The Kentucky Public Service Commission (PSC) gave conditional approval Monday for the Kentucky Power Co. to purchase a 50% interest in a sister company's coal-fired power plant in West Virginia for about $536 million, a move designed to help replace generating capacity that will be lost in mid-2015 with the closure of a coal-fired unit in Kentucky.
The PSC, an independent agency tied to the state's Energy and Environment Cabinet, said Kentucky Power's proposal to buy a 50% stake in AEP Ohio's 780 MW Mitchell Power Plant in Moundsville, WV, represents "the least costly among the many options for the company to maintain adequate generating capacity."
Kentucky Power and AEP Ohio are both subsidiaries of the American Electric Power Co. Inc. (AEP), which is based in Columbus, OH. The former now has one week to decide whether to accept PSC changes to an agreement between the company, Kentucky Industrial Utility Customers Inc. (KIUC) and the Sierra Club to move forward.
In February, AEP agreed to close or change the source fuel of three coal-fired units in the Midwest by 2015, including an 800 MW coal-fired unit at the Big Sandy Power Plant near Louisa, KY (seeDaily GPI, Feb. 26). The agreement was part of an unprecedented settlement with citizen and environmental groups, eight state governments and the U.S. Environmental Protection Agency. AEP was sued in federal court over the coal-fired plants in 1999.
Kentucky Power had originally proposed installing emission scrubbers at Big Sandy to comply with stricter air emission standards, but balked at the nearly $1 billion price tag.
"The scrubber option [at Big Sandy] was included in the economic analysis used to determine whether the Mitchell acquisition was the best option for maintaining adequate generating capacity," the PSC said. "Purchasing half of the Mitchell Plant will cost much less than bringing Big Sandy's larger unit into environmental compliance."
Kentucky Power still plans to seek PSC approval for converting a 278 MW coal-fired unit at Big Sandy to run on natural gas.
"When operating costs are factored in, the plan approved today will cost Kentucky Power's ratepayers about $59 million less per year than an earlier plan to upgrade Big Sandy," the PSC said. "The Mitchell acquisition eventually will increase Kentucky Power's rates by about 14%, while a Big Sandy upgrade would have increased rates by 26%."
Under the terms of the agreement with the PSC, KIUC and the Sierra Club, Kentucky Power will pledge $100,000 annually to economic development efforts in six eastern counties, to help ease fears that the closure of the 800 MW coal-fired unit at Big Sandy would lead to substantial job losses and lost tax revenue. A portion of at least $33,000 would be spent on job training.
The agreement also calls for Kentucky Power to consider 100 MW of wind power the next time the utility needs additional generating capacity.
Two coal-fired power plants in Pennsylvania are scheduled to be shut down on Wednesday. FirstEnergy Corp. will close its Hatfield's Ferry Power Station in Masontown, PA, and the Mitchell Power Station -- no relation to the AEP Ohio facility -- in Courtney, PA. The total capacity for both plants is 2,080 MW (see Daily GPI, Oct. 8).