Daily Independent (Ashland, KY)

Local News

April 5, 2012

Hearing on power financing plan

LOUISA — The Kentucky Public Service Commission had a public meeting here Wednesday to receive input on Kentucky Power Co.’s proposed plan for financing environmental upgrades at its Big Sandy generating plant to comply with new federal air quality mandates.

Kentucky Power is seeking approval from the PSC to pay for the $940 million project with a surcharge on its customers’ monthly electric bills. For a household using 10,000 kilowatt hours of electricity a month, that would mean a bill increase of roughly 30 percent, or $32 a month, beginning in 2016, said Andrew Melynkovych, the PSC’s communications director.

According to Melynkovych, the state statute under which Kentucky Power is seeking to assess the surcharge was enacted in 1992, in response to the federal Clean Air Act. The law was intended to allow utilities to streamline the process of recovering the cost of installing scrubbers at coal-fired power plants, like Big Sandy, he said. What the law essentially does, he said, is allow the cost of environmental upgrades to be broken out considered separately from utilities’ base rates and passed directly on to consumers.

The law allows investor-owned utilities such as Kentucky Power and its parent company, American Electric Power, to recover the cost of the upgrades, plus a reasonable return on investment, Melynkovych said. Additionally, the law requires utilities to employ the least costly method possible to comply with environmental regulations, he said.

In addition to facing the stricter U.S. Environmental Protection Agency emissions standards, Kentucky Power is under a federal consent decree that requires it to either install scrubbers at the Big Sandy plant, or stop burning coal at the facility altogether, by the end of 2015, Melynkovych said.

He stressed to the audience of about 40 the PSC had no jurisdiction over the environmental regulations in the case, and determining whether those regulations were right or wrong wasn’t the agency’s call.

“People may not like those regulations,” he said. “But telling the PSC to tell the utility it ought not to comply with those regulations is a nonstarter.”

PSC Chairman Dave Armstrong said the agency’s jurisdiction was “solely over the reasonableness of the company’s compliance plan.”

AEP announced last month it would retire 4,600 megawatts of coal-fired generation system-wide to allow it to meet the federal air quality mandates. Among the units to be retired are the 278-megawatt Unit 1 at the Big Sandy plant, which the company had originally planned to convert to a natural gas-fired facility. The 800-megawatt Big Sandy Unit 2 is the one at which the company intends to install emissions controls.

The PSC is facing a six-month deadline on reaching a decision about whether to allow the company to enact the surcharge, Melynkovych said. An evidentiary hearing on the matter will be April 30 at PSC headquarters in Frankfort.

Only three audience members chose to address the commission. One of them, Mark Johnson, a representative of the Tri-State Building & Construction Trades Council, said the scrubber project would likely mean work for 800 to 1,000 union members.

He said the council had been involved in building similar facilities outside of Kentucky.

Johnson also said he believed the installation of scrubbers likely would be the cheapest option in the long run because if AEP chose to idle the Big Sandy plant, rather than upgrade it, the company would have to replace that generating capacity somehow, most likely by purchasing electricity “off the grid.”

However, Patty Wallace of Louisa, a founding member of Kentuckians for the Commonwealth, took a dimmer view of the project. Rather than investing millions to keep burning coal, AEP should focus on developing cleaner energy sources, such as wind and solar, she said.

Terry Salyer, energy director for the Lawrence County, Johnson County and Paintsville Independent school districts, requested the PSC consider helping school systems offset the costs associated with environmental upgrades by creating a special tariff rate for them. Currently, he said, utilities impose the same tariff for schools as for manufacturing and other forms of industry, even though schools use much less electricity.

Most businesses have the option of passing utility rate increases on to their customers by raising prices, but that’s not the case with schools, Salyer said.

Wednesday’s PSC hearing was the first of four. Another was Wednesday evening in Pikeville, and two more are scheduled for today in Whitesburg and Hazard.

KENNETH HART can be reached at khart@dailyindependent.com or

(606) 326-2654.

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