Daily Independent (Ashland, KY)

July 3, 2013

Kentucky Power files settlement agreement

Staff Report
The Independent

FRANKFORT — Kentucky Power has filed a stipulation and settlement agreement with the Kentucky Public Service Commission which, if approved, would authorize the transfer of 50 percent of the ownership of two power generating units from AEP Ohio’s Mitchell Power Plant near Moundsville, W.Va., to Kentucky Power effective Dec. 31.

The agreement has been accepted by two of three groups intervening in the asset transfer case Kentucky Power filed with the Commission in December.

The agreement establishes the basis for transferring the Mitchell assets onto Kentucky Power’s books, outlines a recovery plan for the total investment in the assets, addresses future environmental compliance for Kentucky Power’s Big Sandy Power Plant near Louisa, and outlines various initiatives to help Lawrence County (and contiguous Kentucky counties) after the retirement of Big Sandy Unit 2.

The settlement agreement has been accepted by the Sierra Club and the Kentucky Industrial Utilities Customers (KIUC), but has not been agreed to by the state Attorney General’s Office.

The agreement calls for the establishment of an Asset Transfer Rider to become effective Jan. 1, to collect $44 million annually to recover a portion of the investment in the Mitchell assets. A base rate filing will occur in late 2014 (with rates to become effective in mid-2015) to remove Big Sandy Unit 2 and the Big Sandy Unit 1 coal-related facilities from rates and to allow for the recovery of the remaining portion of Mitchell assets.

The agreement would result in an estimated overall increase of less than 8 percent on residential customers’ bills. This means residential customers using an average 1,374 kilowatt hours per month would see an increase on their bills of approximately $10.

Under Kentucky Power’s December 2011 filing to install a dry scrubber system at Big Sandy Unit 2, customers faced a roughly 31 percent increase on monthly bills. Using more recent kilowatt hour sales information, the company estimates the revenue requirement associated with the retrofit of Big Sandy Unit 2 with a dry scrubber only, and without regard to other adjustments, would have increased to nearly 35 percent today.

As part of the settlement agreement, the company also agrees to maintain current base rates at least through May 31, 2015; provide economic development support for Lawrence County and surrounding Kentucky counties in the amount of $100,000 per year for five years (which cannot be recovered from ratepayers); help fund energy management programs for schools and increase the amount it spends on demand side management (energy efficiency) programs; and convert Big Sandy Unit 1 from coal-fired generation to natural gas-fired generation, provided the cost of the conversion does not exceed approximately $60 million and is approved by the PSC.

The company also agreed to increase its Home Energy Assistance Program (HEAP) contribution by 20 percent. Like Kentucky Power’s $100,000 per year economic development contribution, under the settlement, its increased contribution to HEAP is not recoverable from customers

The agreement would permit Kentucky Power to record on its books the approximate $536 million associated with acquiring 50 percent of the Mitchell Plant’s 770-megawatt Unit 1 and 790-megawatt Unit 2 for a total of 780 megawatts. The acquired generation would substantially replace the generation of Big Sandy Plant’s 800-megawatt Unit 2 which will be retired from service in 2015 to comply with federal environmental standards. Both Mitchell units are equipped with advanced environmental controls, including flue gas desulfurization systems (FGD) or “scrubbers” and meet all current EPA requirements. The other 50 percent ownership in both units would be transferred to Appalachian Power Co. (APCO), another AEP subsidiary, pending approval of APCO’s regulatory authorities.

The settlement agreement still needs the approval of the PSC before it can take effect. The PSC has scheduled hearings on the matter to begin on July 10.

Kentucky Power filed a separate base rate case June 28 seeking recovery of the Mitchell Assets. In the event the KPSC approves this settlement agreement, the company will withdraw the base rate case and proceed with terms outlined in the agreement. If the settlement agreement is not accepted by the PSC, the rate case will proceed as the means to recover costs associated with the transfer of the Mitchell assets to Kentucky Power.