Electricity bills for a “typical residential customer” could surge from about $120 a month to about $157, according to a base rate case filed with the state Public Service Commission by Kentucky Power.
For its part, Kentucky Power is hoping the rate hike will prove unnecessary, but a spokesman said the company was left with no other choice as it continues to wait for other, less costly measures to be approved.
According to a statement from the company, the new plan would cause rates for residential customers to surge 31 percent, although the company also points out that cost mitigation measures could bring that number closer to 20 percent. Nonresidential customers would see their bills climb a lesser amount, 23 percent, with cost mitigation measures potentially bringing that number closer to 12 percent.
Kentucky Power is seeking the rate hike to recover costs of acquiring a 50 percent interest in Ohio Power’s Mitchell Plant, in Moundsville, W.Va., at a cost of $536 million. Under that plan, Kentucky Power would use half of the power generated by the Mitchell Plant to replace the No. 2 Unit at Kentucky Power’s Big Sandy Plant, in Louisa, which is scheduled to close in 2015.
Also on the table, however, is a Memorandum of Understanding that would see the Moundsville acquisition having a much lower 8 percent impact on rates. Ronn Robinson, communications manager with Kentucky Power, said last week that if the MoU is ultimately approved, the rates being proposed today would go away. He said the state Attorney General’s Office has still not signed on to the MoU.
Attorney General Jack Conway issued a statement vowing to fight against the new rate plan and calling into question the utility’s need to make such a move.
“I will oppose this filing by American Electric Power before the Kentucky Public Service Commission,” Conway said. “It is premature as the PSC has not yet approved the transfer of the Mitchell Power facility. A 31 percent residential rate increase is far too much for hard-working eastern Kentucky residents to absorb during these tough economic times. Furthermore, we are concerned that all other potential options have not yet been explored by the PSC.”
Robinson characterized last week’s move as more of a last resort, rather than a bluff. He said the company must engage the convoluted regulatory process on multiple fronts, as it seeks to find a replacement for the 800-megawatt Big Sandy No. 2 unit.
“This is the environment of a complicated regulatory world,” Robinson said.
Also hanging in the air, however, is the Moundsville acquisition itself, which still has not been approved by the PSC. Robinson said if the state rejects the transfer, all of the plans go away and the company will have to find another means of replacing power generation at Big Sandy.
“We would have to start all over,” Robinson said.
Under the new rate filing, the impact on residential customers would be roughly the same — minus the cost mitigation measures — as the company’s scrapped plan from the year before to install a $1 billion scrubber at Big Sandy, in an attempt to keep the plant open. That plan met stiff opposition and the company later dropped it, citing changing market conditions that would allow Kentucky Power to replace the generating capacity of the plant at a cheaper cost.
Greg Pauley, president and COO of Kentucky Power, said the expense is simply part of doing business at a time when the federal government is tightening restrictions on coal-fired plant emissions.
“Environmental compliance is an expensive proposition, and we have always said EPA regulations associated with the continuted use of coal would come at a high cost to customers,” Pauley said. “We are trying to manage those costs as best we can.”
Pauley also reiterated the company’s position that cost mitigation measures would make the current plan less of a burden on customers.
“We understand that this rate case represents a significant cost to customers, even at the anticipated rate for residential customers at 20 percent,” Pauley said. “However, it is less expensive than other options we reviewed and we have worked to keep the impact as low as possible. In fact, the Memorandum of Understanding before the Commission in the transfer case would limit the impact of the Mitchell transfer even more.”
The mitigation measures the company hopes to employ are expected system sales during a period of 18 months, when the company is able to operate the Big Sandy Plant and receive electricity from the Mitchell Plant simultaneously, as well as anticipated lower fuel costs resulting from cheaper coal being used to power the Mitchell Plant.
Those measures, like the rate plan, must all be approved by the PSC. If approved, the company does not expect rates to rise before Jan. 1.