AEP Ohio seeks cost-recovery means for proposed clean-coal plant

COLUMBUS, Ohio, March 21, 2005 (PRNewswire-FirstCall) — Columbus Southern Power Company and Ohio Power Company, subsidiaries of American Electric Power, doing business as AEP Ohio, filed an application with the Public Utilities Commission of Ohio seeking authority to recover costs related to building and operating a new clean-coal technology power plant.

The filing follows a suggestion by the PUCO in its January Rate Stabilization Plan order for the companies that they proceed with this construction.

AEP has announced its intent to build up to 1,200 megawatts of new generation using Integrated Gasification Combined Cycle (IGCC) clean-coal technology, the first commercial-scale use of the technology for power generation and the largest IGCC plan announced to date, and has identified properties in Kentucky, Ohio and West Virginia as sites under consideration. IGCC technology represents an advanced form of coal-based generation that offers enhanced environmental performance. The integrated process results in reduced emissions of nitrogen oxide, sulfur dioxide, particulates, mercury and carbon dioxide.

“We are encouraged by the commission’s urging in our Rate Stabilization Plan order to move forward with the construction of an IGCC facility in Ohio,” said Kevin Walker, president and chief operating officer for AEP Ohio. “This filing provides a plan for recovering the costs for the plant and is the initial step in the final approval process. When ultimate recovery of costs is assured, AEP Ohio will proceed to build this state-of-the-art facility in Ohio.”

Once the plant is built in Ohio, Columbus Southern Power and Ohio Power will retain joint ownership. CSP owns more than 1,200 acres along the Ohio River in Meigs County that is a primary site under consideration.

“An IGCC facility will enhance the business climate in Ohio by creating valuable jobs, promoting economic development, and contributing income and property tax revenue to state and local tax authorities,” Walker added.

AEP’s decision to use IGCC for new generation is representative of the company’s leadership position in technology development and implementation, according to Michael G. Morris, AEP’s chairman, president and chief executive officer.

“We see IGCC as the logical next step for coal-fired generation,” Morris said. “Our company has a long history as a technological leader in our industry, dating to the completion of the nation’s first major mine-mouth power plant in 1917, the first long-distance high-voltage transmission line, the first generating unit to operate with steam above the supercritical- pressure level, and the development of the largest coal-fired units in the world — our highly efficient 1,300-megawatt plants.

“We’ve worked for more than a decade with technology providers to push clean-coal generation from theory to commercial viability and are extremely pleased to be the first to bring the technology into mainstream use,” Morris said.

Clean-coal technologies like IGCC will keep coal — a plentiful, lower- priced fuel than other alternatives for use in electricity generation — in the nation’s energy mix, which is important for both energy and economic security, Morris said.

“While we are disappointed that the Bush administration’s comprehensive Clear Skies environmental plan — which would have fit nicely with the environmental capabilities of an IGCC plant — did not clear Congress, we still have the long-term obligation to serve our customers in the lowest-cost, most environmentally responsible method possible,” Morris said. “Building IGCC generation best fulfills that obligation.

“Ohio’s environment will be improved by having this new, environmentally- friendly generating facility, one that will be capable of using competitively- priced Ohio high-sulfur coal to meet our customers’ electricity demands,” Morris said.

The Ohio filing requests cost recovery for a 600-megawatt plant.

“The largest IGCC units are 600 megawatts, and we plan to build them in series,” Morris said. “A second unit could be built on the same site as the first and operate as one plant, or could be built on a second site.

“Either option will help satisfy our need for at least 1,200 megawatts of new capacity by 2010,” Morris said.

In the filing, the companies seek to recover plant-related costs in three phases:

During phase one, that takes place during 2006, the companies would recover approximately $18 million in initial costs such as site engineering and various other engineering services. The monthly surcharge to a residential customer using 1,000 kWh per month would be approximately 58 cents for CSP residential customers and 39 cents for OPCo residential customers. Collection of this surcharge will take place during 2006.

In phase two, anticipated to take place from 2007 through mid-2010 when the plant is placed in commercial operation, the companies would recover financing costs associated with the construction. The companies estimate the carrying costs associated with the construction of the plant to be $237,488,000. The estimated average monthly surcharge to a residential customer using 1,000 kWh per month would be approximately $2.00 for CSP residential customers and approximately $1.40 for OPCo residential customers. The collection of these surcharges will end when the plant begins commercial operation.

Phase three begins when the plant enters commercial operation in mid-2010. The companies would recover the projected $1.033 billion cost of the plant over its operating life. Since the levels of recovery will be tied, in part, to market prices for electric generation and other factors that will vary throughout the plant’s life, per-kWh charges for this phase cannot be estimated at this time.

Because the surcharge will be added to the generation portion of a customer’s electric bill, AEP Ohio’s customers will have the option, as Ohio Senate Bill 3 provided by creating customer choice in Ohio, to choose an alternate supplier and avoid these costs.

“If we are going to invest in new base-load generating capacity which offers the best promise of meeting current and future environmental requirements, we must have a means for recovering the costs associated with that construction,” Morris said. “The cost recovery process we have proposed is designed to allow us to start construction knowing what the rules of the road will be.”

In the coming weeks, AEP Ohio will submit to the PUCO a more detailed discussion outlining the technological and economic benefits associated with an IGCC facility.

“We are convinced that an IGCC plant, over its expected 40-year lifespan, is the most cost-effective option for our customers,” Morris said.

About AEP [ ]

AEP Ohio provides electricity to 1.4 million customers of major AEP subsidiaries Columbus Southern Power, Ohio Power and Wheeling Power in Ohio and the northern panhandle of West Virginia. AEP Ohio is based in Gahanna, Ohio, and is a unit of American Electric Power.

American Electric Power owns more than 36,000 megawatts of generating capacity in the United States and is the nation’s largest electricity generator. AEP is also one of the largest electric utilities in the United States, with more than 5 million customers linked to AEP’s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.

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