AEP’s Kentucky Power appeals Kentucky PSC fuel case decision

American Electric Power (NYSE:AEP) utility Kentucky Power has gone to court to appeal a Kentucky Public Service Commission decision that deemed about $54m in fuel costs as unreasonable.

Kentucky power filed its appeal Feb. 18. The appeal seeks to reverse the PSC order from Jan. 22 that held that the utility was misleading in some of its filings with the agency regarding purchase of half interest in the Mitchell Power plant in Moundsville, West Va.

In its Jan. 22 order, the PSC directed Kentucky Power to refund to customers $13m in fuel costs collected during the first four months of last year through the Fuel Adjustment Clause (FAC). In its decision the PSC disallowed some fuel costs related to an “overlap period” involving two AEP power plants.

The AEP utility had issued a statement Jan. 23 saying it was “disappointed” by key parts of the PSC decision.

Those refunds were to be delivered this year through credits on customer bills in February, March, April and May. Kentucky Power also was directed to forego additional collection of an estimated $41m in fuel costs incurred through May.

The fuel costs disallowed by the Kentucky PSC resulted from having both the Mitchell power plant and Big Sandy No.2 in Louisa, Ky., in operation at the same time. Costs of operating both generation units will no longer be an issue after Big Sandy Unit 2 is retired later this year, Kentucky Power said.

The PSC last year approved Kentucky Power’s purchase of half the Mitchell plant to meet both customer needs and Environmental Protection Agency (EPA) demands.

“The language in the order was particularly disappointing because it questioned the integrity of the information that we provide the Kentucky Public Service Commission,” said Kentucky Power President and COO Greg Pauley. “Throughout Kentucky Power’s long history in Kentucky, we have always been open, transparent and forthright in our dealings with the Commission. We take an oath of truth that we abide by whether in front of the Commission or in written material we submit and would never intentionally mislead the Commission or any government agency.”

The Kentucky Public Service Commission allows Kentucky Power and other electric utilities to pass fuel costs through to customers. This pass through is on a dollar-for-dollar basis and reflects actual fuel and purchased power costs. Kentucky Power does not earn a profit on the FAC. The FAC is reviewed about every six months by the Commission and adjusted accordingly. At least two other electric providers in Kentucky use the same Commission-authorized methodology, which is based on Federal Energy Regulatory Commission (FERC) guidance.

“By filing this appeal, we will be able to defend and support our position and our right to recover costs that the Commission has allowed us and other Kentucky utilities to recoup for decades,” Pauley said.

“The operation of both plants actually allowed Kentucky Power customers to realize $9.9 million in net cost benefits during the cold spells of 2014. Without both generating stations, Kentucky Power would not have been able to generate enough electricity to serve our customers. The Commission affirmed in its order that our purchase of the Mitchell plant represents the lowest reasonable cost alternative for our customers in replacing Big Sandy Unit 2. When faced with making such tough decisions, we always make them with the best interests of our customers in Eastern Kentucky in mind.”

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.