Kentucky Utility Plans to Retire Big Sandy Unit 2 in 2015

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Kentucky Power Company (Frankfort, Kentucky) has changed its mind again and announced plans to retire Unit 2 of its Big Sandy Power Station, located in Louisa, Kentucky, in 2015. The decision, announced last month, completed a year-long cycle where the utility, a unit of American Electric Power (NYSE:AEP) (Columbus, Ohio), first said it would spend $940 million to install a flue gas desulphurization (FGD) system to lower sulfur dioxide emissions at the 816-megawatt (MW) unit. But that plan was withdrawn in mid-2012, in part because installing scrubbers would drive up electric rates by about 31%.

Big Sandy Unit 2 began operating in 1969. For more on Kentucky Power's evolving compliance planning at Big Sandy Unit 2, see December 16, 2011, article - AEP Unit to Spend $940 Million to Scrub Big Sandy Power Station, and June 19, 2012, article - AEP Withdraws Request to Build Scrubber at Kentucky's Big Sandy Unit 2. Kentucky Power provides power to approximately 173,000 customers in all or parts of 20 eastern Kentucky counties.

To replace the loss of generation from Big Sandy Unit 2, which began operating in 1963, Kentucky Power wants to spend about $530 million to acquire 50% ownership of the 1,560-MW Mitchell Power Station, located in Moundsville, West Virginia. That plant is currently owned by another AEP unit, AEP Ohio (Gahanna, Ohio). The Mitchell station is equipped with advanced environmental controls, including a FGD system, and meets all current U.S. Environment Protection Agency (EPA) (Washington, D.C.) power plant emission regulations. The transaction will increase the average monthly residential customer bill by 8%, Kentucky Power estimated.

The other 50% of the Mitchell plant will be transferred to another AEP subsidiary, Appalachian Power Company (Charleston, West Virginia), providing state regulators approve the transaction.

"At this time, and after much study and evaluation, we think this filing represents the best path forward for the company to meet both its environmental and customer obligations," said Greg Pauley, president and chief operating officer of Kentucky Power, in a statement. He added that the transaction will have a far lower impact on customer electric rates and "will save our customers millions of dollars while bringing us into environmental compliance.

"When we withdrew our scrubber filing last summer, we stated that we felt new opportunities were emerging that would allow us to meet our obligations at a lower cost. The possibility of transferring these Mitchell units was among those opportunities, and doing so will allow us to reduce the impact on customers' bills."

Kentucky Power has not yet decided what it will do about Big Sandy's older and smaller Unit 1, which began operating in 1963, has 278 MW of generating capacity and is scheduled to retire in 2015. Later this year, Kentucky Power will file a plan with the state's utility regulators. In the meantime, the utility plans to issue requests for proposal (RFP) in the near future for resources to replace Unit 1's output when it is retired. The utility will evaluate those RFP responses, along with the potential to convert Unit 1 to burn natural gas.

Regarding Unit 1, Pauley pledged to perform due diligence "an affordable plan that balances the needs of our customers, shareholders and the environment."

The two-unit Big Sandy plant burned about 2.5 million tons of coal, and most of which was mined locally. Kentucky Power's decision comes as scores of other coal-fired plants in the region are being shut down because of the expense of installing pollution-control equipment to meet new emissions regulations from the EPA.

Reacting to Kentucky Power's decision to retire Big Sandy Unit 2, Kentucky State Representative Rocky Adkins told The New York Times: "It's kind of like we have had our heart and soul taken from us. The impact on the economy here is just going to be devastating. We will get up, dust ourselves off and we will try our best to move forward." Adkins is the majority floor leader of the Kentucky House of Representatives.

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