Printer Friendly

LEASE FINANCING MAKES SCRUBBERS AT GAVIN LEAST-COST CLEAN AIR OPTION, AEP SAYS

 LEASE FINANCING MAKES SCRUBBERS AT GAVIN
 LEAST-COST CLEAN AIR OPTION, AEP SAYS
 COLUMBUS, Ohio, April 29 /PRNewswire/ -- American Electric Power (NYSE: AEP) announced it will use an innovative lease financing plan to lower the cost of installing flue gas scrubbers at Ohio Power Company's Gavin Plant in Cheshire, Ohio.
 AEP's plan was filed today with the Public Utilities Commission of Ohio. It concludes that scrubbers at Gavin, in combination with compliance measures at other plants, would be part of a least-cost strategy for complying with the Clean Air Act Amendments of 1990 over the long term. However, AEP officials identified several crucial regulatory rulings necessary before a final decision is made.
 "Before proceeding with construction, we need to obtain all necessary environmental permits, assurance of Phase I extension emission allowances for scrubbing and a ruling from the PUCO that our proposed compliance plan is reasonable and prudent," said Richard E. Disbrow, AEP chairman and chief executive officer. "In the long run, the cost of building scrubbers appears to be marginally less than switching to low-sulfur coal."
 Under a plan developed by AEP, an unaffiliated company will own the scrubbers at Gavin's two 1,300-megawatt units, and Ohio Power will lease the scrubbers. Leasing will save $56 million annually over ownership during the first 10 years and $400 million over 18 years on a net present value basis.
 "This form of financing avoids heavy up-front costs for our customers by leveling out scrubber lease payments over time," Disbrow said. "Our strategy of innovative financing, cost-effective construction and energy conservation will help us comply with the Clean Air Act at the lowest cost to our customers," Disbrow said.
 Scrubber financing will involve Ohio Air Quality Development Authority tax-exempt bonds, which lower interest costs for the project, as well as the use of other long- and short-term debt.
 Disbrow said scrubbing is marginally least-cost over the long term. "In the short term, fuel switching appears less expensive. But that advantage tends to narrow and then disappear over time. We need to consider overall, long-term costs."
 AEP's systemwide analysis assumes both scrubber units at Gavin will be in service by September 1995. The study shows the scrubbing strategy, over the first 10 years, would require about $13-18 million more in annual revenues than switching to low-sulfur fuel at Gavin. That is a difference of about one-third of 1 percent of AEP's current annual revenues.
 AEP also performed an analysis taking into account the net present value of 18 years of compliance costs. In that period, scrubbing at Gavin would save $121 million over fuel switching. Assuming high- sulfur coal costs rise more slowly and low-sulfur coal prices rise more rapidly, a decision to scrub could increase the savings from $121 million to as much as $244 million in net present value of the revenues AEP would need.
 Disbrow said the company's analysis assumes permits will be received and a PUCO ruling on the compliance plan will be issued by July 1, allowing the start of scrubber construction.
 "The need for cooperation from all interested parties, a clear outlook for emission allowances, and timely rulings from the U.S. Army Corps of Engineers and the PUCO are critical. Otherwise, the cost advantage of scrubbing could disappear," he said.
 Regulatory delays could make the company lose much of the 1992 construction season. That would hike construction costs and eat up Gavin's emission allowances, reducing the potential savings. Under the worst conditions, lengthy delays could destroy the viability of scrubbers. Disbrow outlined how regulatory rulings could affect the utility company's systemwide compliance plan:
 1. A permit from the Corps of Engineers is required to install a lime unloading facility and fill in about 13 acres of low-quality wetlands for a landfill to handle scrubber waste. The company proposes to replace the wetlands by creating 15 acres of new wetlands and enhancing another 5 acres. The Corps has scheduled a May 4 public hearing. The Sierra Club and Ohio Industrial Energy Consumers have challenged the permit applications.
 If the Corps of Engineers requires an Environmental Impact Statement (EIS), the Gavin project could be delayed for at least 18 months, jeopardizing the viability of the scrubber option.
 2. The company intends to take advantage of a provision in the Clean Air Act Amendments of 1990 that allocates up to 3.5 million reserve SO2 emission allowances to utilities which plan to build scrubbers. The Gavin Plant could qualify for 760,000 reserve allowances. The U.S. EPA has designed a phone-in for utilities to allocate allowances on a first-come, first-served basis. However, the EPA has not issued its final regulations. It is expected utilities will apply for 4.5 million allowances, resulting in an over subscription.
 AEP's strategy calls for entering a pool agreement by July 1 with other utilities who would share allowances after the phone-in, which would assure the company of receiving about 75 percent of the allowances for which Gavin would be eligible.
 3. The company has asked the Public Utilities Commission of Ohio to rule that the installation of scrubbers at Gavin is part of a lowest-cost compliance strategy and therefore is prudent and reasonable in accordance with Senate Bill 143, which was passed by the Ohio General Assembly last year.
 So far, the company has spent or committed more than $50 million to keep the scrubber option open based on the request of the PUCO.
 The plan calls for supplying Gavin with coal from AEP's Meigs mines as well as about 2 million tons annually from non-affiliated Ohio coal producers. "This arrangement would maximize the use of Ohio coal while keeping costs low for our customers," Disbrow said. "The Meigs mines would operate at a reduced level of approximately 4.5 million tons of coal per year," he said.
 In addition, the company's proposed fuel switch at Ohio Power's Muskingum River Plant Unit No. 5 will result in reduced production at Central Ohio Coal Company, located southeast of Zanesville, beginning sometime in 1994. The plant's other four units will continue to use coal supplied by the surface mine operation at least until 2000.
 AEP Phase I Acid Rain Compliance Strategy
 Here is a summary of American Electric Power's Clean Air Act Compliance Strategy for SO2 emissions at 12 of the System's 21 generating units affected by Phase I(A) and other compliance actions planned:
 UNITS COMPLIANCE STRATEGY CAPITAL COST
 Ohio Power Company
 Gavin Units 1-2 Flue-gas scrubber operating
 Cheshire, Ohio lease(B)
 Muskingum River 5 Fuel switch to $58 million
 Beverly, Ohio low-sulfur coal
 Kammer Units 1-3 Fuel switch to $48 million
 Moundsville, W.Va. moderate-sulfur coal
 Columbus Southern Power Company
 Conesville 1-3 Fuel switch to natural $30 million
 Conesville, Ohio gas with coal back-up
 Picway Unit 5 Fuel switch to natural $10 million
 Columbus, Ohio gas with coal back-up
 Beckjord Unit 6(C) Fuel switch to None
 moderate-sulfur coal
 Indiana Michigan Power Company
 Tanners Creek Unit 4 Fuel switch to None
 Lawrenceburg, Ind. moderate-sulfur coal
 Continuous Emission Monitoring
 AEP System $28 million
 NOx Controls(D)
 AEP System $37 million
 (A) -- 8 additional units at Cardinal, Conesville, Mitchell and Muskingum River Plants are affected in Phase I but do not require operating or fuel changes.
 (B) -- Completed cost of scrubber projected to be $805 million.
 (C) -- Co-owned by Columbus Southern Power Company, Cincinnati Gas & Electric Company and The Dayton Power and Light Company.
 (D) -- For controls required by Jan. 1, 1995.
 -0- 4/29/92
 /CONTACT: Marshall O. Julien of American Electric Power, 614-223-1660/
 (AEP) CO: American Electric Power ST: Ohio IN: UTI SU:


