Few things are as important, complex and fraught with political implications in Kentucky as energy policy.
The order last week by the Kentucky Public Service Commission approving Kentucky Power Company's proposal to purchase electricity from an as-yet-unbuilt biomass-fueled power plant near Hazard serves as a case study.
EcoPower Generation has been working on this project to create electricity by burning waste wood since at least 2009. The company is operated by power and utility executives long experienced in navigating the regulatory hurdles of their industry. By 2011 they'd managed to clear a number of those obstacles but ran up against Kentucky's requirement that utilities go with the least-cost option when purchasing power. The PSC had long interpreted that using a narrow and short-term lens, meaning that for decades power companies have mostly gotten approval to sell the electricity produced by burning coal.
The trouble with the least-cost analysis is at least two-fold: It deals only with current costs so it provides no hedge against changes in resources and markets. Second, it takes into account only the direct cost of producing the electricity. None of the ancillary costs — environmental, health, regulatory and so forth — are factored in. So, while individual consumers may pay less, society may pay more but it's outside the PSC's power to consider that analysis.
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Many other states, in fact most, have adopted renewable portfolio standards to address these issues. Essentially, these standards set goals for the portion of a utility company's power that will come from a renewable source. The idea is to provide companies an incentive for diversifying their energy portfolios, which is a longterm strategy, hedging against the exhaustion of fossil fuels and encouraging competition, and thereby for greater efficiencies within the alternative fuel world. Most of the goals are mandatory, though some states have voluntary goals.
Kentucky, deeply in thrall to coal, has none.
So, in 2010, when the PSC considered a proposal for purchasing wind power from Illinois, which has mandatory energy portfolio standards, it turned down the deal. "There is no mandate at this time for utilities in Kentucky to supply renewable energy," the two commissioners in the majority wrote.
EcoPower, backed by the Sturgill family of Eastern Kentucky, which has economic and political clout from decades of coal and timber operations, was able to find a solution for its immediate problem. This spring, the Kentucky General Assembly passed a law specifically allowing the PSC to consider allowing utilities to purchase more costly power "from a biomass energy facility that has received a certificate from Kentucky State Board on Electric Generation and Transmission Siting." In other words, from ecoPower's proposed plant. That allowed the PSC to broaden its view, at least in this one case.
As far as it goes, that's good. It's one small step toward broadening Kentucky's energy portfolio. The trouble is, it's a very tiny baby step and we need great leaps.
We hope the ecoPower plant is built, providing jobs during construction and operation and an alternative, Kentucky-grown power source. It could also provide a market for waste wood from Eastern Kentucky lumber mills and what we hope will be a growing wood products industry, both more environmentally sound than unsustainable logging.
Kentucky needs a more diverse energy portfolio to prosper in the coming decades and it needs more than one biomass plant to diversity that portfolio. Kentucky needs renewable portfolio standards so that Kentucky consumers can benefit from competition for the most environmentally and economically efficient ways to produce power.