Environmental Regulations

The increasing scope and stringency of environmental regulations pose technical, operational and financial challenges for our industry. These challenges, including uncertainties with timing, scope and magnitude of future environmental regulations, are influencing decisions to upgrade or retire coal-fueled generating units. It also affects the planning process for new generation projects across our industry.

AEP’s active participation in development of new regulations helps to ensure that new requirements are achievable, based on sound science, consistent with statutory authority, balanced with other rule-makings, weigh the cost of compliance for customers, and can be implemented in a rational time frame. Compliance is important to us, but we also have a responsibility to our investors who make the required capital investment, and to our customers, who will ultimately pay for the implementation of compliance strategies, while expecting reliable electric service.

Coal Ash

The issue of coal ash disposal and handling came to the forefront nearly a decade ago and has since been subjected to a new federal rule covering the disposal and storage of coal combustion residuals (CCR).

In 2015, the U.S. Environmental Protection Agency (EPA) finalized a new CCR rule regulating the disposal and beneficial re-use of coal combustion residuals generated at coal-fueled electric generating units, including fly ash, bottom ash, flue gas desulfurization (FGD) byproduct and gypsum. CCR is now regulated as a non-hazardous solid waste and is subject to new minimum federal solid waste management standards, which went into effect in October 2015.

Since the rule became final, AEP put several programs in place to ensure compliance and established a new leadership role to oversee these efforts. AEP’s inspection and maintenance program for fly ash ponds and other impoundments remains vigorous and is continuously monitored.

Currently, AEP operates 24 CCR ponds that are impacted under this rule. We have an additional 14 ponds exempt from this rule because they are located at power plants we retired in 2015, before the new federal rule went into effect. These ponds will still be regulated and ultimately closed, but under existing state programs. Significant costs will be incurred to upgrade or close and replace the existing facilities including a $95 million increase in asset retirement obligations in the second quarter of 2015 primarily due to this rule.

CCRs have long been used in concrete, wallboard and a wide variety of construction materials. While this benefits other industries, it also provides a source of financial and environmental benefits to AEP. In February 2014, the EPA completed a risk evaluation of the beneficial uses of coal fly ash in concrete and FGD gypsum in wallboard and concluded with support for these beneficial uses. Currently, approximately 40 percent of the coal ash and other residual products from AEP’s generating facilities are used in the production of concrete and wallboard, as structural fill or soil additives, as abrasives or road treatment materials and for other beneficial uses. By diverting the coal ash to beneficial uses, we are minimizing our environmental impacts by reducing the need for waste disposal sites.

In 2015, AEP generated approximately 9.1 million tons of CCRs and was able to beneficially use more than 3 million tons, or 34 percent of the total. Beneficial use of CCRs (considered to be products if they are beneficially used), avoided approximately $17 million in disposal costs in 2015 and generated more than $7.7 million in revenues.

For a complete regulations update, please see AEP’s Form 10K under Environmental Issues.