AEP Refutes Charges of Gouging Power Customers
American Electric Power (AEP) last week denied charges it
capitalized on the turbulence in the Midwest electricity markets in
late June by allegedly engaging, along with other power marketers
in the region, in "abusive price gouging" that contributed to
power prices soaring into the thousands of dollars per MWh.
In the complaint filed at FERC, Steel Dynamics Inc., a
steelmaker in Indiana, charged that AEP, via subsidiary Indiana
Michigan Power, and other undisclosed marketers in the ECAR region
that have authority to sell power at market-based rates took
"unfair advantage with abusive prices" during the June
supply-demand crisis in the electricity markets.
Specifically, Steel Dynamics has asked the Commission to
investigate the power supply situation that existed in the Midwest
in the waning days of June; to probe the reasons for the
"extraordinary high" prices; to determine whether customer refunds
are warranted; to suspend all grants of authority to sell
electricity and capacity at market-based rates; to set an emergency
electricity price ceiling of $100/MWh; and to impose harsh
penalties on those failing to comply with a FERC order in the case.
It has requested that the Commission issue an interim decision
until it completes its investigation. FERC has set Aug. 7th as the
deadline for receiving industry protests and comments on the
Columbus-OH-based AEP acknowledged that Steel Dynamics was
particularly vulnerable to the market upheaval because it, like
some other industrial power customers, had opted for low-price,
high-risk interruptible contracts. "As part of the negotiations
[with Steel Dynamics], we offered them the standard tariffs that we
had available for industrial customers. They wanted us to be more
creative. And so we came back...with an even lower interruptible
rate," AEP spokesman Pat Hemlepp told NGI last Monday.
"Their energy consultants told them at the time that that was a
good deal and to go with it. They got the lowest tariff that we had
for any of our customers in Indiana and Michigan, and in so doing,
they understood that they were taking on the additional risk of
interruption," he noted. "They've saved millions of dollars over
the years in electricity because of this contract." But when "the
other portion of the contract about being interrupted comes into
play [as it did in June], then they want the same protection that
customers that are paying the higher, firm rates get. And that's
not fair to the other customers."
"That's true" that Steel Dynamics was vulnerable because of its
IT power contract, agreed Frederick H. Ritts, a Washington D.C.
attorney for the steel producer. "But that does not explain the
high prices. Prices last summer were maybe $100 a MWh, but not 3 to
4 to 5 to $6,000...When the price is 100 times the cost to produce
energy that raises a red flag," he said. "I don't think it was
their [AEP's] own energy that was priced at that level. They
probably bought some from some marketers at that price" in the wake
of the contract defaults by power marketers in late June, which
ultimately triggered a "chain reaction" in the market and forced up
AEP, the sole supplier to the Steel Dynamics, interrupted
service to the company's Indiana steel plant in late June,
according to Hemlepp. Steel Dynamics had the option to "buy
through" at the high market rates then, he said, but decided
against that and instead had their operations curtailed. Steel
Dynamics reportedly was offered power at $1,000 MWh after its power
was interrupted by AEP.
Other steelmakers - Timken Co. and LTV Corp., both of Ohio -
announced last week they are planning to conduct a coordinated
audit of their IT power contracts to determine if AEP and
FirstEnergy Corp. unfairly curtailed their power loads during the
turmoil in the power market last month. The audit is seen by some
as a first step by the Ohio industrial customers toward filing a
complaint at the state or federal level, or both, against the
utilities, similar to the one lodged by Steel Dynamics.
The key factor driving the high electricity rates in late June -
$4,200/MWh has been the highest confirmed rate in the ECAR region,
one source said - was the disruption to the power supply in the
Midwest, according to AEP's Hemlepp. "There were more than 20
nuclear plants in the Midwest and Ontario...that [have been]
unavailable this summer. At the same time, we had some fossil-fuel
generation that got knocked off line for a variety of reasons that
were unexpected. A tornado hit the Davis-Besse nuclear plant that
FirstEnergy had, and knocked another 900 MWs off the grid also."
On top of this, "we had a heat wave that stretched pretty much
from the Canadian border to Florida. Typically when there's a heat
wave it's more regional in nature," which allows utilities in the
unaffected areas to sell their surplus power supply into the
marketplace, Hemlepp said. But since the heat affected much of the
Midwest and nearly the entire East Coast, "that wasn't possible
this time around."