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THE APPLICATION OF KENTUCKY POWER

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THE APPLICATION OF KENTUCKY POWER ( the-application-kentucky-power )

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The Eastern Mid-Atlantic Area Council (“MAAC”) and Westein MAAC regions have the highest CONE estimates at $112/kW-year ($307/MW-day) and $109/kW-year ($298/MW-day) respectively on a level real basis. The Southwest MAAC and Rest of RTO Areas are somewhat lower, both at $103/kW-year ($283/MW-day), primarily because of non-union labor availability in Southwest MAAC and avoidance of dual-fuel capability in the Rest of RTO region. The lowest CONE estimate is in Dominion at $93/kW-year ($254/MW-day), which has relatively lower costs because of non-union labor as well as the assumption that the plant can be operated without an SCR. For comparison, we also present estimates provided by Power Project Management (“PPM”) in their 2008 CONE study. After escalating with inflation to 20 15 dollars, the PPM level-nominal estimates are $19-23/kW-year ($53-62/MW-day) higher than our estimates in the three CONE Areas reported. The lower capital costs in our study are related primarily to reductions in equipment, materials, and labor costs since 2008, as well as the substantially larger size of the GE 7FA.05 turbine now available compared to the previous GE7FA.03 turbine model. Finally, Table 51 also shows the CONE value PJM has applied in its recent auction for the 2014/15 deliveiy year, escalated for one year of inflation to represent 2015/16 dollar values. Total Plant Capital Cost (Sfif) Jiriie 1. 2015 Oiilirie Date (201.5s) Net Summer Overnight Fixed O&M w-Y) $15.7 $15.8 $15 2 $15 1 $14 7 After-Tax WACC VX) 8.47% 8 49% 8 46% 8 44% 8 54% 8 07% 8 09% 8 11% Levelized Gross CONE Level Real LevelNoininal PJM 2014115 CT CONE ($/k W y ) Escalated at CPI foi I Year $142 1 $131 4 $135 0 $131 4 $131 5 CONE Area ICAP (MW) 390 390 390 390 392 c o s t ($/k cyJ $791 2 $722 6 $737 3 $768 2 $649 8 Brattle 2011 Estimate 1 EastemMAAC 2 Soitthwest MAAC 3 Rest of RTO 4 Western MAAC 5 Doininion $308 3 $281 5 $287.3 $299 3 $254 7 $1340 $123 7 $123 5 $130 1 $1110 $154 4 $142 8 $146 1 Power Project Management, LLC 2008 Update Table 51 Recommended CONE for Gas CT Plants in 2015/16 Jiriie I,2008OiiluieDate(EscalatedatCPlfrom2008$to2015s) 1 EastemMAAC $350 3 2 Southwest MAAC $322 1 3RestofRTO $3325 336 $1,0422 $172 336 $9584 $175 336 $9894 $153 As shown in Table 52, Eastern MAAC has the highest CC CONE at $14l/kW-year ($385/MW- day) on a level-real basis, while Rest of RTO and Westein MAAC are a bit lower, both at $135/kW-year ($370/MW-day). Southwest MAAC and Dominion have the lowest CONE estimates at $123/kW-year ($338/MW-day) and $120/kW-year ($329/MW-day) respectively, due primarily to non-union labor rates in those locations. Our estimates are $6 to 12/kW-year ($17 to 32/MW-day) below the inflation-adjusted Pasteris Energy CONE estimates on a level- nominal basis primarily due to a higher ICAP rating and lower equipment, materials, and labor costs since 2008 relative to inflation. Our higher plant ICAP rating is due to the larger size of the GE 7FA.05 turbine compared to the GE7FA.04 turbine model examined by Pasteris, as well as the greater duct-firing capability in the plant we examined and lower equipment, materials, and labor costs since 2008. Table 52 also shows the CC CONE value PJM has utilized for the 2014/15 deliveiy year, inflation-adjusted to 2015/16 dollar values. 45 ($/k cv-v) $1120 $1034 $103 1 $1086 $928 ($/IC PV-y)

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