The Kentucky Public Service Commission decided Feb. 15 that it has jurisdiction over most of Kentucky Power’s plan to transfer half of the coal-fired Mitchell power plant in West Virginia to its jurisdictional service in place of the to-be-shut Units 1 and 2 of the coal-fired Big Sandy power plant.
On December 19, 2012, the Kentucky Power unit of American Electric Power (NYSE: AEP) filed an application seeking a Certificate of Public Convenience and Necessity authorizing the transfer of an undivided 50% interest in the Mitchell plant and related assets from an affiliate, Ohio Power. The proposed transfer will consist of a series of near-simultaneous transactions that are scheduled to take place on or about Dec. 31, 2013, and are intended to be accomplished without incurring unintended tax consequences under a corporate restructuring plan approved by the Public Utilities Commission of Ohio.
Ohio Power will enter into a corporate separation transaction whereby it will divest its generation assets, including the Mitchell plant, to AEP Generation Resources. Immediately upon the closing of this transaction, a 50% undivided interest in Mitchell will be transferred in a near-simultaneous series of transactions to NEWCO Kentucky, which is a yet-to-be formed corporation which will have the limited purpose of effectuating the transfer of the subject assets and liabilities to Kentucky Power. In the final step, NEWCO Kentucky, a wholly owned subsidiary of AEP Generation Resources, will merge with Kentucky Power, with Kentucky Power being the surviving entity and owning a 50% undivided interest in Mitchell.
As part of its application, Kentucky Power also requested that the commission enter an order declaring that the merger between NEWCO Kentucky and Kentucky Power is not subject to the commission’s approval. In support of this request, Kentucky Power states that NEWCO Kentucky will be created and briefly exist at the time of the merger solely to effectuate the proposed transfer. Kentucky Power maintains that NEWCO Kentucky will not be a jurisdictional utility because it does not intend to generate electricity to the public and it will own the assets only as a conduit to facilitate their transfer to Kentucky Power. Kentucky Power said that NEWCO Kentucky’s corporate existence will cease upon its merger with Kentucky Power. As a result, Kentucky Power contends that the merger is not subject to PSC approval requirements, which are limited to the acquisition or transfer of ownership or control of a utility under the jurisdiction of the commission.
The commission in its Feb. 15 order found that all aspects of the transaction whereby Kentucky Power seeks to acquire a 50% undivided interest in Mitchell will be subject to its review and jurisdiction under one part of state statute, with the financing being reviewed under another part. As part of that overall transaction, the merger of NEWCO Kentucky and Kentucky Power does not require commission approval, the PSC said.
Kentucky PSC taking extended look at this application
The Kentucky PSC said in a Jan. 25 order that it’s going to need more than 60 days to review certain liabilities associated with the Mitchell transfer. Kentucky statute says the commission has 60 days to look at the liabilities issue – unless it decides it needs more time. “As the Commission does not expect to complete its investigation of Kentucky Power’s application within 60 days, the Commission finds that good cause exists to continue the financing request beyond the 60-day period specified in [state statute],” said the Jan 25 order.
The commission also set an initial procedural schedule for this matter that includes:
- Kentucky Power files responses to initial requests for information by Feb. 20;
- Intervenor testimony, if any, in verified prepared form, filed no later than March 25; and
- Kentucky Power files, in verified form, its rebuttal testimony by May 3.
The Dec. 19 application by Kentucky Power also officially jettisoned a plan to add an SO2 scrubber to the coal-fired Unit 2 of the Big Sandy power plant in eastern Kentucky, with that 800-MW unit to instead be retired. The utility had a case ongoing at the commission for approval of the scrubber, but in May 2012 called a halt to that case while it re-looked at the numbers.
The Dec. 19 filing seeks approval to recover about $530m in costs associated with transferring 50% of the ownership of Mitchell to Kentucky Power. The generation obtained from Mitchell would substantially replace the generation of the 800-MW Unit 2 at Big Sandy, which will be retired from service in 2015. The coal-fired Big Sandy Unit 1 is also targeted for retirement, though there is some possibility it might be converted to natural gas.
The Mitchell plant is located near Moundsville, W.Va., and has a total generating output of 1,560 MW. Kentucky Power would get 50% of the output of Mitchell’s 770-MW Unit 1 and 790-MW Unit 2, for a total transfer of 780 MW. Both Mitchell units are equipped with advanced environmental controls, including scrubbers, and meet all current U.S. Environmental Protection Agency requirements. The other 50% ownership in both Mitchell units would be transferred to Appalachian Power, another AEP subsidiary, pending approval of APCo’s regulatory authorities. APCo will operate and maintain the Mitchell plant.