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In 2019, we began implementing an HCP across several transmission regions for the American burying beetle, a threatened insect with habitats across several states in our service territory. This multiyear HCP has allowed us to use pre-approved practices to minimize impacts to the beetle and its habitat and to encourage its recovery. The HCP covers portions of Arkansas, Oklahoma and northern Texas where AEP currently has operations or the potential for future development.
We are developing a 30-year, system-wide multispecies HCP, which will not only protect the covered species but also generate cost and time savings for our customers and AEP. Because climate change has the potential to alter the effectiveness of the HCP mitigation and conservation strategy, we are now incorporating climate adaptation approaches into our HCPs. Through our collaboration with the USFS, we expect to assess these potential additional threats, including how habitats may shift due to climate change.
The threatened American Burying Beetle has moved from the endangered to the threatened species list but is still in jeopardy. (Photo courtesy of.
U.S. Fish & Wildlife Service)
Habitat Conservation Plans (HCPs) play a critical role in preventing species extinctions through anticipating impacts to listed species.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
73 AEP’s Climate Impact Analysis.
REGULATORY APPROVAL AND RECOVERY.
Our priority is to maintain and operate a safe and reliable grid that is resilient and adaptive. The investments we make to harden the grid and improve reliability and resilience directly affect our customers and shareholders. And these investments must coexist with regulation and policy considerations, such as affordability. AEP’s vertically integrated utilities and its wires-only companies have business structures through which state public utility commissions govern rates to ensure investments made are in the public interest.
This structure also allows AEP to recover expenses that are deemed to be prudently incurred and to earn a fair and reasonable return on invested capital. This business model somewhat insulates AEP from physical climate impacts that could otherwise materially affect AEP’s longer-term financial outlook, as customer rates can be adjusted to reflect the changing cost of providing electric service over time. As the company experiences greater or more costly storm events, there is additional prudence risk associated with our ability to effectively mitigate the risk of outages and the efforts necessary to restore power to our customers.
Oklahoma.
Texas.
Arkansas.
Michigan.
Ohio.
Virginia.
West Virginia Indiana.
Tennessee.
Louisiana.
Kentucky.
AEP Ohio Appalachian Power Company Indiana Michigan Power Company Kentucky Power Company.
AEP Texas Public Service Company of Oklahoma Southwestern Electric Power Company.
American Electric Power’s Service Territory Map.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
JUST TRANSITION 74 AEP’s Climate Impact Analysis.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
MAKING THE TRANSITION TO A CLEAN ENERGY FUTURE.
The transition from a fossil fuel-dependent economy to a clean energy economy has practical challenges affecting people, communities, and society at large. These challenges are especially apparent in communities and regions dependent on the fossil fuel industry for jobs, tax base, and corporate philanthropic support, such as grants from the AEP Foundation. The call for action on climate change shines a spotlight on the need for partnerships and collaboration between the public and private sectors to ensure communities are equipped to diversify their local economies and ensure their longterm resilience and sustainability.
Many point to the concept of “Just Transition” as a path forward to prevent people from being left behind. Just Transition was created as part of a trade union movement, encompassing a range of social interventions to secure workers’ rights and livelihoods as the economy transitions to sustainable production — in this case, the sustainable production of electricity. Just Transition 75 AEP’s Climate Impact Analysis suggests that we have choices about how we manage the transition, ensuring environmental sustainability as we enable opportunities for decent work, social inclusion and poverty mitigation.
As the nation transitions to a clean energy economy, there is mounting realization that there are trade-offs. As we shift from fossil-based electricity to cleaner resources such as wind and solar, there are human and economic impacts. These include a loss of jobs at the fossil-fueled plants and in the broader economy, tax payments that support public services, including education, and economic activity that is supported by the plant’s ecosystem.
Increasingly, policymakers are showing more interest in these trade-offs. For example, regulators in Michigan and Arizona now require utilities to file community transition plans with their coal retirement plans. In January 2021, newly inaugurated U.S. President Joe Biden signed an executive order on climate change that includes provisions to revitalize energy communities. The order establishes an Interagency Working Group on Coal and Power Plant Communities and Economic Revitalization. The intent is for the government to develop programs, policies and activities to assist with the revitalization of communities affected by the clean energy transition, including the retirement of coal-fueled power plants.
History and Intent of Just Transition.
