Harder times expected with loss of Ky. power plant

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Associated Press

Posted on November 3, 2013 at 7:02 PM

LOUISA, Ky. (AP) — For decades, the nearby Big Sandy power plant did more than keep the lights on — it supplied this Appalachian town with a bounty of tax revenue and some of the best-paying jobs around as it converted regional coal into electricity.

Massive piles of coal are still stacked outside the Big Sandy complex, but now its prospects are dim.

Kentucky Power Co., which operates the two-unit Big Sandy complex in Lawrence County, plans to close the larger 800-megawatt unit in 2015. Dozens of prime jobs will be lost in a county of 16,000 people with little other industry and a jobless rate around 10 percent.

"It's bad and it's going to get worse," County Attorney Mike Hogan said.

Mom-and-pop stores lining the small downtown worry the fallout will hurt business. The school district is bracing for a potentially big loss of revenue as an economic mainstay prepares to downsize in the hilly county across the Big Sandy River from West Virginia.

In a deal touted by environmentalists and approved recently by utility regulators, Kentucky Power will pump more than $1.1 million into the area in coming years to try to soften the setback. Regulators with the Kentucky Public Service Commission can't recall another instance when a utility doled out economic aid to an area hit with the loss of a utility plant in the state, said PSC spokesman Andrew Melnykovych.

The PSC can't unilaterally order such economic development payments. Kentucky Power agreed to offer up the economic development aid, and by doing so opened the door for the PSC to review the amount. The regulators more than doubled the contribution.

The money is earmarked for economic development efforts, but in an impoverished region coping with the decline of the coal industry, local officials are skeptical the contribution will stimulate much growth.

"You can do all the feasibility studies you want," Hogan said. "There's not any industry going to relocate here that's going to pay those kinds of wages."

Wayne T. Rutherford, judge-executive in Pike County in the heart of eastern Kentucky's coal country, said Kentucky Power's top executives had "sold out our region and its people," with a "stamp of approval" from the Public Service Commission.

The decision to mothball the coal-fired unit "now falls on those of us who are left to deal with the economic ramifications," Rutherford said.

To replace the generating capacity it gets from Big Sandy, Kentucky Power will purchase half interest in a West Virginia power plant that will supply electricity to a broad swath of eastern Kentucky. The deal is expected to close at the end of the year.

Purchasing a 50 percent interest in Ohio Power Co.'s 780-megawatt Mitchell plant south of Moundsville, W.Va., will cost about $536 million. The deal was considerably cheaper than retrofitting the Big Sandy unit with an emissions-removing scrubber to meet stricter air emission standards.

Kentucky Power and Ohio Power are subsidiaries of American Electric Power Co., based in Columbus, Ohio. Kentucky Power provides electricity to about 175,000 customers in 20 eastern Kentucky counties with pockets of deep poverty.

As part of the deal, Kentucky Power agreed to withdraw its pending $114 million rate case and freeze base rates. But the utility can recover a portion of its Mitchell-related expenses from customers.

As a result, the average residential customer will see a net increase of about 5 percent, or $6.70 per month, beginning Jan. 1, the utility said.

In giving its consent, the PSC said the statutory standard in the case dealt with whether the Mitchell plant acquisition was necessary in light of Kentucky Power's decision to close the Big Sandy unit, and whether it was the lowest-cost option available.

"Arguments on economic benefits to specific areas of Kentucky Power's service territory are beyond the scope of the commission's jurisdiction," the agency wrote.

Regulators said Kentucky Power customers would have faced much higher rates if the utility had opted for the Big Sandy upgrade.

Kentucky Power said it agreed to seek regulatory approval to convert its 278-megawatt Big Sandy unit to burn natural gas instead of coal. That unit also is scheduled to stop using coal in 2015.

Closing the larger Big Sandy unit and switching to the West Virginia power plant was "the most cost-effective way to meet federal environmental rules and continue providing reliable, affordable electricity to all our customers," company President Greg Pauley said.

"We care about the employees who work at Big Sandy and the businesses and residents in Louisa and Lawrence County and are committed to working with them through the transition," he said.

The plant employs about 80 people and expects to need 25 to 35 fulltime workers for the smaller unit.

Even if the smaller plant keeps churning out power, Lawrence County is bracing for a big drop in tax revenue from Big Sandy. The plant contributes more than $900,000 a year in local property tax revenues, with slightly more than half going to the schools.

Rachel Thacker, co-owner of a hardware store in downtown Louisa, said the county will struggle to offset the lost jobs and revenue "if we don't get some type of industry in here."

Kentucky Power recently paid for a consultant to assess Lawrence County's needs to expand its economy. The consultant concluded the county needs to increase sewage capacity — a multi-million-dollar venture, Lawrence County Judge-Executive John Osborne said.

"We know what the problem is, but where are we going to get the money to build a sewer plant?" he said.

Kentucky Power initially pledged to spend $100,000 in each of the next five years for economic development initiatives in Lawrence County and neighboring counties, where as many as one in three people live at or below the federal poverty level, according to Census data. The commission directed Kentucky Power to contribute at least $233,000 annually, a figure Hogan still called "a slap in the face."

Part of the money will go for job training. County leaders are skeptical the money will filter down to help many people.

"It'll be spent more on development and research to tell us what we need," Osborne said. "It'll be money to go to somebody else's pocket, but as far as to actually creating anything for the county, no."

Osborne added: "If you do train them, where in the heck are they going to get work?"

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