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Mich. PSC warns it may reject AEP utility's recovery of full coal contract costs from SNL Power Daily with Market Report Mich. PSC warns it may reject AEP utility's recovery of full coal contract costsByline: Darren Sweeney Indiana Michigan Power Co. could soon face an uphill battle when it comes to justifying the recovery of certain costs for its contract with two Ohio Valley Electric Corp.-operated coal plants. The Michigan Public Service Commission approved the American Electric Power Co. Inc. utility's power supply cost recovery plan for 2021 and its five-year forecast for electric service (U-20804) but warned that it is "unlikely" to approve the full costs of Indiana Michigan Power's power purchase agreement for its share of the 1,198-MW Clifty Creek and 991-MW Kyger Creek coal plants. In a Nov. 18 news release announcing its order, the PSC said Indiana Michigan Power, or I&M, is considered an affiliate of Ohio Valley Electric Corp., or OVEC, under Michigan law and, as such, issued a warning that it is "unlikely to allow I&M to recover unjustified costs from Michigan ratepayers in its [power supply cost recovery] reconciliation proceeding for the utility's long-term agreement with OVEC." I&M owns a 7.85% interest in both the Kyger Creek plant in Gallia County, Ohio, and Clifty Creek plant in Jefferson County, Ind., according to S&P Global Market Intelligence data. The two plants' ownership is split among 13 companies, and I&M Is one of three AEP subsidiaries holding interests. The PSC noted that "studies by utilities and investment monitoring agencies ... have found costs for output of the two OVEC plants to be tens of millions of dollars more expensive than purchasing electricity from the wholesale markets." "The order today put I&M on notice that the Michigan share of these excess costs are unlikely to be permitted without additional evidence that continuing to purchase power from the units was in the best interest of its customers, particularly as I&M had never sought approval to extend its contract with OVEC," the PSC wrote. AEP spokesperson Scott Blake noted that the PSC is challenging only the portion of OVEC costs above market energy prices. "During the height of the pandemic in 2020, energy prices, like almost everything else, were impacted in ways that no one could predict or plan for. This resulted in the anomaly outlined in the MPSC's statement," Blake said in a Nov. 19 email. "A comparison of OVEC costs to a single year's energy prices does not demonstrate the full value OVEC offers. As the economy continues to recover the benefits Michigan customers receive under the agreement will also continue to increase." The utility was directed to outline contract renegotiation efforts in its future integrated resource plans and "model a sensitivity" in its next resource plan "with and without the energy and capacity purchased from OVEC." I&M is one of several electric utilities in the Ohio River Valley locked into an intercompany power agreement with OVEC that runs through June 30, 2040. PSC to review I&M commitment to Rockport plant The Michigan PSC also plans to review I&M's decision to commit the two units at the 2,600-MW Rockport coal plant in Indiana as "must-run" resources in the PJM Interconnection LLC region. "The commission directed I&M to provide the basis for the company's decision to designate a generating unit as must run when the company's forecast demonstrates the decision will result in excess costs," the news release stated. Regulators also warned that they would disallow fuel cost losses "incurred because of imprudent unit commitment decisions" at the Rockport plant. I&M and AEP wholesale subsidiary AEP Generating Co. in September reached an agreement with numerous parties in Indiana under which the companies would retire the second unit at the Rockport coal plant in Spencer County, Ind., no later than Dec. 31, 2028. The agreement is subject to approval by the Indiana Utility Regulatory Commission. In July 2019, AEP agreed to retire its 1,300-MW Rockport unit 1 by the end of 2028 as part of a U.S. District Court-approved modified consent decree concerning air pollution from multiple AEP plants in the Midwest. |
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