KU asks to build new plant; rates might rise again

ssloan@herald-leader.comSeptember 16, 2011 

In the wake of stricter federal environmental regulations, Kentucky Utilities asked the state Public Service Commission on Thursday for permission to spend as much as $800 million to build natural gas-fired power generators to replace older coal-fired units. KU expects to eventually ask for a 4 percent increase in rates to pay for the new units.

The change is on top of $1.1 billion that KU has asked the PSC to allow it to spend and charge customers to upgrade its remaining coal plants to be compliant with the revised federal Environmental Protection Agency rules. Those costs show up on utility bills as part of the environmental surcharge; KU will seek an increase in base rates to pay for the new generating units.

"We understand and we sympathize with our customers that costs are rising; however, these are due to meeting the Environmental Protection Agency's new regulations," KU spokeswoman Chris Whelan said.

KU and its affiliated company, Louisville Gas & Electric, plan to spend $583 million to install a 640-megawatt natural gas combined cycle generating unit at LG&E's Cane Run power plant in southwestern Louisville. Cane Run is in LG&E's service territory, but the majority of that plant's power already goes to KU customers. KU will own 78 percent of the plant, with LG&E owning the remainder.

The natural gas combined cycle unit would the first of its kind in the state. It would provide what's called intermediate load, meaning it's used less often than the cheaper base load generated at the company's remaining coal-fired plants.

The utilities also plan to spend $110 million to buy three natural gas-fired turbines in La Grange that will provide 495 megawatts of peak generation, meaning they will be used on the hottest and coldest days of the year, when electricity usage peaks. KU will own 31 percent of those, Whelan said.

The remaining money being spent on the project is for items such as transmission upgrades to deal with the new units.

"It's a good move," said Elizabeth Crowe, executive director of the Kentucky Environmental Foundation. "It certainly shows that utilities are realizing that it's more cost-prohibitive to try to figure out how to make a coal plant clean and cost-effective ... to generate electricity with a cleaner fuel."

LG&E customers are not expected to see a request for a rate increase from these moves. The cost allocated to LG&E is less because it will own a smaller percentage of the replacement generation.

The 1,135 megawatts of new power generation replaces 801 megawatts that are being retired in coal-fired power generation. Along with Cane Run's coal units (563 megawatts), KU is retiring coal-fired units at Tyrone along the Kentucky River between Versailles and Lawrenceburg (75 megawatts) and Green River near Central City (163 megawatts).

Whelan said that while there might be more generation capacity, much of it is for peak production that won't be used often.

After the changes, LG&E and KU will generate 90 percent of their electricity through coal. They now generate 97 percent of their power from coal, which is responsible for more than 95 percent of electrical production statewide.

Coal has been under fire for some time by environmental groups that say the cheap resource creates costly problems. For instance, there is a statewide advisory about mercury in fish tissue because mercury-laden pollution from power plants falls on surface water.

Environmental groups have long argued that electrical companies should better educate consumers to use less electricity to reduce the need for new plants.

Whelan said KU has a robust array of energy-efficiency programs that see good participation rates, but "it's not enough to offset the need here."

"We also looked at renewable energy options ... for this, but it's not enough and it's not the least cost," she said. "We're bound by law to serve our customers in the least-cost fashion. We have accomplished that with this."

KU officials said there eventually would be some savings from the projects because fewer employees would be needed to run the natural gas plant, but the full impact has not been determined.

The Cane Run and Green River coal-fired units will remain operational until the natural gas plant is running, which is projected to occur in 2016. If approved, the three natural gas peak turbines are expected to be available for use by summer.

The utility has asked that the PSC rule on its request by April. State law doesn't set a timetable for the PSC to act, but spokesman Andrew Melnykovych said "the PSC does everything reasonable to try to accommodate requests, though certainly we can't offer any guarantees."

The utility also needs permission from organizations including the Federal Energy Regulatory Commission.

Reach Scott Sloan at (859) 231-1447 or 1-800-950-6397, Ext. 1447.

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