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Kentucky PSC Gives Kentucky Power the Go-Ahead to Join PJM; Estimated Net Benefits of $13.4 Million Anticipated

The Kentucky Public Service Commission (PSC) recently approved the application of an American Electric Power (AEP) subsidiary, Kentucky Power Co., to join the PJM Interconnection regional transmission organization.

The PSC reached its decision after new evidence was presented concerning the costs and benefits of Kentucky Power’s membership in PJM and after the parties to the case filed a stipulated agreement. The stipulation spells out that PJM’s operating rules will not conflict with Kentucky state laws, particularly a statute that requires utilities in the state to give priority to native load in the event of an emergency on the transmission system.

The stipulation also affirms the PSC’s authority over Kentucky Power’s retail rates. The commission had originally rejected Kentucky Power’s application to join PJM on July 17, 2003, because, according to the PSC, the proposed transfer would impose costs on the utility’s ratepayers without providing demonstrable benefits, and therefore, would not be in the public interest. Kentucky Power serves about 175,000 customers.

The commission granted an AEP request to reconsider its decision and allow AEP to submit a new cost-benefit analysis that was specific to Kentucky. The Kentucky Office of the Attorney General and the Kentucky Industrial Utility Consumers, a group representing major industrial electric customers, also signed the stipulation.

Benefits identified in the cost/benefit study are: 1) greater off-system sales income; 2) net revenues from the sale of financial rights to transmit power on the AEP-East transmission system; and, 3) avoided contract costs for services that will now be performed by PJM.

According to the order, costs included in the analysis consist of approximately $3.9 million per year as Kentucky Power’s allocated share of the PJM administrative costs that will be borne by AEP. Total nominal benefits to Kentucky Power over the 5-year period are estimated to be $33.1 million, with estimated net benefits of $13.4 million, after recognizing Kentucky Power’s share of the PJM administrative costs. Of the total benefits identified for the 5-year period, $24.3 million are attributed directly to Kentucky Power’s increased profits from off-system sales. This income is shared with retail customers through Kentucky Power’s monthly system sales clause.

The PSC will now seek to be dismissed from the Federal Energy Regulatory Commission (FERC) proceeding on the grounds that the PSC’s new order renders it moot. If FERC does not grant the request, the order will not take effect, and the case will continue. For more information, contact Jack Hawks at jhawks@epsa.org, or call 202-349-0143.