Sierra Club announces deal with AEP on Big Sandy coal shutdown

The Sierra Club said June 6 that it and American Electric Power (NYSE: AEP) recently reached an agreement in principle that would resolve the future of power generation in eastern Kentucky after the retirement of the coal-fired Big Sandy plant in 2015.

The proposed deal commits AEP subsidiary Kentucky Power to invest in a host of clean energy and energy efficiency programs along with a focus on new low-income community development investments in Lawrence County, Ky., the club said. Both coal-fired units of the plant were previously scheduled for retirement and this agreement gives a Sierra Club stamp of approval on replacement power coming from the coal-fired Mitchell plant in West Virginia owned by AEP subsidiary Ohio Power.

The 800-MW Big Sandy Unit 2 would be retired outright and it is this capacity that would be directly replaced with the Mitchell capacity. Kentucky Power is looking at either shutting the smaller Big Sandy Unit 1 or switching it to natural gas.

“Kentucky Power has taken a step in the right direction,” said Alice Howell, chair of the Cumberland Chapter of the Sierra Club in Kentucky, in a June 6 statement. “It is critical that we continue to look for ways to support economic transition investments in Eastern Kentucky as coal-related jobs disappear, while creating a clean energy future based around home grown economic development and smart energy solutions. This deal starts us along that path.”

The agreement commits Kentucky Power to significantly increase its energy efficiency investments over the next five years. From $3m this year, to $4m in 2014, $5m in 2015 and $6m in investments per year from 2016 to 2018 and to continue at that level thereafter. These in-state energy efficiency investments are likely to bring jobs directly into the Kentucky Power service areas while decreasing the total energy consumption of eastern Kentucky, the club said.

“Investment in energy efficiency creates local, good paying jobs,” said Howell. “Weatherization, home efficiency inspections and the other activities bound up in thoughtful energy efficiency programs serve the people in local communities directly by lowering energy bills and employing our family members and neighbors in the process of making our own communities more energy efficient.”

Further, the agreement commits Kentucky Power to incorporating a request for 100 MW of wind power into its upcoming integrated resource planning (IRP) process. “Investing in wind power is an investment in the future of Kentucky’s economy,” explained Nachy Kanfer, a senior official with the Sierra Club’s Beyond Coal Campaign. “When we spend our energy dollars upgrading our power to clean, renewable energy sources what we’re really doing is spending it on American workers. Wind power is expanding every day and is becoming increasingly vital to the 21st century energy mix. Kentucky has the opportunity to be on the forefront of this new economic movement and this agreement takes us one step closer to that future.”

Finally, the agreement pledges Kentucky Power to invest $500,000 towards economic development in low-income communities in Lawrence County and surrounding counties. At least one third of that money must be used for job training with a focus on weatherization and energy efficiency training.

This agreement was filed with Kentucky regulators on May 28

While the Sierra Club formally announced this deal on June 6, this agreement in the form of a memorandum of understanding, was actually filed with the Kentucky Public Service Commission on May 28. The is also with the Kentucky Industrial Utility Customers (KIUC) group.

Kentucky Power has a case ongoing at the Kentucky PSC  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 Mitchell in West Virginia. The PSC has not acted in this case to this point.

Among the provisions of the MOU as filed with the commission 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.
  • 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.
  • The company shall file with the commission an application for a 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 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 IRP that will be filed in December 2013.
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.