Kentucky Power settles with KIUC, Sierra Club on Big Sandy shutdown

The Kentucky Power unit of American Electric Power (NYSE: AEP) has worked out a deal with the Kentucky Industrial Utility Customers (KIUC) group and the Sierra Club that should smooth the way for the shutdown of the coal-fired Big Sandy Unit 2.

Kentucky Power has a case ongoing at the Kentucky Public Service Commission where it is seeking approvals related to a planned shutdown for clean-air purposes of the 800-MW, coal-fired Big Sandy Unit 2. To make up for that lost capacity, Kentucky Power would get 50% of Ohio Power’s coal-fired Mitchell plant in West Virginia.

On May 28, the utility filed with the commission a memorandum of understanding (MOU) with the commission between it, the KIUC and the Sierra Club.

Among the provisions of that agreement are:

  • The transfer of 50% of Mitchell, to happen by the end of this year, will be at actual net book value, which is currently estimated to be approximately $536m.
  • Mitchell-related fuel costs shall be included in the calculation of charges or credits under Kentucky Power’s Fuel Adjustment Clause. The Mitchell units will be included in the economic dispatch of Kentucky Power’s generation resources. Because of the anticipated lower fuel costs of Mitchell Units 1 and 2, compared to the anticipated fuel costs of the Big Sandy units, the transfer of the Mitchell units to Kentucky Power is expected to provide Kentucky Power customers with the benefit of reduced fuel costs of approximately $2.50/MWh.
  • Kentucky Power agrees to withdraw any pending base rate case and agrees to continue with its current base rates at least through May 31, 2015. Prior to filing the next base rate case, the company agrees to work with KIUC to develop a stand alone cost-based rate or tariff offering for facilities of 100 MW or more at a single site.
  • Effective June 1, 2015, the company will increase the availability of Tariff C.S.-I.R.P. to 75,000 kW. Further, effective July 1, 2015, the company will offer credits under Tariff C.S.-I.R.P. of $3.68/kW/month for interruptible load which qualifies under PJM’s rules as capacity for the purposes of the company’s FRR obligation. This interruptible service will be consistent with PJM’s Limited Demand Response, Emergency-Capacity Only Program, subject to any limitations on the availability of that program by PJM. If insufficient MWs are available for PJM enrollment by Kentucky Power, the company would offer to substitute one of the other PJM Emergency Demand Response Programs that is available.
  • The company shall file with the commission an application for certificate of public convenience and necessity to convert the 268-MW Big Sandy Unit 1 from coal to natural gas, and will exercise its option to terminate its March 28, 2013, Request for Proposals for Big Sandy replacement capacity. All parties to this memorandum of understanding agree they will not oppose the grant by the commission of that certificate, provided the cost to convert is approximately $60m.
  • The company shall be authorized to recover the coal-related retirement costs of Big Sandy Unit 1, the retirement costs of Big Sandy Unit 2, and any site-related retirement costs.
  • Beginning Jan. 1, 2014, any outage associated with Big Sandy Unit 2, including that due to its retirement, shall be treated as a forced outage for purposes of the Fuel Adjustment Clause. After Big Sandy Unit 2 is retired or can no longer be economically operated, the company shall be authorized to recover any incremental purchased power costs associated with forced outages of other Kentucky Power plants, not otherwise recoverable through the Fuel Adjustment Clause, in a newly-established Purchased Power Clause.
  • The retirement of Big Sandy Unit 2 prior to May 31, 2015, shall be considered a force majeure event and the company would have the right to seek emergency rate relief from the commission to prevent its credit or operations from being materially impaired or damaged consistent with the commission’s orders and precedent governing such relief.
  • The company agrees to continue to procure coal for the Mitchell units with no bias against coal produced in Kentucky.
  • The company agrees to issue a non-binding Request For Proposals for 100 MW of wind power for the purpose of incorporating the results of the RFP in its Integrated Resource Plan that will be filed in December 2013.

KIUC had been advocating that Kentucky Power get a lesser share of Mitchell

KIUC, which represents large industrial power customers, had been recommending that the commission authorize Kentucky Power to acquire only 20% of the coal-fired Mitchell plant in West Virginia, instead of the requested 50%, contemporaneous with the planned shutdown and retirement of the coal-fired Big Sandy 2 on June 1, 2015.

On Dec. 19, 2012, Kentucky Power filed an application with the Kentucky commission seeking, among other things, approval for a certificate of public convenience and necessity in connection with the transfer of an undivided 50% interest in Mitchell and authorization for Kentucky Power’s assumption of certain liabilities associated with the Mitchell transfer.

The Dec. 19 application by Kentucky Power also officially jettisoned a plan to add an SO2 scrubber to Big Sandy Unit 2. 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 sought approval to recover about $530m in costs associated with transferring 50% of the ownership of Mitchell to Kentucky Power.

The Mitchell plant is located near Moundsville, W.Va., and has a total 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 SO2 scrubbers, and meet all current EPA 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, including the West Virginia Public Service Commission. APCo will operate and maintain the Mitchell plant.

The Kentucky PSC in a May 28 order pushed back a May 29 evidentiary hearing in this case to July 10, in light of the new development with the MOU and other scheduling conflicts. It noted that commission staff and the Kentucky Attorney General’s (AG) office also participated in the talks that led to the MOU, but did not sign onto the agreement.

“Having reviewed the concerns expressed by both Kentucky Power and the AG, the Commission finds that delaying the evidentiary hearing will allow the record to be more fully developed,” said the May 28 order. “The rebuttal testimony filed in support of Kentucky Power’s application discusses a Request for Proposals issued on March 28, 2013, seeking 250 MW of long-term capacity and energy, with bids to be submitted by June 11, 2013. The details of the bids submitted in response to this solicitation should provide useful information regarding the current availability and pricing of long-term generation, and will assist the Commission in investigating the reasonableness of Kentucky Power’s proposed purchase of 50 percent of the Mitchell Generating Station. Consequently, we will require Kentucky Power to file by June 28, 2013, an analysis of the bids received in response to the March 28, 2013 solicitation.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.