Kentucky Power on Monday accepted the modified Stipulation and Settlement Agreement between Kentucky Power, Kentucky Industrial Utility Customers Inc. and the Sierra Club that allows transfer of a 50 percent interest in the Mitchell Power Plant, outside Moundsville, W.Va., to Kentucky Power.
With acceptance of the modifications, Kentucky Power is authorized by the Kentucky Public Service Commission to acquire a 50 percent interest in the two Mitchell Power Plant generating units, along with the associated assets and liabilities, from AEP Ohio. The transfer is expected to close Dec. 31.
The transferred generating units (totaling 780 megawatts) will substantially replace generation currently provided by Big Sandy Power Plant Unit 2 (800 MW), which will be retired in 2015.
In approving the transfer, the Kentucky PSC noted Kentucky Power’s economic analysis demonstrated over a 30-year period, transfer of the Mitchell Plant generation would be $379 million cheaper than the next least-cost alternative, and as much as $819 million cheaper in constant dollars than installing sulfur dioxide removal equipment, “scrubbers” on Big Sandy Unit 2.
In the settlement, Kentucky Power agreed to withdraw its pending $114 million rate case and to freeze base rates. However, the company is authorized to recover a portion of the costs associated with the transfer of the Mitchell generating assets through an asset transfer rider applied to customer bills. Kentucky Power will recover only $44 million of the $138 million in Mitchell-related annual costs.
A residential customer using 1,374 kilowatt hours of electricity per month will see a net increase of approximately 5 percent or $6.70 per month beginning Jan. 1.
Kentucky Power also agreed to seek approval from the Kentucky PSC to convert Unit 1 at Big Sandy to operate using natural gas instead of coal. The KPSC will have to approve the Unit 1 conversion in a future case. Unit 1 is also scheduled to stop using coal as fuel in 2015.
The settlement agreement includes economic development and job training support for Lawrence County, where Big Sandy Plant is located, and surrounding Kentucky counties totaling $233,000 per year for five years, increase its Home Energy Assistance contribution by 20 percent and supply funding for energy management programs for schools (all of these items cannot be recovered from ratepayers).
Also, the company will increase the amount it spends on energy efficiency programs by $3 million over the next three years. Additionally, the settlement provides protections against unreasonably higher costs due to unanticipated greenhouse gas regulation.
“We are is pleased that the Kentucky Public Service Commission approved the transfer of the Mitchell generation and agreed that this is the most cost-effective way to meet federal environmental rules and continue providing reliable, affordable electricity to all our customers,” said Greg Pauley, president and chief operating officer of Kentucky Power. “We care about the employees who work at Big Sandy and the businesses and residents in Louisa and Lawrence County and are committed to working with them through the transition.”
Big Sandy Unit 2 is expected to continue operating until 2015. Any Big Sandy employee who is affected by the changes at the plant and unable to obtain a new position within Kentucky Power or other AEP affiliates will be provided a severance package.