RICHMOND — The State Corporation Commission (SCC) has denied a request from Appalachian Power Company (APCo) to build a coal-fired power plant in West Virginia that would use “integrated gasification combined cycle” (IGCC) technology. The SCC also denied APCo’s request for a rate increase to begin recovering construction costs for the new plant from its Virginia customers.

In legal terms, the SCC found that APCo’s proposal was neither “reasonable” nor “prudent,” a finding that must be made under Virginia law before Virginia consumers can be charged for the costs of a new power plant.

The SCC found that APCo’s cost estimate of $2.23 billion was “not credible.” The SCC noted that APCo’s latest cost estimate was made in November 2006, had not been updated since then, and that the company had no plans to provide a detailed and updated cost estimate until after receiving all regulatory approvals.

The SCC further noted that APCo “has no fixed price contract for any appreciable portion of the total construction costs,” that there were “no meaningful price or performance guarantees or controls for this project at this time,” and that when APCo eventually attempted to obtain a “turn-key contract with firm pricing, it likely will be a sole-source contract with one bidder.”

The SCC agreed with the Office of the Attorney General of Virginia, which opposed the proposal, that the capital cost for the proposed plant “is significantly higher than reported costs for other coal-fired units.” The SCC stated, “This [proposal] represents an extraordinary risk that we cannot allow the ratepayers of Virginia in APCo’s service territory to assume.”

APCo had asserted that despite the uncertain cost, the value of the plant is its “potential” to capture and sequester carbon dioxide. The SCC noted, however, that the $2.23 billion cost estimate did not even include the potential cost to retrofit the plant at some uncertain future date with carbon capture and sequestration technology. APCo estimated the cost of such a retrofit at $200-300 million. The Attorney General estimated the retrofit costs at $300-500 million.

The SCC wrote, in response, that “[APCo] did not identify any commercial generation facility that has implemented carbon sequestration … the record in this case indicates an absence of commercial deployment of carbon sequestration in generation plants such as the one proposed … and the issues surrounding where the ‘captured’ carbon will be stored remain unresolved. Yet carbon capture alone, without the sequestration problem resolved, does not answer the question of what is to be done with the ‘captured’ carbon, and at what price. So it is literally impossible to develop a credible cost estimate for a future retrofit of this plant with both carbon capture and sequestration capability, making it likewise impossible to quantify the claimed benefits associated with IGCC technology for purposes of this application.”

The SCC also indicated that, given the absence of a credible cost estimate, the use of IGCC technology for a coal-fired power plant of this size (629 megawatts) posed additional uncertainties and risks for Virginia ratepayers. The SCC noted that this would be the largest commercial power plant to use IGCC technology constructed to date, and that APCo had “confirmed that there are only two IGCC power plants operating in the United States and both plants are ‘less than half’ the size” of APCo’s proposed plant.

“The record … indicates that there is no proven track record for the development and implementation of large-scale IGCC generation plants like the one proposed by APCo,” the SCC continued.

Finally, the SCC concluded, “We understand and appreciate … APCo’s good-faith desire to prepare for what it believes is the likelihood of a federal carbon capture and sequestration mandate for coal-fired plants. Yet neither APCo nor anyone else knows how such a future mandate may be structured, how it will affect existing plants, precisely how carbon sequestration technology and storage capacity on a massive scale will ultimately develop for large-scale generation plants, or whether it could be applied cost-effectively through a retrofit to this plant … [APCo] also has not, at this time, provided a credible cost estimate for the proposed plant absent carbon capture and sequestration.”

In the opinion of the Commission, “We cannot ask Virginia ratepayers to bear the enormous risks – and potential huge costs – of these uncertainties.”

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Case number: PUE-2007-00068