Kentucky Power seeks approval of Mitchell coal plant deal

Kentucky Power on July 2 filed a settlement with the Kentucky Public Service Commission with parties to its case where it wants to shut the 800-MW, coal-fired Big Sandy Unit 2, and get half of the Mitchell coal plant in West Virginia in its place.

The settlement is with Kentucky Industrial Utility Customers (KIUC); and as a group the Sierra Club, Alexander Desha, Tom Vierheller and Beverly May.

In the transfer application, the company sought approval for all approvals necessary to effectuate the transfer of a 50% undivided interest in Ohio Power’s Mitchell plant, including the assumption of certain liabilities. In addition, the company sought the authority to accumulate and defer for review and recovery in its next base rate proceeding certain costs incurred from 2004 through 2012 in connection with the company’s ongoing efforts to meet environmental requirements with respect to Big Sandy Unit 2.

The settlement terms include:

  • On Dec. 31, 2013, 50% of Mitchell Units 1 and 2 (including associated assets and liabilities) are to be transferred to Kentucky Power. The transfer will be at actual net book value as of Dec. 31, 2013. The net book value is currently estimated to be approximately $536m.
  • Mitchell-related coal 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 as opposed to coal costs at Big Sandy, this is expected to provide Kentucky Power customers with the benefit of reduced fuel costs of about $2.50/MWh. Based on 2012 jurisdictional kWh sales of 6.7 GWh, the benefits are estimated to total $16.75m annually.
  • Upon approval by the commission of this deal, the company shall withdraw any pending base rate case. The company agrees to maintain current base rates at least through May 31, 2015.
  • Effective Jan. 1, 2014, the company will implement an Asset Transfer Rider that is designed to collect $44m annually, with a true-up mechanism to ensure no over or under recovery. The Asset Transfer Rider will remain in place until the commission sets new base rates for the company that include the Mitchell units.
  • Effective Jan. 1, 2014, the monthly Environmental Surcharge factor will be fixed and maintained at 0.00% until new base rates are set by the commission.
  • When base rates are set in the Base Rate Case, all costs associated with the Mitchell Units 1 and 2 Flue Gas Desulfurization (FGD) equipment will be recovered through the environmental surcharge approved in the Base Rate Case, and excluded from base rates in the Base Rate Case.
  • 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 to natural gas, and will exercise its option to terminate its March 28, 2013, Request for Proposals (RFP) for replacement capacity. All parties to this settlement deal agree they will not move to intervene to challenge the CPCN filing to convert Big Sandy Unit 1 to natural gas, provided the cost to convert is approximately $60m.
  • The company will be authorized to recover the coal-related retirement costs of Big Sandy Unit 1, the retirement costs of Big Sandy Unit 2, and other site-related retirement costs that will not continue in use.
  • Beginning Jan. 1, 2014, no 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 incremental purchased power costs associated with forced outages of other Kentucky Power plants, not otherwise recoverable through the Fuel Adjustment Clause, pursuant to a Purchase Power Adjustment.
  • The retirement of Big Sandy Unit 2 prior to May 31, 2015, shall be considered a Force Majeure Event and the company shall have the right to seek emergency rate relief from the commission to prevent its credit or operations from being materially impaired or damaged. Such emergency rate relief shall be limited to $24m annually ($2m per month for each remaining month through May 2015).
  • 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 RFP 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 with the commission in December 2013.

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.

Ranie Wohnhas, Managing Director of Regulatory and Finance for Kentucky Power, said in July 2 testimony attached to the settlement: “On May 28, 2013, Kentucky Power, Sierra Club, and KIUC entered into a Memorandum of Understanding Regarding Stipulation and Settlement Agreement. The Memorandum of Understanding set forth the terms of an agreement in principle reached by counsel for the Company, Sierra Club and KIUC. Subsequently, and following further negotiations, the same three parties entered into the July 2, 2013 Stipulation and Settlement Agreement that is being presented for Commission review and approval. The Attorney General participated in the settlement discussions prior to the execution of the May 28, 2013 Memorandum of Understanding, but he ultimately elected not to join in the settlement.”

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.