Jay Rockefeller, who helped obtain federal funding for the commercial-scale project, issued a prepared statement saying AEP spent more than $100 million of its own money to develop the first phase, a small demonstration project.
Rockefeller attended the ceremony at AEP's Mountaineer Plant at New Haven, Mason County, in October 2010, when the small project was activated. The commercial-scale project also was to be built at the Mountaineer Plant.
Because of the efforts of AEP and Alstom, its chief partner in the small project, "we have learned a great deal that will help us get closer to fully deploying this important technology," the West Virginia Democrat said.
"Unfortunately, the financing to continue this demonstration project to Phase II just isn't available," Rockefeller said.
Alstom noted that the small project was the first at a coal-fired power plant to demonstrate that carbon dioxide can be captured, transported and safely stored. Alstom issued a statement saying it supports AEP's decision to put the commercial-scale project on hold.
"State and federal policymakers must recognize the long-term implications of failing to adopt policies that establish the economic certainty needed to drive development of low carbon energy technologies," Alstom said.
"In addition, policy makers should fund large-scale demonstration projects and allow utilities to recover investments in such projects, which are essential if the industry is to move forward in de-carbonizing electricity in the most cost-effective manner possible.
"If we deviate from the critical path for commercializing CCS technology and do not build large-scale demonstration plants, it will take longer to drive down the technology cost curve and significantly increase delivered electricity costs," Alstom said.
The company is headquartered in Paris but has operations around the world.
"I understand that in tough economic times, we cannot raise utility rates on our constituents in order to fund the development of new technologies," Sen. Joe Manchin, D-W.Va., said in a prepared statement.
"Still, I strongly believe in developing the technology of the future today, and that is why I will be sending a letter to Department of Energy Secretary (Steven) Chu, asking and encouraging him to take another look at this incredibly promising carbon capture and sequestration program and work on finding a creative financing solution."
AEP had reaffirmed its commitment to the big project as recently as mid-February, saying the company anticipated construction would begin in early 2013 and would begin commercial operation in 2015.
CCS is expensive, not only in terms of equipment costs, but also in power costs. It has been reported that about 20 percent of a power plant's output must be cannibalized to operate the equipment that captures and stores carbon dioxide.
Appalachian Power, also known as APCo, is an AEP subsidiary. Appalachian Power serves a half-million customers across Southern West Virginia and a like number in Virginia. AEP has 5 million customers in 11 states.
APCo generates 99 percent of the electricity it sells by burning central Appalachian coal. Charles Patton, APCo's president and chief operating officer, said earlier this year, "There is a place for coal in our energy future, but it won't be 99 percent."
Patton noted that there is an abundance of natural gas in the Marcellus shale and other shale formations.
"Our guys say there will be cheap gas for 30 years," he said. "The new generating plants we build will be natural gas plants, make no mistake about it."
In a March 30 rate case decision, the state Public Service Commission noted that APCo had asked for permission to charge West Virginia ratepayers $30.9 million for the small project at New Haven plus $4.3 million for depreciation and $6 million for operating expenses.
"In our review of this issue, we are troubled," the commission said. "Those costs and expenses are not insignificant.
"The commission is sympathetic to the efforts of APCo to perfect and further develop CCS technology. . .The simple fact is, however, that APCo has proceeded to develop its CCS project at the Mountaineer Plant without further input or authorization from the commission."
The commission noted that Virginia regulators had earlier disallowed the recovery of all CCS costs and expenses.
"APCo has seen fit to pursue this CCS project at the Mountaineer Plant and seeks full recovery from the West Virginia ratepayers," the commission said. The commission refused to include the demonstration project in the company's rate base. The commission said it might do so in the future but "any such inclusion . . . would be considered only for a reasonable share allocable to APCo and APCo's West Virginia jurisdictional operations.
"We believe that all AEP companies should be sharing in the cost of this facility rather than it being the responsibility of only APCo, simply because it happens to be a 100 percent owner of the plant that was chosen by AEP for the demonstration project," the commission said.
The commission allowed AEP to recover a proportionate share of the small demonstration plant's operating expenses based on the "relative load" of APCo and sister company Wheeling Power to the total AEP load.
APCo has recently met stiff resistance to rate increases. Following a 7 percent increase on July 1, AARP West Virginia State Director Gaylene Miller issued a prepared statement that said the state Public Service Commission had approved more than a half billion dollars in revenue increases for APCo and Wheeling Power during the past five years.
"As low- to moderate-income ratepayers continue to struggle to pay their escalating electric utility bills, it's difficult to weigh this pattern of escalating utility costs against the economic realities West Virginians are facing today," Miller said. "AARP is committed in its fight for energy affordability in West Virginia and across the nation. . ."
Miller was in Washington, D.C., on Thursday and AARP spokesman Tom Hunter was not immediately available to comment on AEP's announcement.
Contact writer George Hohmann at firstname.lastname@example.org or 304-348-4836.