According to the Climate Justice Alliance, Just Transition is a “vision-led, unifying and place- based set of principles, processes, and practices to build economic and political power to shift from an extractive economy to a regenerative economy.”
Just Transition is rooted in labor and environmental justice movements through history that fought to phase out industries that harmed workers, community health, the environment, and low-income communities of color. Advocates stress the need for strategies that enable thriving economies that provide good jobs, build strong, resilient communities, and facilitate racial justice and social equity. It is designed to ensure those who are impacted by the transition to a clean energy future are not left behind.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
76 AEP’s Climate Impact Analysis.
At AEP, we help our workers and our communities prepare for and make the transition to new skills, new industries, and new partnerships that enable them to diversify so they thrive after we close a power plant. Our power plants are the primary employers and tax paying entities in many communities. We also serve many of these communities and we want them to be economically stable, long after the plants cease operations.
The transition to a clean energy economy requires collaboration, resources and a commitment from all levels of government, public and private partnerships, technology providers, political leaders, regulators and others. In our experience, broader community development efforts can help a community attract new industry. When a plant is identified for future retirement, AEP’s Economic & Business Development team is activated early, often years ahead of a planned retirement. This gives them time to assess options and scout the area for other developable properties in or near the impacted communities that may be more marketable than the plant site itself. At the same time, we help to identify resources available to communities and research options for site redevelopment, where feasible.
The journey to a clean energy future is exciting, disruptive and extremely challenging. Our responsibility to provide safe, reliable and affordable electricity to customers is at the core of our transformation. At the same time, we must responsibly balance the desire for a clean energy economy with the financial, physical, and social costs of making the transition.
Kanawha River Plant is a coal-fueled power station owned and operated by American Electric Power near Glasgow, West Virginia. The power station was shut down in May 2015.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
77 AEP’s Climate Impact Analysis.
The Risk of Stranded Assets.
A typical coal-fueled power plant has an initial design life of 30 to 40 years. The expected life of the plant can be extended through investments that replace aging parts, reduce environmental impacts, and increase efficiency and economic feasibility of the plant’s continued operation. AEP’s coal fleet ranges in age from 8 years to over 60 years, with most of the remaining units reaching 50 to 60 years by 2030.
As coal-fueled generation has become increasingly economically challenged by low natural gas prices, a rapid drop in renewable energy prices, and state and federal policy support for clean generation technologies, the expected lifespan of some AEP coal-fueled generating units may be reduced. When plants retire before the end of their previously expected life, the risk of stranded assets becomes more pronounced. When that expected life is reduced, regulators and electric companies must find a way to account for the remaining book value of the plant.
We are working with regulators on options such as accelerated depreciation and regulatory asset recovery to address the remaining value of these plants.
The president’s climate goals to reach net-zero by 2035 could potentially result in additional premature retirements of coal-fueled generating assets. Between 2000 and 2021, AEP invested an estimated $9 billion in environmental controls in its coal-fueled generating fleet. These investments resulted in significant reductions in emissions and were made in compliance with environmental regulations.
The investments we make in the electric power system are long-term investments, not short-term solutions. Federal and state regulations and policies must be consistent to protect customers from paying for mandates that leave them vulnerable to significant financial obligations with no long-term benefit.
Coal-Fueled Fleet Optimization.
As we invest in cleaner energy options, we are committed to mitigating risk around our current coal-fueled fleet. We are focused on managing our remaining coal-fueled generating assets to reduce the need for capital investment over time while continuing safe and reliable operation of the units. As renewables become more attractive in the market, we will run our remaining coal units consistent with a market approach on an as-needed basis.
We will seek opportunities, as appropriate for our customers and when approved by regulators, to accelerate retirement dates and associated accounting depreciation rates. This has the potential to mitigate risk for both our customers and shareholders.
In 2020, we completed the retirement of the Oklaunion Plant near.
Vernon, Texas.
AEP’s Coal Unit Age in 2030 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
<50 Years >50 Years.
MW.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
Economic Impact Summary — Average Effect of Coal Plant Retirement*
Typical AEP Plant Estimated Impacts.
Employment (number of jobs) Direct 216 Indirect 303 Induced 198 Total 716.
Labor Income (000) Direct $31,246 Indirect $21,989 Induced $9,301 Total $62,536.
GDP (000) Direct $95,203 Indirect $48,727 Induced $16,111 Total $160,041 * Economic impact varies by plant size and geographic location.
