Louisville, Kentucky (Platts)--19Dec2012/541 pm EST/2241 GMT

Kentucky Power plans to retire an 800-MW coal-fired generating unit at its Big Sandy power plant in 2015 and replace its output with 50% ownership in the 1,560-MW Mitchell coal plant owned by an affiliate in West Virginia, the American Electric Power subsidiary said Wednesday.

The utility asked the Kentucky Public Service Commission on Wednesday for permission to recover approximately $530 million from ratepayers for the transfer of half ownership in Mitchell from AEP Ohio, a subsidiary of Columbus, Ohio-based AEP that includes Ohio Power and Columbus Southern Power.

In addition to PSC approval, the transfer also must be approved by US Federal Energy Regulatory Commission. If approved, Kentucky Power's 175,000 customers would see their electric rates rise by about 8% on January 1, 2014.

Kentucky Power had planned to spend almost $1 billion to install pollution controls on 800-MW Unit 2 at Big Sandy by 2016 to comply with new federal emission rules. A second coal unit at the baseload plant, 278-MW Unit 1, was to be retired.

But the utility in May said it was abandoning the project, citing changes in the electricity market.

Unit 1's future remains up in the air. Kentucky Power said it will issue a request for proposals early next year to potentially replace its generation. The proposals will be evaluated along with the possibility of converting the unit to natural gas.

--Bob Matyi, newsdesk@platts.com --Edited by Jeff Barber, jeff_barber@platts.com