Regulatory Matters

Big Rivers continues to monitor the development of the Midwest Independent System Operator (MISO). The company continues to believe it would incur additional costs from Regional Transmission Organization (RTO) membership without receiving corresponding benefits. As a cooperative, Big Rivers is concerned about incurring the additional costs of RTO/MISO membership without having the ability to provide an offsetting economic benefit to its members.

A state law that became effective in 2003 requires Kentucky utilities to operate their transmission facilities so that retail electric service to Kentucky customers and wholesale service to Kentucky electric distribution cooperatives have the highest priority during a transmission emergency. Big Rivers revised its tariffs in 2003 to comply with this law. In January of 2005, a United States District Court judge in Kentucky struck down this law, finding that it forces Kentucky utilities to discriminate against retail and wholesale electric customers in other states in violation of the Constitution of the United States. The implications of this ruling for Big Rivers are unclear, and will depend, in part, upon any changes in the ruling that may occur after appeal.

Thoroughbred Energy Company, a Peabody Coal subsidiary, filed an application with the Kentucky Electric Generation and Transmission Siting Board for approval to site its proposed 1,500 MW merchant electric generating plant in Muhlenberg County, Kentucky. Big Rivers intervened in that proceeding, and among other things, sought to protect itself from incurring transmission interconnection costs Kentucky law prohibits it from recovering through its member rates. The Siting Board held in favor of Big Rivers on that issue. Thoroughbred appealed that finding and others to the Muhlenberg Circuit Court. The appeal is currently on hold while negotiations are being held to resolve issues raised by the appeal. Big Rivers and Thoroughbred have negotiated and obtained Kentucky Public Service Commission (KPSC) approval of an interconnection agreement that resolves the interconnection cost issue.

Big Rivers obtained a certificate of public convenience and necessity from the KPSC in 2005 to construct a 161 kilovolt (kV) transmission line approximately 17.3 miles in length in Breckinridge and Meade Counties, Kentucky. Construction of this project began during 2005.

Big Rivers, HMP&L and certain affiliates of the E.ON U.S. Parties reached agreement in 2005 on a number of business issues surrounding the construction and operation of the SCR at HMP&L Station Two. The documents containing those agreements have been approved by the KPSC, and are awaiting approval by Big Rivers’ creditors. In another matter, Big Rivers filed its periodic integrated resource plan with the KPSC in November of 2005. The KPSC is holding its review of that plan in abeyance temporarily while Big Rivers reviews whether the pendency of the proposed unwind transaction justifies it seeking other changes in this proceeding.