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AEP Will Invest in Wind Power, Energy Efficiency Under Proposed Agreement in Big Sandy Rate Case

Under the terms of a tentative agreement, Kentucky Power will invest heavily in energy efficiency improvements in Eastern Kentucky, and convert half of its Big Sandy Power Plant to natural gas.Last year, Kentucky Power announced plans to retire the coal-fired Big Sandy Power Plant in Lawrence County, rather than spend a billion dollars retrofitting it with pollution controls. The decision was greeted with dismay by the coal industry and politicians; the plant is in coal country, and if it’s not economical to burn coal there, it doesn't bode well for the industry.  The plan currently before the Public Service Commission includes retiring half of the plant—Unit 2—and replacing it with electricity generated at a coal-fired power plant in West Virginia. The company also planned to retire Unit 1, but hadn’t yet proposed a way to replace that capacity. The proposed change would raise electricity rates by eight percent, as opposed to an estimated 31 percent increase if the plant was retrofitted to keep burning coal.Now, Kentucky Power—which is owned by American Electric Power—has reached a tentative agreementwith two of the intervenors in its rate case. The Memorandum of Understanding with the Sierra Club and Kentucky Industrial Utilities Customers lays out several steps the company will take to improve energy efficiency and reduce air emissions.Under the terms of the MOU, Kentucky Power agrees to:

  • File with the Public Service Commission to convert Big Sandy Unit 1 to natural gas. That was floated as one of the options for the plant last year, but the company had also mentioned trying to buy generation from another existing coal-fired plant;
  • Pay $3 million this year, $4 million next year, $5 million in 2015 and $6 million in 2016, 2017 and 2018 (that’s a total of $30 million) in energy efficient investments in Kentucky Power’s service area. That includes weatherization, home heating improvements and distributing information about reducing energy usage. Sierra Club spokesman Sean Sarah says the program will mimic other AEP initiatives throughout the company’s service territory. “I think it will help them with their bottom line, and it certainly helps the folks in Kentucky save a little bit of cash as we transition from Big Sandy to new generation sources,” he said;
  • Incorporate plans for 100 megawatts of wind power into its generation mix. That won’t necessarily be wind power generated in Kentucky, but could be purchased from another state or an existing wind farm;
  • Invest $500,000 toward economic development (including job training in weatherization and energy efficiency) in low-income areas of Lawrence County and surrounding areas.

But this is anything but a done deal. All of this is still pending, and is made more complicated by the fact that the third intervenor in the case—Kentucky Attorney General Jack Conway—hasn’t signed on to the MOU. Public Service Commissioners can only consider unanimous settlements, so if Conway’s office doesn’t agree to the MOU, it can't technically be approved.But PSC spokesman Andrew Melnykovych says the existence of the MOU could simplify and shorten the upcoming hearing on the case. If there are issues that are only contested by KIUC or the Sierra Club, but not the Attorney General, those issues may not have to be litigated, and the commissioners could consider the proposed agreement.The hearing is scheduled for July 10.

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