Louisville, Kentucky (Platts)--23Dec2013/435 pm EST/2135 GMT

Kentucky Power's reliance on coal for electric generation is expected to fall from 99% in 2013 to 71% in 2028, according to a report the company submitted Monday to the Kentucky Public Service Commission.

In its latest integrated resource plan report, the American Electric Power subsidiary said it has no plans to construct any new baseload capacity over the next 15 years. But it does plan to purchase 100 MW of wind energy and add about 90 MW of solar capacity over the period.

The utility has announced plans to retire an 800-MW coal unit at its Big Sandy power plant near Louisa in Lawrence County in 2015 and convert another 278-MW coal unit to natural gas.

Recently, Kentucky Attorney General Jack Conway appealed to the Franklin County Circuit Court a PSC decision allowing Kentucky Power to acquire 50%, roughly 780 MW, of the 1,560-MW Mitchell baseload coal plant in West Virginia from an AEP affiliate, Ohio Power.

Conway questioned a Kentucky Power analysis that indicated it would cost more than $900 million to install scrubbers on Big Sandy to allow the plant to continue burning coal for years to come.

Many eastern Kentucky officials, including State Representative Rocky Adkins, a Democrat, are fighting to persuade Kentucky Power to change its mind and keep Big Sandy open. They warn Central Appalachian coal producers who sell coal to Big Sandy will suffer once the changes take place.

Kentucky Power expects to close on the Mitchell transaction by December 31. In addition to Mitchell, the utility also purchases 393 MW of capacity from the 2,600-MW Rockport baseload coal plant in Spencer County, Indiana. Rockport is operated by Indiana Michigan Power, another AEP subsidiary.

Kentucky Power said in its report Monday that coal market volatility has increased as a result of various events affecting the supply and demand picture for coal in international markets.

"Various countries have lessened their previously stated export coal quantities to rebuild domestic stockpiles, which caused all international coal markets to tighten and prices to rise significantly," the report said.

In addition, the decreased value of the US dollar relative to most major foreign currencies "contributed to US coal being more competitive based on the price in the international export market," it added. "There also has been an increasingly strong demand for coal worldwide, especially in emerging economies, along with sustained coal consumption in the United States."

Early last year, the report continued, the global demand for coal "seemed insatiable and that demand placed a significant upward pressure on the price of coal."

Conversely, since last fall, "there was a slowdown in the world and US economies that reduced demand for US coal and has effectively lowered the market price," the report said.

--Bob Matyi, newsdesk@platts.com --Edited by Derek Sands, derek.sands@platts.com

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