KK -- CL015 -- 4489 04/29/92 14:51 EDT
COPYRIGHT 1992 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Apr 29, 1992
Words:1269
Previous Article:CHEMICAL BANKING $150 MILLION 8.625 PERCENT SUBORDINATED NOTES RATED 'A-' BY FITCH -- FITCH FINANCIAL WIRE --
Next Article:NORDHAUS CITES FLAWS IN COMMERCE DEPARTMENT'S PRELIMINARY FINDING ON CANADIAN LUMBER


Related Articles
SIERRA CLUB CALLS GAVIN SCRUBBER STRATEGY POWER POLITICS AT ITS WORST
OHIO POWER TO BEGIN WORK ON GAVIN SCRUBBERS
PUCO APPROVES OHIO POWER PLAN TO INSTALL SCRUBBERS AT GAVIN
AMERICAN ELECTRIC POWER SUBMITS CLEAN AIR COMPLIANCE PLAN TO U.S. EPA
DUFF & PHELPS: OHIO POWER COMPANY $30 MILLION CUMULATIVE PREFERRED STOCK (SHELF) RATED 'A-'; (PARENT: AMERICAN ELECTRIC POWER COMPANY)
OHIO POWER COMPANY OBTAINS EMISSION ALLOWANCES, AEP HOPES TO REDUCE CLEAN AIR COMPLIANCE COSTS UP TO 15 PERCENT
DUFF & PHELPS: KENTUCKY POWER COMPANY $100 MILLION SECURED DEBT SECURITIES RATED 'BBB+'
OHIO SUPREME COURT UPHOLDS OHIO POWER'S CLEAN AIR COMPLIANCE PLAN
DUFF & PHELPS: OHIO POWER COMPANY $70 MILLION CUMULATIVE PREFERRED STOCK (SHELF) RATED 'A-'
CLEAN-AIR UNIT BEGINS OPERATION AT GAVIN

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters