West Virginia PSC asked to approve deal to rescue Ambit coal plant

Citing “dire” economic circumstances that could close a coal-fired power plant, American Bituminous Power Partners LP (AmBit) and power customer Monongahela Power on June 5 jointly asked the West Virginia Public Service Commission to approve an amendment to their electric energy purchase agreement (EEPA).

Under the Public Utilities Regulatory Policy Act of 1978 (PURPA), AmBit in the late 1980s proposed to construct and operate an 80 MW (net) waste-coal fired facility in Marion County, West Virginia. In 1988, the commission approved the EEPA and provided for cost recovery by Mon Power of purchased power expenses associated with the EEPA through future fuel review or similar proceedings. In May 1993, the project, called the Grant Town Power Plant, commenced commercial operations.

Said the June 5 joint petition: “AmBit represents that it is in financial difficulty as a direct result of increased operating costs. It has defaulted on the principal payments that support the Revenue Bonds and it has been unable to pay lease rent on the property it occupies in Marion County. Unless the EEPA can be amended to increase AmBit”Ëœs annual revenues, AmBit will be forced to discontinue operations or seek a judicial reorganization. AmBit has presented information to Mon Power and the Commission Staff that supports its representations concerning its financial circumstances and its inability to continue operations without additional annual net revenues.

“AmBit and Mon Power have conducted a series of negotiations to identify EEPA amendments that would stabilize AmBit’s financial condition, preserve the employment and tax benefits its operations provide, safeguard the Project’s contribution to Mon Power’s capacity portfolio, and accomplish these goals with a manageable rate impact on utility customers. With the assistance of the Utilities Division, AmBit developed and proposed a set of EEPA amendments that AmBit and Mon Power believe will meet these objectives. After weighing the customer rate impacts to arise from the amendments against the potential loss of the Project and the negative economic, tax base, and environmental impacts associated with that loss, Mon Power has agreed to join in this Joint Petition to submit the EEPA amendments for the Commission’s consideration.

“Currently, the EEPA requires Mon Power to purchase power from AmBit at the Avoided Energy Cost Rate (‘Energy Cost Rate’) plus an agreed Capacity Cost Rate for up to 80 MW. The current Capacity Cost Rate under the EEPA is 3.425 cents per kilowatt-hour ($34.25/MWh). Under the 2006 Amendment, the Capacity Cost Rate of $34.25/MWh is scheduled to decrease to $27.00/MWh upon repayment of the Revenue Bonds in October 2017, and to remain at that level until the end of the term of the EEPA in 2036.

“The Amendment Agreement calls for Mon Power to purchase power up to 80 MW from AmBit at a rate per kilowatt-hour equal to 85 percent of all aggregated net revenues for energy, capacity, ancillary services, and any other PJM revenues for the Project as reported by PJM and paid by or through PJM to Mon Power, with the proviso that the rate will be no less than the sum of the Energy Cost Rate plus 3.425 cents per kilowatt-hour, and no more than the sum of the Energy Cost Rate plus 4.000 cents per kilowatt-hour, until the end of the EEPA term in 2036.

“This pricing mechanism will allow AmBit’s net revenues to move with the market price of energy, capacity, and ancillary services in PJM over time, subject to the capacity cost floor and ceiling provisions. The pricing mechanism will be analyzed on a monthly basis to determine whether market prices are high enough for the market approach to be triggered. Based on current market prices, the market price mechanism is not expected to be triggered in the near term except perhaps during a peak month when prices escalate. When triggered, the 85 percent of market discount will provide lower costs to the customers than otherwise would be achieved through spot market purchases if the Project were no longer operating.”

The application added: “This amendment to the pricing mechanism is not likely to give rise to any increased cost to Mon Power and [Potomac Edison] customers before October 2017. At that time, Mon Power’s annual purchased power expense from AmBit will increase by about $4.6 million per year as compared with the scheduled capacity cost reduction that would otherwise go into effect in October 2017 under the current EEPA. This amounts to less than one-half of one percent (0.5 percent) of the current combined West Virginia rate revenues of Mon Power and [Potomac Edison].”

Monongahela Power and Potomac Edison, both of which are units of FirstEnergy, have for years had coordinated operations in West Virginia.

“The Amendment Agreement is expected to result in increased revenues to AmBit over time as compared with the current EEPA terms,” the application said. “Mon Power estimates that as compared with the current EEPA, the purchase price changes described in paragraph 17 above will increase its purchased power expense by about $4.6 million annually as of October 2017, and the elimination of the Tracking Account described in paragraph 18 above will increase its purchased power expense by an additional one-time $8.8 million for 2020. Until October 2017, however, the parties expect no financial impact (increased revenues to AmBit or increased costs to Mon Power) unless market prices during a particular month escalate enough to support the market trigger mechanism and exceed the floor capacity price of 3.425 cents/kwh.

“AmBit represents that if the Amendment Agreement is approved, the economic benefits of the Project to West Virginia in general and Marion County in particular will be preserved. The Project employs 54 people in full time positions and has created 58 additional jobs throughout the economy of the state. These 112 full time jobs generate $9.44 million annually in terms of employment compensation.

“The total impact of AmBit’s expenditures on the Gross State Product of West Virginia is estimated to be at least $34.4 million annually in 2014 dollars. AmBit pays taxes of nearly $2 million per year. It generates about 640,000 Renewable Energy Credits annually for Mon Power. In addition, 565,000 tons of waste coal is consumed annually, and the ash generated is a Beneficial Use ByProduct used by AmBit, mine operators and others to reclaim waste coal and fracking sites, control acid mine-water, and remediate other wastes. Over 200 acres of abandoned waste sites have been reclaimed and restored to-date. Assuming operations continue through 2036, about 24 million tons of waste coal will be used and over 500 acres of land reclaimed.”

Note that West Virginia allows waste coal-fired power projects to generate Renewable Energy Credits, due to overall environmental benefits from cleaning up old mine sites.

“AmBit represents that its financial situation is dire, and that without the approval and implementation of the Amendment Agreement, it will be required to discontinue its operations or seek judicial reorganization. While the Purchase Price provisions referenced in paragraph 17 above may not have an impact on rates until about October 2017, approval of the Amendment Agreement is necessary as soon as possible so that AmBit’s creditors can be made aware of the Commission’s approval of the Amendment Agreement’s terms, allowing any needed renegotiation of existing financial and lending arrangements.

“To that end, AmBit seeks to implement the Amendment Agreement not later than August 21, 2015. Accordingly, AmBit requests that the Commission grant this Joint Petition expedited consideration in accordance with the Commission’s applicable procedures and to enter an Order granting the relief specified below on or before August 21, 2015. Mon Power consents to AmBit’s request for expedited relief.”

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Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy's Coal Report. He was formerly with Coal Outlook for 15 years as the publication's editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor's degree from Central Michigan University.

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