COAL RETIREMENTS: POTENTIAL ECONOMIC IMPACT.
Coal-fueled power plants require highly skilled employees and provide well-paying jobs. The plants also provide sizable tax revenues and stimulate associated employment in other sectors that support both the plant and its employees. Coal-fueled power plants and their employees often are significant supporters of the communities where they are located, and when plants are retired and decommissioned, they can leave a significant economic void.
AEP conducted an economic impact analysis to understand the cumulative regional effects associated with a coal-fueled power plant closure. We modeled the hypothetical closure of four active coal units using IMPLAN modeling software to understand and quantify how a plant retirement affects regional employment, labor income and GDP. We estimated the direct (AEP), indirect (contractors/suppliers) and induced (consumer spending) economic impacts of a retirement.
WHAT WE LEARNED.
On average, a typical coal-fueled power plant operated by AEP generates $160 million in regional economic activity, $63 million in labor income, and supports more than 700 regional jobs annually. Our analysis shows that plant operations also stimulate significant activity in external supply chains. As those employed directly at the plant and in the supply chain spend their wages, hundreds more jobs are created in the regional economy — in restaurants, retail, and leisure establishments. When all channels are considered (direct, indirect and induced), each direct job at the plant is found to support an additional 2.3 jobs in the region.
The industries in the supply chain most impacted are: • Subsectors of the trade, transportation and utilities sector (electric power transmission and distribution, rail and river transportation, pipeline transportation); • Natural resources, mining and financial activities; • Professional and business services (employment services, legal services, etc.).
When you look at the broader economy, major beneficiaries of the plant include: • Education and health services (hospitals, doctor offices, schools); • Trade, transportation and retail stores; • Leisure and hospitality.
Conversely, these sectors are negatively impacted when the plants are no longer part of the regional economy.
78 AEP’s Climate Impact Analysis.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
REPOSITIONING OUR EMPLOYEES.
The decision to retire a coal-fueled power plant has profound life-changing implications for the hundreds of employees and contractors who operate and maintain the plants. It is not uncommon for power plants to employ generations of families or serve as the sole employer for many workers during their careers. Our employees are loyal to the plants and their communities, so closure often brings significant challenges — finding new employment, or learning new skillsets, obtaining additional education, certification or training, and sometimes relocation.
When AEP announced a wave of plant retirements in 2011, a cross-functional team developed a comprehensive workforce repositioning strategy with the goal of treating our employees with dignity and respect and providing support and resources to enable them to move to new jobs within or outside of AEP. The company provided severance benefits for employees who were displaced, held jobs at other facilities and provided relocation benefits for employees who were willing to move.
The timing of a plant retirement announcement is critical; greater lead time gives employees and contractors more time to find a new job or plan their next career move and acquire new skills. Our intent is to give employees as much time as is feasible, often as long as five years, to prepare for reentering the job market, including taking advantage of AEP’s education assistance program to pursue a college degree. The resources we provide include: • On-site support to provide training for applying for jobs and calculate pension benefits; • Education assistance repayment forgiveness (normally, if employees leave the company less than a year after completing a degree, they would repay AEP; this is forgiven for affected plant employees); • Engaging outplacement services to help employees prepare for re-entering the workforce, resume building, improving interview skills, etc.; • Inviting outside organizations, such as a state’s worker displacement unit, to work with employees on how to apply for jobless benefits; • Holding internal job fairs with other business units to inform employees about other types of job opportunities that exist within AEP; • “Loaning” plant employees to other AEP business units (e.g., Transmission) to learn about other jobs and job opportunities; and, • Encouraging plant employees to shadow peers in other business units (such as a line crew, welder or mechanic in Distribution or Transmission).
Our experience has taught us that a successful transition for plant employees includes collaborating with union representatives, being transparent about plans and milestones along the way, managing expectations, tapping into internal and external resources to broaden employees’ access to career options, and communicating frequently and clearly during the process. We also set clear expectations about continued safety and health performance, managing expenses and ensuring environmental compliance.
AEP 2021– 2030 Planned Coal Retirements.
Year Plant Capacity 2021 Dolet Hills 257 MW 2023 Pirkey 580 MW 2026 Northeastern 3 469 MW 2028 Rockport 1 1,310 MW 2028 Welsh 1 and 3 1,053 MW 2030 Cardinal 1 595 MW.