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Kentucky Power to raise rates by 35%

by Lisa Abbott — last modified Jan 31, 2010 11:25 AM

AEP logoA number of Eastern Kentucky residents, businesses and elected officials are voicing concern over Kentucky Power’s recent request to raise rates by 35%.  Kentucky Power is part of American Electric Power and serves 175,000 customers across 20 eastern Kentucky counties.

Louisa Mayor Teddy Preston was quoted in the Ashland Daily Independent as saying, “It’s the wrong time. People can barely make it on Social Security. I can understand a smaller rate hike, but not 35 percent.” The mayor also stated on local radio programs that the impact on the city’s budget would be significant, since the community’s water and sewer plant, along with other properties, currently use about $10,000 in electricity each month.

If approved by the Kentucky Public Service Commission, the bill for an average Kentucky Power residential customer would rise from the current price of $114.57 to $154.62. This is based on a monthly usage of about 1,400 kilowatt-hours.

Kentucky Power’s rate request is similar to rate hikes that the parent company AEP has requested in neighboring states. In August of 2008, AEP explained that it was seeking a 45% rate increase for its Ohio customers to cover sharply rising coal prices. “The fact is that coal has doubled in cost in the last year alone, dramatically affecting AEP Ohio’s costs,” an AEP executive said in a statement at the time.

The recent move by Kentucky Power is part of an overall trend among electric utilities in Kentucky, which together produce about 92% of their power by burning coal. Historically, coal has been relatively inexpensive fuel, giving Kentucky an economic advantage. But Kentucky’s residential, commercial and industrial customers are now seeing their utility bills rise due to many factors, including the increasing costs of purchasing fuel, building new power plants, and managing coal’s environmental impacts.

A 2008 USA Today article discussed how these factors were causing utility prices in West Virginia and Kentucky to rise faster than the national average. Industry analysts were quoted in the article saying that residents of coal-dependent states should expect additional rate increases even before the passage of expected carbon regulations. The article closed with a quote from an American Electric Power executive, who stated, “There not a whole lot of reason why the prices would start to temper.”

These trends are an important reason why the member groups of the KY Sustainable Energy Alliance are working to diversify Kentucky's energy portfolio and increase investment in energy efficiency programs. It is time to ramp up efficiency efforts that are already proving successful in other states to help residents and businesses save energy and money.

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Would rates decrease with Alternatives?

Posted by Erik Hungerbuhler at Jan 31, 2010 09:38 PM
Simple question. Would alternatives alleviate the need to raise rates?


great question

Posted by Anonymous User at Jan 31, 2010 10:52 PM
Hello Todd. Great to see you've found your way to this site. You ask a good question.

I'll start with a frank answer: utility rates are likely to keep rising, especially in KY, no matter what course of action we take. The question is, how fast, how high, and what's the best set of solutions for rate-payers?

At the moment, the cheapest way for utilities to "generate" new energy is to invest in programs that help customers save energy. Energy efficiency strategies cost about $.03 per kw-hour saved. Compare that to the cost of coal from a new power plant, which comes in around $.07 per kw-hour before any new costs are added for managing carbon or coal combustion waste.

So either course of action will cost ratepayers, but rates will increase less if utilities invest heavily in efficiency strategies.

Going with energy efficiency has an added benefit for rate-payers. Your bill is determined by the Rate (the price you are charged per kilowatt-hour) and the Amount of energy you use. So, it's possible to help people stabilize their bills - even if the rates keep rising - by helping them reduce the amount of energy they use.

A number of states now require utilities to develop energy efficiency programs that achieve annual energy savings worth about 2% of their overall retail sales the year before. Demand for electricity has grown in Ky at a rate of about 2.3% a year over the past decade. So, a requirement like this could wipe out or greatly delay the need for utilities to build expensive new generating capacity.

For a comparison of the costs of efficiency, renewables, and other traditional fuels (coal, natural gas, nukes), here's a link to a February 2009 study by a well-respected national firm:[…]/lazard2009_levelizedcostofenergy.pdf.

You'll see energy efficiency is by far the cheapest option, followed by wind, geothermal, biomass, natural gas combined cycle, and coal.

I hope that's helpful.

Report Leads to Questions

Posted by Anonymous User at Feb 01, 2010 11:33 AM
Energy efficiency is the key to our future! Im all for it!

As for the report, page 14 "Levelized Cost of Energy - Key Assumptions" what does "Capacity Factor" depict? Im assuming it pertains to the amount of output or kw generation?

The $ amounts shown, where do they come from? National averages? Particular states?

Also, what about regulatory permits fees? What is involved with obtaining the necessary paper work to permit and operate any of the alternative energies facilities?

Thanks for the report,

Report Leads to Questions

Posted by Anonymous User at Feb 02, 2010 08:58 PM
Hi Todd. I'm not ignoring your good questions. I've just been caught up in other things. I can't respond fully right now, but please check back in a day or so. Thanks!
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