Kentucky Power customers due refunds under proposed settlement
Republished from Kentucky Lantern
Kentucky Attorney General Russell Coleman and an industry group are asking the state’s utility regulator to approve a settlement with Kentucky Power that would return nearly $17 million to ratepayers.
The proposed settlement comes after a hearing earlier this year in which experts hired by Coleman and the industrial utility customers criticized Kentucky Power’s costs to purchase fuel for electricity generation as too high.
The proposed settlement with Kentucky Power, which would have to be approved by the Kentucky Public Service Commission (PSC), would provide an average total credit of $51.19 over the winter months of 2025 and 2026 to about 131,000 Kentucky Power residential ratepayers. The credit line on bills would read “Fuel Adjustment Credit.”
Coleman in a statement last week said the settlement would bring “real relief for Kentuckians who are already paying the highest utility rates” in the state.
“Our office is proud to fulfill our responsibility to promote affordable and reliable energy for families who will soon see the savings on their monthly electricity bills,” Coleman said.
A state report last year found investor-owned Kentucky Power, a subsidiary of Ohio-based American Electric Power (AEP), had the highest average monthly residential utility bills of all Kentucky utilities at $187 a month.
Kentucky Power spokesperson Sarah Nusbaum in a statement said the proposed settlement “reflects our commitment to balancing the needs of our customers with sound financial and operational practices.”
“By avoiding prolonged litigation, we are able to provide meaningful relief to customers while creating a path for continued collaboration with stakeholders,” Nusbaum said.
A mechanism called the fuel adjustment clause (FAC) plays a large role in how much utility bills are from month to month. The FAC allows Kentucky electric utilities to automatically pass along to ratepayers the cost of fuel purchases — such as buying coal or natural gas for fossil fuel-fired plants that provide almost all of Kentucky’s electricity — without having to seek an increase in their base rates.
The PSC requires electric utilities to go through a formal review process every two years to examine the reasonableness of fuel costs collected through the fuel adjustment clause; the PSC in a case this year was reviewing fuel costs collected from November 2020 to October 2022, leading to the proposed settlement.
Consultants hired by Coleman and the industry group Kentucky Industrial Utility Customers argued in written testimony that Kentucky Power’s fuel costs collected through the adjustment clause over the two years were “excessive and unreasonable.”
Lane Kollen, a vice president at J. Kennedy and Associates Inc. in Georgia, testified the “very poor operation” of Kentucky Power’s coal-fired power plants during the two years led Kentucky Power to rely on its more expensive natural gas-fired combustion turbine at its Big Sandy Power Plant in Lawrence County or purchase more expensive power on the PJM energy grid operator market.
Kollen said there were several months when units were offline at the coal-fired Rockport Generating Station in Indiana, which Kentucky Power stopped buying power from in December 2022. Likewise for the coal-fired Mitchell Power Plant in West Virginia, co-owned by Kentucky Power with another AEP subsidiary Wheeling Power. Kollen said neither coal-fired power plant was operating in the month of October 2022.
“The costs of operating [the Big Sandy Power Plant] and the energy purchases significantly exceed the lower fuel costs of the Company’s base load coal-fired generating units,” Kollen said.
The consultant added that with the coal-fired power plants operating poorly, Kentucky Power also couldn’t sell coal-fired power to the wider energy grid market and collect revenue from those sales to reduce costs for ratepayers.
Kollen and another consultant pointed to a cost threshold mechanism that Kentucky Power uses to determine if the cost of fuel purchases each month are reasonable and can be collected through the fuel adjustment clause. If the cost of fuel purchased in a month is below that threshold, known as the peak unit equivalent (PUE), then Kentucky Power can collect the costs through the FAC.
The consultants argued that Kentucky Power’s cost threshold for determining if the cost of fuel purchases is reasonable was too high, leading to inflated fuel costs being borne by ratepayers.
Kentucky Power in a rebuttal argued its coal-fired power plants did not perform poorly and that outages were planned well in advance during expected times of lower electricity demand and approved by the regional electric grid operator. Additionally, Kentucky Power said it did not have control over when the Rockport Generating Station was offline as it was buying power from the plant.
Before reaching a settlement with Coleman and the group representing industrial utility customers, Kentucky Power had argued changing its cost threshold mechanism amounted to “impermissible retroactive ratemaking” after the mechanism had previously been decided in another PSC case in 2018.
The settlement agreement says Kentucky Power will also “prospectively modify” its PUE mechanism along with providing the credit to ratepayers’ bills.
Kentucky Lantern is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kentucky Lantern maintains editorial independence. Contact Editor Jamie Lucke for questions: info@kentuckylantern.com. Follow Kentucky Lantern on Facebook and Twitter. Kentucky Lantern stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0.
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