AEP seeks permission to retire Conesville Units 1 and 2

5 October 2005 - American Electric Power has notified PJM Interconnection (PJM) of its intention to formally retire Units 1 and 2 at the Conesville power plant in Conesville, Ohio, at the end of 2005.

The request follows a lengthy evaluation of the two 125 MW units following an outage that forced Unit 1 out of service in February.

The outage was caused by a major tubing failure in the unit's boiler. After examination, maintenance crews determined that the unit's boiler tubes were experiencing severe corrosion fatigue. Because Conesville Unit 2 is of a similar design and age, plant managers decided to also remove Unit 2 from service and inspect the boiler for similar problems. Unit 2 was also found to be suffering from severe corrosion fatigue.

After an extensive review, company engineers concluded that they could not guarantee the continued safe and reliable operation of the units without major repairs. However, the total cost to return the units to service - estimated to be $35m - was deemed too high in relation to the units' age, condition and projected contribution to profitability over the units' remaining life.

Corrosion fatigue results from a combination of stresses including the cyclical nature of unit operation coupled with water chemistry and/or chemical cleaning processes. While corrosion fatigue is a common power plant issue, the seam-welded tubing in Conesville Units 1 and 2 is especially susceptible to the problem. These units are the only ones on the eastern AEP system that utilize seam-welded tubing in the boiler furnace. In that regard, the problem is unique to these specific units. Nonetheless, AEP, and many other utilities, continue to work with the Electric Power Research Institute (EPRI) to identify more effective means of addressing corrosion fatigue.

Conesville plant manager Mark Borman said that employees who normally work on the units have already been re-assigned to other positions on the plant's four other units and that no layoffs or terminations are anticipated. "Nine of the 34 affected positions were vacant and the remaining employees are already working on other units," he said. "My expectation is that we will adjust our overall plant complement over time through normal attrition, so there's really no impact on employment or staffing."

AEP is a member of the East Central Area Reliability Coordination Agreement (ECAR) and PJM Interconnection regional transmission organization. As a member of the PJM Interconnection, the regional transmission authority, AEP is required to provide PJM with a 90-day notice of any plans to deactivate a generating unit located in the PJM region. "We feel confident that the retirement of Conesville 1 and 2 will not have an adverse impact on the reliability of the PJM transmission system," said William L. Sigmon, SVP-Fossil & Hydro Generation.

The retirements will reduce the company's property tax payments to Coshocton County by approximately 9 per cent. The Conesville Plant pays property taxes for all its property and facilities in Coshocton County of approximately $2.7m annually. The retirement of Units 1 and 2 will reduce the company's annual tax commitment by roughly $235 000. However, the reduction would occur over time. Property taxes are paid in arrears in Ohio. This will allow local taxing authorities time to investigate and identify funding alternatives and to take action to supplant the tax revenue generated by the Conesville units.

AEP's Columbus Southern Power subsidiary expects to report a non-cash charge of approximately $39m ($25m after tax) in the third quarter of 2005 related to the units' retirement. At this time, the company does not anticipate any impact on future cash expenditures resulting from this non-cash charge.

If PJM grants approval to move forward with the retirements, plant management will make an evaluation of all existing unit equipment. Any equipment that can be used on other Conesville units, or at other AEP plants, will be transferred and used. The company will sell any remaining equipment for scrap value.

American Electric Power owns more than 36 000 MW of generating capacity in the United States and is the nation's largest electricity generator. AEP is also one of the largest electric utilities in the United States, with more than 5 million customers linked to AEP's 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.

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