Ky Power seeks rate adjustment to fund investments to meet EPA rules and growing operating costs

FRANKFORT, Ky., er 16, 2014 – Kentucky Power, a subsidiary of American Electric Power (AEP), plans to ask the Kentucky Public Service Commission to adjust customer rates, the next step in a cost-conscious plan to meet increasing EPA demands. The adjustment also will pay for expanded tree trimming to strengthen service reliability and cover growing costs of doing business.

The request completes the recovery of Kentucky Power’s remaining commitment to purchase half of the coal-fired Mitchell power plant in Moundsville, West Virginia. That sale, approved by commissioners in 2013, replaces nearly all of the 800 megawatts produced by Unit 2 at Big Sandy, which is set to close in 2015. Purchase of the Mitchell plant, which burns some Kentucky coal, saves Kentucky Power customers nearly half a billion dollars over the $1 billion price tag of installing scrubbers on Big Sandy Unit 2. The scrubber option would have required a 31 percent rate increase to fund the equipment needed to meet new federal environmental rules.

“The Mitchell transaction has proven to be the most cost-effective choice we could have made for our customers as we work to comply with stricter EPA requirements,” said Greg Pauley, Kentucky Power’s president and chief operating officer. “We understand any increase is difficult for our customers. That’s why when we go before the Kentucky Public Service Commission for a rate adjustment, we do so only after a thorough review of the most economical way to serve our customers today and well into the future.”

One way Kentucky Power is addressing consumer needs is by increasing tree trimming to reduce outages. Since 2010, the company has doubled its contract forestry work force to clear rights of way and has worked to trim trees along every mile of line. The rate adjustment includes nearly $11 million to move toward a four-year trimming cycle to further improve reliability.

The company also is advancing the well-being of Eastern Kentucky by investing in the communities it serves, promoting economic development projects and making multiple contributions. Kentucky Power recently partnered with 12 area banks to finance $75 million in capital projects. And earlier this year, the Kentucky Power Economic Advancement Program, which is funded by AEP shareholders and not Kentucky Power customers, awarded $200,000 in development grants to three Eastern Kentucky projects – the Big Sandy area Development District, the City of Paintsville and the Louisa Chapter Southeast Kentucky Chamber of Commerce.

Kentucky Power also is an active participant in Shaping Our Appalachian Region (SOAR) initiative created by Gov. Steve Beshear and Rep. Hal Rogers, R-Ky., to improve the economy and quality of life in the region. In addition to its support of business development, Kentucky Power contributes millions of dollars to other causes within its service territory. From 2009 to 2013, Kentucky Power donated $3.1 million. About 40 percent of the money went to education, while 30 percent went to hunger and housing projects. The remaining funds were divided among multiple worthwhile projects. Kentucky Power also aids customers through its energy efficiency programs by providing home energy audits, heat pump rebates and free CFLs. Helping customers swap just five incandescent bulbs with compact fluorescents can save about $60 a year.

“We take seriously our role as a partner for progress in the areas we serve,” Pauley said. “To do that, we take into consideration our customers and strive to balance their needs with our needs to improve our infrastructure so that we can continue to provide safe and reliable electric service while keeping prices as affordable as possible.”

Kentucky Power’s request seeks nearly $70 million, a 12.48 percent overall increase. The exact amount of the increase will vary by customer class and usage. Under the proposal, residential customers using an average 1,362 kilowatt hours per month would see an increase on their monthly bills of about $22, or about 72 cents a day. Under the scrubber plan to meet EPA mandates, the average residential bill would have jumped nearly $43 a month, or $1.41 a day.

The requested rate adjustment fulfills the Settlement Agreement previously approved by the commission. Under the settlement, Kentucky Power agreed to accept significantly less than cost-based rates during the interim period between the Mitchell transfer and when new rates are approved by the commission following the retirement of Big Sandy Unit 2. The rate adjustment request is required to be filed no later than December 29, 2014. The Settlement Agreement also called for the establishment of an Asset Transfer Rider to collect $44 million to recover a portion of the Mitchell assets. Of the $70 million now requested, $37.7 million or 6.73 percent, is needed to complete the asset recovery, which is below the original estimate of 8.21 percent.

“We are extremely pleased that the Mitchell transfer represents a smaller percentage of the increase than we estimated it would be,” Pauley said. “This is good news for customers.”

The Mitchell acquisition is one part of Kentucky Power’s plan to ensure safe, reliable and affordable electric service for customers now and into the future. In addition to buying half of Mitchell, the company earlier this year received approval from the Kentucky Public Service Commission to convert Big Sandy’s smaller, 278-megawatt Unit 1 to burn natural gas instead of coal. The conversion, which is set to be completed in 2016, keeps half of the plant open and preserves several jobs.

Kentucky Power, with headquarters in Frankfort, Ky., provides service to approximately 172,000 customers in all or part of 20 eastern Kentucky counties. It is a unit of the AEP system, one of the largest electric utilities in the United States, with more than 5 million customers in 11 states, including Kentucky. 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.

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