The half-million customers served by East Kentucky Power Cooperative will face unnecessary rate increases if the utility moves forward with plans for a new coal-fired power plant in Clark County, environmentalists warned this week.
Activists have long criticized East Kentucky Power Cooperative for the impact of its coal-fired power plants, but now a coalition of Kentucky environmental groups is shifting its focus to the company's finances.
Abandoning the project would save East Kentucky Power, which has received state approval to raise customers' bills each of the past three years, around $500 million in long-term debt, according to a study authored for the coalition by Tom Sanzillo, who works for a New York-based public policy and financial consulting firm. .
Sanzillo's study shows power costs for East Kentucky Power's customers have increased 57 percent between 2002 and 2007.
The state Public Service Commission in the past month approved a 7 percent rate increase that went into effect April 1 and raises a typical residential customer's bill between $5.60 and $6.75. That rate increase is tied to the opening of a new $528 million coal-fired plant at the co-op's Spurlock power station in Maysville.
The co-op has said it needs the higher rates to strengthen its financial position, which had deteriorated so much that it failed in 2006 to meet one of the financial ratios required by its loan covenants. It had lost money during 2004 and 2005 and narrowly had a profit in 2006.
That poor performance of the past, Sanzillo said, will haunt East Kentucky Power as it finds funding for a proposed 278-megawatt coal-fired plant at its Smith power station in Clark County.
"They have a deep financial problem that's going to take a while to change," Sanzillo said.
The new unit is needed to meet growing customer demand, said spokesman Nick Comer, who noted the company had to purchase power from other utilities on two-thirds of the days in 2008 to meet demand.
But the co-op's demand is questioned by Sanzillo, a senior associate with TR Rose Associates. He noted that East Kentucky Power first planned to build the Clark County generator at a time when it was negotiating to add a Warren County co-op to its fold. That deal fell through.
He also said East Kentucky Power's plan is flawed because it continues the company's reliance on coal. It produces about 97 percent of its electricity by burning coal, compared to about 50 percent for other utilities nationally, he said.
That makes the co-op highly susceptible to future carbon regulation by the government. Sanzillo noted federal legislators are already talking about taking aim at utilities that burn coal and that a federal lending service stopped providing loans last year for those types of plants.
"The message coming from Washington is you need to diversify your fuel sources. ..." he said. "The easiest way to begin moving around that is to not build new coal plants."
The environmental groups — the Kentucky Environmental Foundation, Kentuckians for the Commonwealth and the Cumberland Chapter of the Sierra Club — have suggested that East Kentucky Power focus on energy efficiency programs, renewable energy and natural gas.
Comer said the utility already supplies 8 percent of its energy capacity with renewable sources and is "very interested in expanding."
Although the co-op has received 22 proposals for additional renewable power, Comer said building a new coal-fired generator is the cheapest option.
"The Kentucky Public Service Commission has looked at this issue thoroughly and agreed that EKPC needs the unit," he said.