Kentucky Attorney General appeals Big Sandy, Mitchell decision

Kentucky Attorney General Jack Conway has appealed the Oct. 7 decision of the Kentucky Public Service Commission allowing Kentucky Power to buy a 50% interest in a West Virginia coal plant instead of retrofitting its coal-fired Big Sandy facility in Louisa, Ky.

The appeal to the Franklin Circuit Court seeks to vacate and set aside the commission’s findings on multiple legal grounds.

“The recent ruling by the Kentucky Public Service Commission approving this transaction will place more than a half a billion dollars into Kentucky Power’s rate base and will ultimately raise consumers’ electric rates by more than 20 percent,” Conway said in a Dec. 4 statement. “It will also transfer energy production to a neighboring state and leave Kentucky consumers paying the bill. That’s just not right.”

On Oct. 7, the Kentucky PSC approved Kentucky Power’s proposal to purchase from an unregulated affiliate a 50% interest (about 780 MW) in the Mitchell coal plant, located in Moundsville, W.Va., at an estimated cost of $536m and accepted the terms of a partial settlement and stipulation to which the Attorney General did not join.

In its findings, the PSC accepted Kentucky Power’s assertion that the Mitchell acquisition was less costly than retrofitting Kentucky Power’s Big Sandy coal-fired plant with environmental controls. The commission declined to follow its administrative counterpart – the Virginia State Corporation Commission – which earlier this year declined to approve a related transaction by Appalachian Power because the company failed to demonstrate reasonable market alternatives to support its claim that the other 50% interest in Mitchell was the least-cost option for consumers, the Kentucky Attorney General noted.

Mitchell has been owned by Ohio Power, another subsidiary of American Electric Power (NYSE: AEP), which has to divest generating assets under an Ohio deregulation plan. AEP wanted to sell 50% of the plant to Kentucky Power, and the other 50% to Appalachian Power. The Virginia commission refused to approve the Appalachian Power deal, while the West Virginia Public Service Commission has yet to rule on the matter.

In his appeal to the Franklin Circuit Court, Conway asserts that the findings of the commission were unreasonable and unlawful because they relied on evidence presented by Kentucky Power and its corporate parent that could not be independently verified.

“The analysis used by Kentucky Power and accepted without independent verification by the Commission is simply an apples to oranges comparison and is not a reliable basis for the Commission’s decision,” said Conway. “The Commission should seek additional, independent information, if it is going to raise electric rates for consumers and eliminate Kentucky jobs.”

In addition, Conway asserts that the commission failed to consider the economic feasibility of Kentucky Power’s plan and neglected the public policy interests of Kentucky, as expressed by the state General Assembly. In the complaint filed with the Franklin Circuit Court, Conway points out that the General Assembly and Kentucky courts have held that the use of Kentucky coal and the continuation of jobs and other economic benefits constitute a legitimate government interest.

The Attorney General’s Office of Rate Intervention serves as a watchdog for consumers in matters relating to utility rates.

Kentucky Power last year abandoned a plan to install an SO2 scrubber on the 800-MW Big Sandy Unit 2, deciding instead to shut it in 2015 due to clean-air mandates. The smaller Unit 1 coal facility will either be shut or switched to natural gas. The Big Sandy plant gets its coal from nearby mines in eastern Kentucky and southern West Virginia. So the shutdown of the plant would not only mean jobs lost at the plant itself, but also through the loss of coal mining activity in the region around the plant.

Kentucky PSC had rejected the AG’s request for reconsideration

The Kentucky PSC on Nov. 15 had rejected the Attorney General’s request for reconsideration of the Oct. 7 approval. The Attorney General, through the Office of Rate Intervention, had raised two primary arguments in support of the request for a rehearing.

One issue had to do with how Kentucky Power allocated costs in its “stacking analysis” related to a request for proposals (RFP) to find capacity to replace the 278-MW Big Sandy Unit 1. That unit is due to be either shut, like Unit 2, or switched from coal to natural gas. Unit 2, due to technology constraints, is not a gas switching candidate.

The AG’s second argument concerned the Superseding Mitchell Operating Agreement recently filed at the Federal Energy Regulatory Commission by American Electric Power Service Corp. on behalf of Kentucky Power and AEP Generation Resources. As contemplated in the original Mitchell Operating Agreement, Kentucky Power and its affiliate Appalachian Power (APCo) each would have each owned a 50% undivided interest in Mitchell, with APCo being the plant operator.

However, due to the decision by the Virginia State Corporation Commission denying APCo’s request to acquire 50% of Mitchell, the original operating agreement has been revised to provide that Kentucky Power and another affiliate, AEP Generation Resources (rather than APCo), would each own a 50% undivided interest in Mitchell and that Kentucky Power (rather than APCo) would operate the plant.

The AG contended that a rehearing was required to address any potential additional costs, benefits, and risks in light of the new ownership structure for Mitchell.

In finding against the AG on both points, the Kentucky commission said the AG had not alleged the existence of any newly discovered evidence to justify granting rehearing. Further, the AG has not shown that the findings in the Oct. 7 order are not supported by substantial evidence or that the AG was denied due process during the proceedings.

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.