...Resilient Credit Metrics: Kentucky Power Co.'s (KPCO) credit metrics were negatively affected in 2015 by the one-time disallowance of fuel-cost fees related to the Mitchell power plant. Fitch Ratings expects credit metrics to recover in 2016 and forecasts KPCO's adjusted debt/EBITDAR to return closer to 4.0x through 2018, which is consistent with Fitch's guideline ratios for utilities rated `BBB¡'. The base case scenario assumes earned return on equity (ROE) will return closer to the industry average in 2016¡2018, supported by the rate case decision and tight cost management. Constructive Regulatory Environment: The regulatory environment in Kentucky is generally supportive of credit quality, in Fitch's opinion, as evidenced by the balanced settlement to KPCO's most recent general rate case (GRC) in June 2015. While the GRC resulted in a base rate decline, the settlement also included incremental riders for environmental surcharges, fuel cost adjustments and various other items resulting...
