PSC approves electric rate settlement for Kentucky Power

The approved settlement authorizes Kentucky Power to increase annual revenues by $45.4 million

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Kentucky Power accepted a modified settlement of its base electric power rate adjustment request approved this week by the Kentucky Public Service Commission.

In its order issued Monday the commission said, “Based upon a review of all the provisions in the settlement, an examination of the entire record, and being otherwise sufficiently advised, the commission finds that the provisions of the settlement are in the public interest and should be approved, subject to modifications.”

The approved settlement authorizes Kentucky Power to increase annual revenues by $45.4 million, about 35 percent less than the $70 million requested. Importantly, the settlement implements the final step in the transfer of half of the Mitchell Power Plant in West Virginia to Kentucky Power.

In 2013, the commission approved the transfer of a 780 MW interest in the plant as the most cost-effective way to replace power generation facilities being retired to meet emerging environmental requirements. The settlement also increases the customer share of margins on the sale of excess generated electricity by Kentucky Power.

Customers also will benefit from an additional $10.5 million the commission authorized for tree trimming and vegetation management efforts. Since 2010, Kentucky Power has doubled its contract forestry work force to clear rights of way and has worked to trim trees along every mile of distribution lines. The rate adjustment will allow Kentucky Power to move toward a five-year trimming cycle to further improve reliability and reduce power restoration times.

The program calls for every circuit to be trimmed end to end every five years. Kentucky Power already is seeing a reduction in the frequency and length of outages on fully trimmed circuits. The settlement also includes a rate reduction provision tied to the company’s transition to a five-year trimming cycle that primarily will benefit residential customers.

Included in the commission’s order is the authorization of a 15-cent monthly charge that will generate about $300,000 annually to support economic development in the 20 counties Kentucky Power serves in Eastern Kentucky. As part of Kentucky Power’s continuing investment in its service territory, money generated by the economic development surcharge will be matched dollar-for-dollar by company shareholders for a total of $600,000 each year.

In addition, the commission order authorized a 10.25 percent return on equity for a number of purposes, including investments for environmental compliance and the conversion of Big Sandy Unit 1 in Louisa, Kentucky, to a gas-fired unit. Earning a fair return on equity is critical to Kentucky Power’s ability to do business, Pauley said. It directly affects bond ratings and therefore the cost to finance infrastructure improvements, make long-term investments and provide reliable electricity.

Under the order, the residential customers who use an average of 1,362 kWh per month will see their bills increase from about $125 a month to about $132 with the cost per kWh going up from 8.59 cents to 8.91 cents. The national residential average is 12.32 cents, according to the U.S. Energy Information Administration.

Overall, the commission held the residential base rate increase to 9.89 percent instead of the 16 percent proposed in the initial rate adjustment request. The commission also reduced the amount of the proposed increase in the residential customer charge and increased the per kWh residential energy charge.

Kentucky Power, with headquarters in Frankfort, Ky., provides service to nearly 170,000 customers in all or part of 20 eastern Kentucky counties. It is a unit of the American Electric Power (AEP) system.

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