LOUISA — Kentucky Power Co. announced Monday it plans to invest nearly $1 billion in a retrofit of one of the generation units of the Big Sandy Power Plant.

The  improvement,  necessitated by new, tougher regulations from the Environmental Protection Agency, would be accompanied by a nearly 31 percent increase in electric rates, which would be instituted after the retrofit has been completed.

Officials with Kentucky Power filed paperwork with the Kentucky Public Service Commission on Monday afternoon for approval of a project to construct a system designed to remove sulfur dioxide from the gas produced by burning coal for  the Big Sandy Power Plant’s 800-megawatt electricity generation unit.

The system, called a dry flue gas desulfurization, or “scrubber” system, uses both chemical and mechanical processes to remove sulfur dioxide produced by burning coal by “scrubbing” the gas produced from coal when generating electricity. Scrubbers can remove up to 98 percent of the  sulfur dioxide from the gas stream and have been shown to remove oxidized mercury as well, according to a press release from Kentucky Power.

Greg Pauley, president and chief operation officer of Kentucky Power, said the company’s current plan is to retire the other 278-megawatt electricity generation unit at the end of 2014.

Pauley said the company is still looking into other options for that unit, and the impact on staffing or retiring the unit won’t be known until a final decision is made.

The cost of the scrubber system is about $940 million, according to the press release.

If the project and rate increase are approved by the PSC, a Kentucky Power residential customer using 1,000 kilowatt hours per month would see a bill increase of about $31, or 31 percent. It means that a 1,000-kilowatt bill would increase form $98 to $129.

The rate increase would probably take effect in 2016, after the scrubber has been constructed, Pauley said.

“In this trying economy we are conscious of the impact any rate increase will have on our customers,” he said in a Kentucky Power press release. “However, this investment is in the best interest of our communities overall and will permit job retention, a significant contribution to the tax base and the continued use of coal which employs so many individuals in Eastern Kentucky.

“Customers should know that Kentucky Power will make every effort to bring the project in on time and within budget, thus lessening any further rate impacts.”

Ranie Wohnhas, managing director of regulation and finance for Kentucky Power, said the PSC approval process will probably take about six months. If the plan is approved, other permits will need to be obtained and engineering studies will have to be completed before work begins.

Construction of the scrubber should begin near the middle of 2013, he said.

The plan to construct a scrubber replaces an original plan to retire both generation units and rebuild one as a 640-megawatt natural gas plant in order to comply with new EPA regulations which are currently scheduled to begin to go into effect in 2014.

Pauley said the company decided to instead construct the scrubber after considerable research. He said the option is the least-cost option for the company, as well as the best for the local economy.

The project is expected to create as many as 700 jobs during the peak of construction.

Pauley said that American Electric Power, of which Kentucky Power is a unit, will continue to push for the EPA to extend the deadline for the new regulations.

“We think it’s too much too soon,” he said.

But in the meantime the company will move forward with bringing the Big Sandy Power Plant into compliance with those regulations, Pauley said.

“We are moving forward with that action in order to get into compliance as soon as we can,” he said.

KATIE BRANDENBURG can be reached at kbrandenburg@dailyindependent.com or (606) 326-2653.