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APCo explores options
Utility predicts increased use of natural gas
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Charles Patton, president and COO of Appalachian Power, explains his company’s strategies to about 35 community leaders at the Virginia Museum of Natural History. (Bulletin photo by Mike Wray)

Sunday, January 27, 2013

By PAUL COLLINS - Bulletin Staff Writer

Charles Patton, president and chief operating operator of Appalachian Power Co., told local community leaders at a forum Friday that the utility expects to change its fuel mix because of the low prices and abundance of natural gas and the high cost of building modern coal-fired plants, he said at the event held at the Virginia Museum of Natural History.

Appalachian plans by 2015 to change its fuel mix from about 75 percent coal to 71 percent coal and increase natural gas to 20 percent, according to a company executive’s PowerPoint presentation and information on Appalachian’s website.

According to Patton and information on Appalachian’s website, APCo has a plan to increase generating capacity:

• Two units at the Clinch River plant in Carbo, Va., will be converted from coal-fired to natural gas-fired units.

• Appalachian plans to increase its coal-fired generation by purchasing at a discount 50 percent of the capacity of two units of the Mitchell plant in Moundsville, W.Va., from Ohio Power. It also will buy the remaining two-thirds of one unit at the Amos plant in Winfield, W.Va., which is the only portion of that plant APCo doesn’t own.

“Our plan to replace and increase Appalachian’s generating capacity is a cost-effective solution that will have little or no effect on customer rates,” according to the company website. “Basically, we will move from being a renter (buying electricity from others) to an owner. By purchasing existing generation at Amos and Mitchell, we avoid the cost of purchasing power. Converting Clinch River to a gas-fired plant means we can take advantage of low natural gas prices. Another option for addressing capacity needs would be to buy energy from the market; however, this strategy could put rate payers at risk of significant price fluctuations in energy markets.”

Parts of the plan are awaiting approval by federal and and state regulators, according to the website.

APCo is pursuing this plan because it is the best way to increase the company’s energy capacity at the lowest cost to customers and the company, the webstie states.

“Additionally, because all of the coal-fired plants in Appalachian Power’s plan already meet current and anticipated environmental regulations, we will not have to make expensive investments in additional environmental controls. This will keep customer rates down and allow us to continue the use of coal well into the future — another 30 years or more,” it adds.

“The death of coal is greatly exaggerated,” Patton said Friday, adding later, “Coal isn’t going away.”

Appalachian will not build any new coal-fired plants for the foreseeable future unless there is a technological breakthrough of less costly means of meeting existing and anticipated Environmental Protection Agency rules, according to Patton and Appalachian’s website.

“In fact, in 2015, we will close 1,735 megawatts (MW) of our older smaller units where environmental retrofit is uneconomical,” the website states. It identifies those units as: Phillip Sporn in New Haven, W.Va., 295 MW; Kanawha River in Glasgow, W.Va., 400 MW; Clinch River, 705 MW; and Glen Lyn in Glen Lyn, Va., 335 MW.

“If I was building a new plant, it would be natural gas,” Patton said.

He estimated the cost of building a 1,000-megawatt natural gas-fired plant at $1.3 billion compared to $5.4 billion to build a modern coal-fired plant.

However, Patton said he doesn’t foresee Appalachian needing to build another power plant until the “mid-’20s” under current projections.

Forecasters predict natural gas prices will remain low for 25-30 years or more and that natural gas will be available for more than 100 years, Patton said.

According to Patton and information on APCo’s website, the generation of electricity is by far the largest single cost for a utility and its customers, amounting to 68 percent of an Appalachian customer’s bill.

Patton said customers have had rate increases amounting to more than 50 percent over three years for two main reasons: the dramatic increase in the price of coal and federal environmental regulations on coal-fired plants. The price of coal was $37 a ton in 2001 and was about $70 a ton last summer (now $63-$65), Patton said. The company’s coal costs were $720 million in 2007 and $1.2 billion in 2011, Patton said in an interview with West Virginia Executive Magazine.

According to Appalachian Power’s website, the company has spent more than $2 billion on federally-mandated environmental improvements at its larger coal-fired plants since 2005.

Patton also pointed out that Appalachian has much less revenue than in the past from off-system sales. According to the company website: “Appalachian Power sells any excess power that it is able to generate to other utilities. The profit from these sales goes back to customers in the form of a credit. In 2006, this provided $259 million to help offset rising costs. In 2010, that had fallen to $107.6 million.”

Patton also mentioned that last year Appalachian wrote off about $13 million as uncollectible from customers.

For decades, APCo consistently had among the lowest customer prices in the country, he said. With the utility’s rate increases in recent years, “we just caught up with everybody else. ... We’re not as cheap as we used to be,” he said, adding that he sees no going back.

Among the other points made by Patton and the website were:

• “Appalachian Power customers have for decades used more power than is generated here,” the website states. “To provide enough power for customers, the company purchased power from its sister AEP (American Electric Power) companies in a pool arrangement, where the companies share generating capacity across state and company lines. Today, changing environmental and regulatory requirements have made continuation of the pool impractical. A new-power sharing pool is being proposed that will help stabilize Appalachian’s expenses in this area.”

• The company added the Dresden (Ohio) plant in early 2012. It is a natural gas-combined cycle plant.

• APCo is pursuing programs to increase energy efficiency and to manage energy demand.

“At the end of the day, we all want solutions,” Patton said. “It’s in our best interests to make Martinsville- Henry County and the rest of our footprint as viable as possible ... . Anything else is foolish.”


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