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Appalachian Power defends plans at power plants

CHARLESTON, W.Va. -- Appalachian Power's president defended his company's plans to spend more than $1 billion to purchase portions of two West Virginia power plants, saying it is in the best long-term interest of customers.

The state Public Service Commission began a multi-day hearing on the matter Tuesday. Charles Patton was the first witness and spent several hours answering questions from commissioners and attorneys for parties that had intervened in the case.

Under the proposal, Appalachian Power would purchase the two-thirds ownership stake in Unit 3 of the John E. Amos power plant in Poca and half of the 1,600-megawatt generating capacity of the Mitchell Plant in Moundsville, currently owned by fellow American Electric Power subsidiary Ohio Power.

Ohio is currently deregulating its energy markets, forcing Ohio Power to become more competitive with its pricing.

Environmental advocates have said the sale, which could top $1 billion, amounts to AEP simply dumping its more-costly coal-fired assets onto Appalachian customers in West Virginia, Virginia and Tennessee.

But Patton said the transaction would help Appalachian Power deal with a shortfall in its power-generating capacity.

He said the company has for years been forced to supplement local power demand by buying electricity from other companies. But the price of that power has fluctuated dramatically, he said, increasing costs for consumers.

With several power plants set to retire in 2015, Patton said the decision to buy the Mitchell and Amos units was necessary to boost the company's generating capacity and avoid going to the market for more power.

"We wanted to get off that merry-go-round and acquire assets we could own ourselves, so we could control our own destiny," he said.

PSC Chairman Michael Albert questioned Patton about environmentalists' claims that the transaction is simply AEP's way of dumping plants onto West Virginians.

Considering proposed U.S. Environmental Protection Agency regulations and President Barack Obama's recent push for more action to combat climate change, Albert asked if the company had appropriately valued the potential regulatory costs consumers could be forced to absorb in the future.

Patton said he was confident that even a tax on carbon emissions would make the transaction more favorable than other options.

He said other commodities like natural gas, which many power companies have switched to for its current low price, also face the same price swings and regulatory risk that coal does.

"The issue of risk, this isn't exclusive to coal," Patton said. "We don't know what will happen with fracking . . . to suggest that (natural gas) somehow goes unscathed in the future, none of us know — those are risks that we take."

He said the current plants are known assets that would merge well with Appalachian Power's system, take advantage of local coal opportunities and save consumers over the long run.

"If you have a coal plant and it's compliant with the EPA — and you can factor in $15 carbon tax — and you can still beat alternatives by hundreds of millions of dollars," he said. "It just seems like the right thing to do."

Other witnesses disagreed with Appalachian's assessment.

David Allen Schlissel, a consultant hired by West Virginia Citizen Action Group, said the company has overstated the projected price of alternatives to coal-fired plants.

He said the company's projections for 2012, which were compiled in 2011, far exceeded actual prices observed last year for natural gas and power purchased from other states.

"The company's low projection was more than 33 percent higher than actual," Schlissel said. "And this is the first year — this is the time when any long-term forecast is likely to be more accurate."

Citizen Action Group and Sierra Club attorneys also question whether Appalachian Power has adequately factored in potential environmental costs for coal ash cleanup.

They said that coal ash could be a potential liability in the future, the costs of which would ultimately be forced onto ratepayers.

The hearing is expected to last at least two more days. A total of 19 witnesses are expected to testify this week, though only a handful made it to the witness stand Monday.

After the hearing, commissioners will take several weeks to review the evidence and analyze filings. A decision is expected later this year.

Contact writer Jared Hunt at or 304-348-4836.

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