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Kentucky Power’s rates will increase by 5% in January

Residential customers of Kentucky Power Company will see their monthly bills rise approximately five percent beginning January 1.

The lower-than-expected increase became a reality this week when Kentucky Power, a subsidiary of AEP, accepted the modified “Stipulation and Settlement Agreement” among Kentucky Power, Kentucky Industrial Utility Customers Inc. and the Sierra Club that allows transfer of a 50 percent interest in the Mitchell Power Plant, outside Moundsville, W.Va., to Kentucky Power.

With acceptance of the modifications, Kentucky Power is authorized by the Kentucky Public Service Commission to acquire a 50 percent interest in the two Mitchell Power Plant generating units, along with the associated assets and liabilities, from AEP Ohio. The transfer is expected to close Dec. 31.

The transferred generating units (totaling 780 megawatts) will substantially replace generation currently provided by Big Sandy Power Plant Unit 2 (800 MW), which will be retired in 2015.

In approving the transfer, the Kentucky PSC noted Kentucky Power’s economic analysis demonstrated over a 30-year period that transfer of the Mitchell Plant generation would be $379 million cheaper than the next least-costly alternative, and as much as $819 million cheaper in constant dollars than installing sulfur dioxide removal equipment, or “scrubbers,” on Big Sandy Unit 2.

In the settlement, Kentucky Power agreed to withdraw its pending $114 million request for a rate increase and to freeze base rates. However, the company is authorized to recover a portion of the costs associated with the transfer of the Mitchell generating assets through an asset transfer rider applied to customer bills. Kentucky Power will recover only $44 million of the $138 million in Mitchell-related annual costs.

Monday’s agreement means a $119.69 monthly residential bill will increase by about $5.98 to $125.64. Kentucky Power originally sought a 31 percent increase that would have elevated the $119.69 bill to $156.93.

However, the Mitchell acquisition eventually will increase Kentucky Power’s rates by about 14 percent, while a Big Sandy upgrade would have increased rates by 26 percent, the PSC found.

Kentucky Power also agreed this week to seek approval from the PSC to convert Unit 1 at Big Sandy to operate using natural gas instead of coal. The PSC will have to approve the Unit 1 conversion in a future case. Unit 1 is also scheduled to stop using coal in 2015.

“We are pleased that the Kentucky Public Service Commission approved the transfer of the Mitchell generation and agreed that this is the most cost-effective way to meet federal environmental rules and continue providing reliable, affordable electricity to all our customers,” said Greg Pauley, president and chief operating officer of Kentucky Power. “We care about the employees who work at Big Sandy and the businesses and residents in Louisa and Lawrence County and are committed to working with them through the transition.”

Big Sandy Unit 2 is expected to continue operating until 2015.

In addition to the Mitchell purchase, key provisions of the agreement announced by the PSC last week and agreed to by Kentucky Power this week include:

· A freeze on Kentucky Power’s base rates until May, 31, 2015, and withdrawal of a pending application to increase rates by 24 percent.

· A $44 million annual limit, to extend for 17 months, on recovery of costs associated with the Mitchell acquisition, with the recovery coming via a surcharge.

· A 20-percent increase in Kentucky Power’s shareholder contribution to its energy assistance program for low-income ratepayers.

· A doubling, to $6 million per year, of Kentucky Power’s program to help its customers save energy through measures such as weatherization.

· A commitment by Kentucky Power to consider the purchase of 100 MW of wind power the next time the company seeks additional generating capacity.

Kentucky Power had a week from Oct. 7 to decide whether it would accept the modifications the PSC made to the agreement, including the increased economic development funding and clarifications to certain other provisions.

Environmentalists last week hailed the agreement as “an important moment in Kentucky’s history.”

The agreement is a “win for public health and the dawn of a new economic era,” said Alice Howell, Chair of the Cumberland Chapter of the Sierra Club in Kentucky. “However, the impacts of this economic transition go beyond this one case. It is critical that we continue to look for ways to work with the governor to support clean energy investments in eastern Kentucky to help replace coal-related jobs.”

Asked what measures Howell and the Sierra Club have in mind to create new jobs in the eastern Kentucky coalfields, Alex DeSha, the Club’s associate organizing representative for eastern Kentucky, said there is no miracle cure for what ails the region.

“There is no one silver bullet to turning the economy around in eastern Kentucky and dealing with the reality of the coal markets,” said DeSha. “Coal jobs will not be replaced unless our political and business leaders step up to the challenge and create policies that encourage economic and energy diversification. Investing in renewables and energy efficiency are a large and important piece of that pie to create jobs and move Kentucky’s economy forward.”

Added DeSha: “Eastern Kentucky has been hit especially hard by the downturn of both domestic and international coal markets. Coal jobs are likely not going to return at significant rates in the region and it’s time for some new ideas. Dollar for dollar, investing in energy and efficiency and weatherization in eastern Kentucky will create good paying jobs. When businesses save money through energy efficiency they take that money and reinvest it in their business by hiring more workers.”

It remains unknown what effect, if any, Kentucky Power’s commitment to purchasing wind power would have on eastern Kentucky’s economy.

“Currently there are no windmill projects in eastern Kentucky,” said DeSha. “Wind technology is advancing at an incredible rate, and it is opening up opportunities in Kentucky. Under the settlement agreement, Kentucky Power must include a Request For Proposals (RFP) for wind as part of its Integrated Resource Planning (IRP). When making decisions for the future of our energy production, it would be short-sighted not to consider a diverse range of options, including wind and other renewables to make sure we are making the best decision for our energy security and stability.”

The Mitchell acquisition eventually will increase Kentucky Power’s rates by about 14 percent, while a Big Sandy upgrade would have increased rates by 26 percent, the PSC found.

This report was compiled from staff and Associated Press dispatches.

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