Major KY utility companies burning coal, gas could get break on financing under new bill
Kentucky House lawmakers want to expand utility providers’ ability to cover the cost of compliance with toughened environmental regulations against coal-fired power plants and out-of-state fossil-fuel generation costs.
Several Eastern Kentucky Republicans floated a securitization expansion bill Monday they say would lower electricity costs for mountain residents who pay the highest on-average power bills in the state.
Shrinking populations in Appalachia and a still-declining coal industry have put a strain on companies that deliver electricity across some of Kentucky’s harshest terrain. The GOP-controlled legislature first OK’d electric utility securitization in 2023, giving regulated public companies the power to raise money by issuing cheaper, state-backed bonds through an intermediary.
“Kentuckians across our region have seen skyrocketing electric costs,” wrote Rep. Patrick Flannery, R-Olive Hill, one of the new bill’s co-sponsors, in an emailed statement. “To many families, the effects of higher utility bills are more than an inconvenience — they are a real strain. Eastern Kentuckians need meaningful relief.”
Now, Republican lawmakers are seeking to add to the list of costs major, investor-owned utilities can finance cheaply by making special carve-outs for federal regulations on coal waste and ensuring out-of-state power plant investments count, too. The bill would prohibit utilities from seeking rate increases for at least two years when they use the state as a co-signer on bonds.
The idea, growing in popularity nationwide, is that public companies can use an authorized third party to issue low-interest bonds to generate up-front money for infrastructure improvements without diluting shares or issuing their own, higher-interest securities.
Securitization laws calm investors’ fears that they could be left holding the bag if a public utility company goes belly-up. When state regulators put their stamp of approval on a fresh set of utility bonds that hit Wall Street, those securities sell quickly and cheaply, because investors know they have a promise from a state government — not just a company.
Kentucky Power Co. earned the Public Service Commission’s blessing in June to finance costs incurred by retiring its Big Sandy coal-fired plant, storm cleanup and fluctuating fuel charges. In the commonwealth’s first-ever securitization case, the company said the move would save customers more than $97 million.
There are only a small handful of investor-owned utilities in Kentucky, but they serve some of the most populated and industrious regions of the state, including Louisville Gas and Electric Co. in the Louisville metro area, Kentucky Utilities Co. in and around Lexington and northern Kentucky’s Duke Energy Kentucky Inc.
Kentucky Power serves about 165,000 customers in 20 of the state’s easternmost counties.
Kentucky Power would benefit
Once again, Kentucky Power and its customers are among the likely beneficiaries.
The company was approved in late December to begin reinvesting in a West Virginia coal-fired power plant it says it needs to diversify its energy portfolio. The Mitchell Power Plant, co-owned by Wheeling Power Co. in Moundsville, West Virginia, needs major renovations to its spent coal ash ponds and pollutant control systems to comply with tougher U.S. Environmental Protection Agency standards on wastewater.
An agreement Kentucky Power reached with several interveners in that case promised the company would make a good-faith effort to convince the General Assembly to authorize more costs for securitization.
“Our goal is to securitize to reduce bill impacts, reinvest capital in Eastern Kentucky and ultimately continue to operate the Mitchell Plant,” Tanner Wolffram, Kentucky Power director of regulatory services, said during a PSC hearing on the Mitchell reinvestment case in mid-November.
Indeed, the bill Flannery introduced alongside Rep. Derek Lewis, R-London, requires investor-owned utilities seeking the PSC’s permission to securitize costs to first file an application to “build or acquire in-state dispatchable generation.” Utilities would also have to agree to a two-year freeze on base rate increases.
“This legislation is not a cure-all for every challenge we face,” Lewis wrote in an emailed statement. “But it represents a big step forward. Estimated savings for the average residential customer are approximately $144 per year, and for families watching every dollar, that relief matters. More importantly, the bill signals a commitment to energy policies that put eastern Kentucky communities first and support a more stable, affordable future.”
Flannery and Lewis said the bill could generate an economic boost for the region, including a nine-figure construction project at the Big Sandy Plant in Louisa. The company already converted one of the coal-fired units at its Big Sandy Plant to natural gas in 2016, but a spokesperson said it will file a PSC request to convert another retired unit to natural gas this year.
That project, which was expected to be completed by 2029, according to the company’s 2022 integrated resource plan, would “add new dispatchable generation to support reliability and customer needs,” a company spokesperson told the Herald-Leader via email. The company “appreciates policymakers’ focus on solutions that emphasize both affordability and reliability for eastern Kentucky” and welcomes working with lawmakers on the legislation, the statement continued.
Utility costs a common theme
Utility costs have emerged a common theme in the early days of the General Assembly’s budget cycle, as lawmakers seek to navigate rising living costs and pit that against the need for more generation to fuel Kentucky’s data center expansion plan.
An undercurrent in much of that public policy discussion is a fierce GOP commitment to coal and natural gas the caucus almost uniformly believes is critical to keeping Kentuckians employed. But business-friendly Republicans also face an uncomfortable balance as it’s up to the utility companies (plus their members or investors) to decide how to keep lights on in the commonwealth.
Key to that balance is the PSC, the three-member administrative panel with ultimate say over a utility company’s rates, construction projects and pipeline safety. Last year, Senate President Robert Stivers, R-Manchester, expressed his displeasure with the PSC’s direction.
Members are appointed by the governor, and Democratic Gov. Andy Beshear has stacked the deck with Democratic appointments, including two members who are former Democratic lawmakers.
Monday, the House passed another utility financing bill that would modify pro-coal power plant legislation from 2023 to ensure the PSC doesn’t hamper utilities wanting to spread out infrastructure improvement costs.
Witnesses who testified before a House committee last week suggested the PSC was intentionally misinterpreting the law to mean slight changes to a power plant’s expected date of retirement would require new administrative hearings and requests for approval.
Several Republicans have also added their names to a bill that would require the PSC, the recently created Energy Planning and Inventory Commission and governor to submit information to the legislature annually about existing electric generation resources and forecast changes in demand.
Meanwhile, Democrats in Frankfort are making utility disconnections a top priority. Behsear pledged to create a $75 million fund to help at-risk Kentuckians pay their bills in his proposed budget, but he’s said he doesn’t have the power to issue a moratorium on disconnections during adverse weather, despite calls from advocacy groups pushing for the executive branch to act.
Bills introduced so far this year would prevent gas and electric companies from disconnecting service during period of extreme high or low temperatures and force companies to post their service disconnection plans to the PSC website.
