Kentucky Power abandons plan to upgrade aging coal-burning plant

ssloan@herald-leader.comMay 30, 2012 

Kentucky Power on Wednesday asked to withdraw its controversial request to upgrade an aging coal-burning power plant.

The last-minute reversal came just days before the Monday deadline by which the state Public Service Commission would have ruled whether the electric utility could spend almost $1 billion to install pollution controls on its Big Sandy plant north of Louisa. The plant is its only one in the state.

Kentucky Power's change of plans is another blow to coal in a state that's one of the nation's leading producers. Nationally, coal has come under fire by federal regulators who have created more stringent pollution rules.

Utilities are opting to close coal plants rather than pay millions to upgrade them. They're turning instead to natural gas, which has become cheaper due to new production techniques.

In Kentucky, too, major electricity provider East Kentucky Power Cooperative backed away from building a new coal-fired power plant after coming under intense criticism from environmentalists who noted a series of financial problems it had in past years.

And Kentucky Utilities recently received approval from the PSC to retire three of its coal plants in favor of natural gas electric generation.

Changing plans

The Big Sandy plant dates to the 1960s and has two units totaling 1,078 megawatts. Kentucky Power had proposed retrofitting the second unit, which is 800 megawatts, with a scrubber to control emissions, while retiring the smaller and older 278-megawatt unit.

That plan had surprised some in the state, particularly after the leader of the utility's parent company, American Electric Power, said last year that the burden of meeting new federal pollution standards probably would cause it to retire many of its coal-fired power plants, including Big Sandy, in favor of other options such as natural gas-fired power generation.

But Kentucky Power then made an about-face in favor of coal, which is iconic in its service territory of more than 170,000 homes and businesses in all or parts of 20 Eastern Kentucky counties.

On Wednesday, Kentucky Power spokesman Ronn Robinson said the reason for the utility's decision to abandon its pro-coal plan was "the ever-changing energy landscape."

He said Kentucky Power expects excess electricity to be readily available for purchase from other sources by the time it would have to comply with the new EPA standards.

"That being the case, we can have some more time to fully evaluate what's in the best interest of our customers," he said.

A losing case?

Observers of the case had questioned whether Kentucky Power would have succeeded in persuading the PSC to sign off on its plan.

The issue for the PSC in Kentucky Power's case was whether the retrofit was the least-cost option. While the PSC's role in environmental surcharge cases is more limited than in regular rate cases, it does have the power to reject plans that, in its estimation, are not the least expensive.

Kentucky Power had asked the PSC to approve the project and allow it to recoup $940 million in costs through the environmental surcharge on customers' monthly bills. If approved, the proposal would have raised the typical residential customer's electric monthly bill by about $31, or 30 percent, beginning in 2016, according to the PSC.

"I think the company saw the writing on the wall, which is that environmentalists, industrial interests and the state attorney general all made a pretty persuasive case that spending nearly a billion dollars on an aging coal plant was not the least-cost option," said Shannon Fisk, an attorney for environmental law firm Earthjustice that represented the Sierra Club in the proceedings.

"Kentucky Power was proposing to raise rates by over 30 percent in one of the most impoverished parts of the state to continue an aging coal-fired power plant, which doesn't make sense," Fisk said.

A rejection by the PSC would have been the first for a major environmental surcharge plan.

Wallace McMullen, chairman of the energy committee of the Cumberland chapter of the Sierra Club, called Wednesday's filing by Kentucky Power good news for the state.

"We should not be anchoring the commonwealth to the past and to all the health problems that come with coal and ripping up the landscapes and damaging the waterways and so forth," he said.

Bill Bissett, president of the Kentucky Coal Association, called the decision "very concerning."

"At this point, I think they'll have a lot of questions to answer from the many pro-coal politicians in Kentucky who have been assured this plant would continue to use coal," he said.

"We'll have to look at what those answers are in the future, but again I think the concern is what this means economically, not just for Eastern Kentuckians but for all the commonwealth, that federal regulations out of D.C. change the way we generate electricity in the United States.

"We understand that electricity rates will increase in the future, but using a domestic-to-Kentucky energy source would have to be in the economic interests of everyone."

State House Majority Leader Rocky Adkins, D-Sandy Hook, who represents the 99th District that includes the Big Sandy plant, echoed Bissett's concerns. He said rates are likely to increase no matter what direction Kentucky Power takes, and "wheeling power in" rather than generating it through coal would be "devastating" to Eastern Kentucky's economy.

He said installing scrubbers would save the jobs of miners and plant operators, and create thousands of construction jobs.

"I believe with all of my heart that putting scrubbers on that power plant is in the best interest of everyone involved," he said.

He said he hoped Kentucky Power would come back to the idea.

"If they look at it in the correct manner, then they'll come back with the same decision, to put the scrubbers on and continue to ... make use of a resource that is the backbone of our economy," he said.

Mounting criticism

In briefs this month, filed after the commission's hearings in the case, the attorney general's office argued vehemently that Kentucky Power's plan should be rejected.

Allison Martin, a spokeswoman for the attorney general's office, declined to comment Wednesday, saying it would be inappropriate while the case remained before the commission.

In its role of representing consumers, the attorney general's office also took aim at the idea that keeping a coal plant in Eastern Kentucky helps the region's economy.

If the retrofit were approved, the facility would "likely expand the types of coal that it uses at the plant, thus using less low-sulphur Eastern Kentucky coal, and replacing it with more higher-sulphur varieties such as Illinois Basin coal," the attorney general's office said in the brief. Of the coal used at the plant, roughly 70 percent of it is mined in Kentucky, the PSC said.

Big Sandy's future

The PSC is expected to rule on Kentucky Power's request to withdraw the plan within a day or two, PSC spokesman Andrew Melnykovych said.

In the meantime and into the near future, the status quo remains at the plant. The plant will continue to operate until the EPA compliance deadlines loom in the next couple of years, Robinson of Kentucky Power said.

So what will Kentucky Power do as the time comes?

"We are going to evaluate everything going forward," he said. "We'll evaluate natural gas, going to the market; a scrubber may still be in the mix.

"Gas will certainly be part of the mix. We could go that way, but we may choose to go another way as well."

Staff writer Josh Kegley contributed to this story. Scott Sloan: (859) 231-1447. Twitter: @HeraldLeaderBiz.

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