The deal allows Kentucky Power to substantially replace most of the impending loss of its 1,078-megawatt Big Sandy coal plant near Louisa in eastern Kentucky. The utility plans to retire Big Sandy’s largest, 800-megawatt coal unit in 2015 to comply with federal Environmental Protection Agency rules and convert the smaller, 278-megawatt coal unit to natural gas.

Mitchell, whose five units went into commercial operation between 1969-1972, currently is owned by AEP’s Ohio Power Co. subsidiary. The plant is equipped with scrubbers that enable it to burn higher-sulfur coal.

Kentucky Power accepted several conditions attached by the PSC to its approval of the 780-megawatt purchase. The transfer is expected to close December 31.

In approving the transfer, the PSC noted that Kentucky Power’s economic analysis showed that over a 30-year period, the Mitchell acquisition would be $379 million cheaper than the next least-cost alternative, and as much as $819 million less expensive in current dollars than installing scrubbers on Big Sandy’s largest unit.

The agreement approved by the PSC includes economic development and job training support for Lawrence County, where Big Sandy is located, and surrounding counties totaling $233,000 annually for five years. The Big Sandy closing/conversion has been controversial in eastern Kentucky, with local and coal industry officials concerned about the potential elimination of hundreds of power plant and mining jobs.

State Rep. Rocky Adkins, a Democrat and longtime coal industry supporter from eastern Kentucky, urged the PSC to find a way to keep Big Sandy open to preserve well-paying jobs, tax revenue and coal sales.

Earlier this year, Kentucky Power reached a settlement on the Mitchell acquisition with several groups, including the Sierra Club and Kentucky Industrial Utility Customers, a trade group, that resulted in several provisions endorsed by the PSC. Among them were Kentucky Power’s agreement to freeze its base electric rates until May 31, 2015, and withdraw a pending application to raise rates by 24%, and to consider the purchase of 100 megawatts of wind power the next time the company seeks additional generating capacity.