The Kentucky Power subsidiary of American Electric Power (NYSE: AEP) said June 27 that it will file a base rate case with the Kentucky Public Service Commission (KPSC) to recover costs associated with the anticipated transfer of 50% of the ownership of two units from AEP Ohio’s Mitchell plant.
Mitchell is a coal-fired plant located near Moundsville, W.Va. The rate filing calls for an increase in revenue of $114m over existing rates and asks for a general rate increase for Kentucky Power customers of 23.39%.
Two mitigation measures that should reduce the overall rate impact are:
- Kentucky Power expects to share additional system sales revenue that will result from the operation of the coal-fired Big Sandy Unit 2 and the new share of Mitchell simultaneously for an overlap period (Jan. 1, 2014, through the retirement of Big Sandy Unit 2); and
- the company anticipates favorable fuel costs to flow through to customers resulting from cheaper coal used to operate Mitchell. The additional sales revenue is expected to reduce the net rate by about 8% and the fuel savings by about 3%.
“The filing of this case is necessary to begin recovery of costs associated with transferring the Mitchell Plant Assets to Kentucky Power and it is being filed in anticipation that the Public Service Commission will approve the asset transfer. The company needs to be able to collect costs associated with buying and operating the Mitchell plant at the time it assumes ownership of it,” said Greg Pauley, President and COO of Kentucky Power.
“Environmental compliance is an expensive proposition and we have always said EPA regulations associated with the continued use of coal would come at a high cost to customers. We are trying to manage those costs as best we can,” Pauley said.
EPA mandates are forcing the shutdown of the coal-fired, 800-MW Big Sandy Unit 2, and the probable switch to natural gas (or shutdown if the gas switch doesn’t happen) of the coal-fired, 268-MW Big Sandy Unit 1.
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 Mitchell plant 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 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.