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Cold boosts AEP’s use of coal units set to retire

27 Jan 2014, 6.56 pm GMT

Washington, 27 January (Argus) — American Electric Power (AEP) during the recent cold weather was running about 89pc of the coal generation it has scheduled to retire in 2015, leading the company today to question the reliability impacts of federal environmental rules.

Across its system, Columbus, Ohio-based AEP has 5,573MW of coal generation due for retirement in 2015 because of the Environmental Protection Agency's mercury and air toxics standard. About 71pc of the company's total generating capacity of 37,600MW is coal-fired or about 26,700MW. Three years ago coal formed 82pc of its generation mix.

“What it should make everyone think about is, what are we going to when that generation is not available?” AEP told Argus today. “We need to be thinking about reliability and resilience in extreme times, not just the status quo.”

During the cold weather, disruptions in natural gas supplies led to a sharp ramp-up of coal generation in the PJM Interconnection's 13-state mid-Atlantic and northeastern territory. PJM confirmed that all of its coal capacity was called upon during the cold weather, which is expected to continue.

AEP officials during an earnings call today cited a recurring complaint with PJM's incremental capacity auctions that are designed to procure the necessary generation on a three-year forward basis. Critics charge the auction structure is not providing the correct price signals to incentivize the generation that is needed.

AEP is set to retire units in 2015 at facilities including the Big Sandy plant in Kentucky; the Clinch River and Glen Lyn plants in Virginia; the Kammer, Kanawha and Philip Sporn plants in West Virginia; the Muskingum River, Walter C. Beckjord and Picway plants in Ohio; and the Tanners Creek plant in Indiana.

AEP said its coal inventories have fallen during the cold winter, but the company remains well supplied and does not plan any special procurement measures. AEP had about 35 days of coal inventory on average throughout 2013, with a high of about 40 days. Stockpiles are down to 30-35 days, which AEP said should be sufficient.

The company said it has flexibility in its coal supply contracts, and does not foresee having to make any additional changes or efforts in that regard.

Earlier this month the company issued a request for proposals for spot deliveries of coal starting in the second quarter and ending in the fourth quarter of this year and term business beginning in the second quarter and lasting either three or five years. No amount was specified.

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