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Bluegrass Beacon: Bad energy policy leading to higher electricity costs

By JIM WATERS
Bluegrass Institute for Public Policy Solutions

Friday, July 7, 2017 — How is it that residents in one of America’s most energy-abundant areas now face the real possibility that proposed hikes in their electric bills will result in a hard choice between staying warm next winter and making the weekly trek to the grocery store?

State Rep. Chris Harris, D-Forest Hills, blames greed.

Harris is seeking legislative means to stop Kentucky Power, a subsidiary of American Electric Power (AEP), from getting approval from the Public Service Commission to raise rates by a whopping 16 percent – or more than $20 monthly on average residential customers – in his coal-country district next year.

Additionally, he’s sponsoring the first two pre-filed bills of the 2018 General Assembly which include a request that the PSC reconsider $100 million worth of previous rate-increase approvals for Kentucky Power.

Harris is outraged that the company is asking for such a huge rate hike when it’s (a) already had large increases approved in recent years, and (b) its parent company’s profits are soaring.

Both points are undeniably true.

· The PSC has approved three increases totaling $104 million in rate increases plus $68 million in additional funding for costs related to projects like closing the Big Sandy power plant in Louisa, for which Kentucky Power customers are getting charged $16 million annually for 25 years to cover. The company’s newest request would add nearly $70 million in rate increases and additional charges to customers’ bills.

· AEP’s stock prices have doubled during the past five years with dividends increasing for its stockholders each year.

Kentucky Power, in a release accompanying its latest rate-increase request, blamed a 14.2-percent decrease in electricity usage among its customer base just since September 2014 due to losing 2,000 residential and 450 industrial and commercial customers.

The company says it must charge more to cover the cost of continuing to provide electricity to the region.

“You can’t just shut down a third of a generation power plant” because there are fewer customers, Allison Barker, the company’s corporate communications manager, said in a phone conversation. “You either run the whole plant or you run none of it.”

Harris is right in that Kentucky Power, which, while privately owned, also has a monopoly on the electric business in a full slice of Eastern Kentucky – including some of America’s poorest counties – must justify all rate-hike requests.

But Barker says that while AEP has been profitable, each of the power company’s state-based divisions must pay their own way.

“We don’t get money from American Electric Power,” she said. “We pay for our own generation, distribution and transmission, and the way we recover costs is from Kentucky Power customers.”

While AEP has operating companies in other states, “you wouldn’t ask a Kentucky Power customer to pay for a project in Oklahoma; neither do Oklahoma customers want to pay for a project in Kentucky,” Barker explained.

Harris should be equally outraged that what’s happening in Eastern Kentucky – and likely to occur in many other places across not only the commonwealth but the nation – is directly connected to concerted efforts by the Environmental Protection Agency to target coal-fired power plants without regard to the devastating consequences for his constituents.

Bad-policy chickens whether in Harris’ district or districts nationwide don’t look good roosting in the form of higher electric bills, job losses or questionable supply of cool air for hot summers or heat for rough winters.

Only the economically naïve could believe that the shutdown of one victim of the EPA’s anti-coal campaign – a large unit at the Big Sandy Plant in Louisa, which consumed around 2 million tons of coal most years and employed 500 workers annually but was slated for​​ ​
shutdown by Kentucky Power in 2012 – wouldn’t yield future negative consequences.

While Kentucky Power’s rate request must be vigorously debated, it should be done so against a backdrop of understanding that bad policies always produce appalling consequences.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

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