7/2/2013
Kentucky Power Files Asset Transfer Settlement Agreement

FRANKFORT, KY – Kentucky Power has filed a Stipulation and Settlement Agreement (Settlement Agreement) with the Kentucky Public Service Commission (KPSC) which would, if approved, authorize the transfer of 50% of the ownership of two power generating units from AEP Ohio’s Mitchell Power Plant near Moundsville, West Virginia, to Kentucky Power effective Dec. 31, 2013. The Agreement has been accepted by two of three groups intervening in the asset transfer case (KPSC Case No. 2012-00578) Kentucky Power filed with the Commission last December.

The Settlement Agreement establishes the basis for transferring the Mitchell assets onto Kentucky Power’s books, outlines a recovery plan for the total investment in the assets, addresses future environmental compliance for Kentucky Power’s Big Sandy Power Plant located near Louisa, and outlines various initiatives to help Lawrence County (and contiguous Kentucky counties) after the retirement of Big Sandy Unit 2. The Settlement Agreement has been accepted by the Sierra Club and the Kentucky Industrial Utilities Customers (KIUC), but has not been agreed to by the state Attorney General’s Office.             

The Agreement calls for the establishment of an Asset Transfer Rider to become effective Jan. 1, 2014, to collect $44 million annually to recover a portion of the investment in the Mitchell assets. A base rate filing will occur in late 2014 (with rates to become effective in mid-2015) to remove Big Sandy Unit 2 and the Big Sandy Unit 1 coal-related facilities from rates and to allow for the recovery of the remaining portion of Mitchell assets.

The Agreement would result in an estimated overall increase of less than 8% on residential customers’ bills. This means residential customers using an average 1,374 kilowatt hours per month would see an increase on their bills of approximately $10.00.

Under Kentucky Power’s December 2011 filing to install a dry scrubber system at Big Sandy Unit 2, customers faced a roughly 31% increase on monthly bills. Using more recent kilowatt hour sales information, the Company estimates that the revenue requirement associated with the retrofit of Big Sandy Unit 2 with a dry scrubber only, and without regard to other adjustments, would have increased to nearly 35% today.

As part of the Settlement Agreement, the company also agrees to: maintain current base rates at least through May 31, 2015; provide economic development support for Lawrence County (where Big Sandy Plant is located) and surrounding Kentucky counties in the amount of $100,000 per year for five years (which cannot be recovered from ratepayers); help fund energy management programs for schools and increase the amount it spends on Demand Side Management (energy efficiency) programs; and convert Big Sandy Unit 1 from coal-fired generation to natural gas-fired generation, provided the cost of the conversion does not exceed approximately $60 million and is approved by the KPSC. The Company also agreed to increase its Home Energy Assistance Program (HEAP) contribution by 20%. Like Kentucky Power’s $100,000 per year economic development contribution, under the settlement, its increased contribution to HEAP is not recoverable from customers

The Agreement would permit Kentucky Power to record on its books the  approximate $536 million associated with acquiring 50% of the Mitchell Plant’s 770-megawatt Unit 1 and 790-megawatt Unit 2 (for a total of 780 megawatts). The acquired generation would substantially replace the generation of Big Sandy Plant’s 800-megawatt Unit 2 which will be retired from service in 2015 to comply with federal environmental standards. Both Mitchell units are equipped with advanced environmental controls, including flue gas desulfurization systems (FGD) or “scrubbers” and meet all current EPA requirements. The other 50% ownership in both units would be transferred to Appalachian Power Company (APCO), another AEP subsidiary, pending approval of APCO’s regulatory authorities.

The Settlement Agreement still needs the approval of the KPSC before it can take effect.  The KPSC has scheduled hearings on the matter to begin July 10, 2013.

Kentucky Power filed a separate base rate case June 28 seeking recovery of the Mitchell Assets. In the event the KPSC approves this Settlement Agreement, the company will withdraw the base rate case and proceed with terms outlined in this Agreement. If this Settlement Agreement is not accepted by the KPSC, the rate case will proceed as the means to recover costs associated with the transfer of the Mitchell assets to Kentucky Power.

“Kentucky Power is pleased to reach terms of this Settlement Agreement with two of the three intervening parties in this case. We hope the Commission will review this filing and agree that it is in the best interest of our ratepayers. It definitely presents a more affordable way forward for our customers and allows us to meet our environmental obligations. While it does represent an increase in customer’s rates of less than 8%, it is substantially less than the previous plan to install dry scrubbers,” said Greg Pauley, president and chief operating officer of Kentucky Power.

Kentucky Power is an operating unit of American Electric Power and provides electricity to approximately 173,000 customers in all or parts of 20 Eastern Kentucky counties. The company is headquartered in Frankfort and has major operating facilities in Ashland, Hazard, Louisa and Pikeville.

American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP’s transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection, the interconnected transmission system that covers 38 eastern and central U.S. states and eastern Canada, and approximately 11 percent of the electricity demand in ERCOT, the transmission system that covers much of Texas. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP’s headquarters are in Columbus, Ohio.

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Ronn Robinson
502.696.7003

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