New energy sources requires new thinking

EcoPower Generation has just the kind of story we like to hear out of Kentucky, or anywhere else for that matter.

Founded in 2009, it wants to build a plant to generate electricity by burning waste wood in the heart of Kentucky's eastern forests.

The plant would do a number of things: create jobs, diversify Kentucky's energy portfolio, create a market for wood that often rots in the forest unsold, as well as generate electricity with significantly less environmental cost than burning coal, and more reliably than other alternative sources.

The company, created by experienced power and utility executives, has nailed down a location in Hazard, passed a couple of major regulatory hurdles, secured access to the electric grid and lined up wood suppliers. It should create about 500 jobs, 40 or so in the plant once it's running, and others in logging, trucking and other spin-offs.

Wonderful story, right?

Curb your enthusiasm; this is where things get complicated by outdated state rules.

EcoPower, which plans to sell its power in the wholesale market rather than directly to consumers, already has considerable investment but needs to borrow $150 million to begin construction. Lenders want to see a contract to sell the power from the plant before they commit.

This is where what ecoPower CEO Gary Crawford calls "regulatory mismatch" comes into play.

A kilowatt generated at this wood-fired plant is likely to cost 20 to 30 percent more than one generated at a much larger coal burning plant.

In the majority of states that require utilities to include alternative energy in their portfolios, that wouldn't be a problem. There would be a market for this home-generated, non-fossil-fuel power. But Kentucky, where coal is king, is not one of those states.

It still could be an economically viable deal for a utility. This plant will produce 50 to 60 megawatts of electricity compared to the 300 to 500 megawatts in a typical baseload plant, so the power purchased at the higher rate would be such a small share of the whole that it would have minimal impact on rates or bottom lines.

But, Kentucky law requires regulated utilities to go with the least-cost option, and the Public Service Commission has interpreted that narrowly and with a short-term view.

In his dissent on a case involving wind power, Commissioner James Gardner disagreed with the majority decision to deny the deal based on the least-cost principle. He noted that wind would provide a small portion of total power and the price would be guaranteed for 20 years. As the cost of other power increases, it could become a lower cost source.

But Gardner's most compelling point was that Kentucky runs the risk of huge rate increases in the future if we don't take any action now to diversify our energy sources.

Coal has been cheap (at least on your electric bill, much less so if environmental and health costs are factored in) but it won't always be. What will happen when coal prices jump if Kentucky has done nothing to develop other sources of power?

Gardner wrote that he and his colleagues had "a good-faith disagreement" about least cost. The PSC, and power companies, need "clear direction" from national and state elected representatives to plot our energy future.

In Kentucky, a good start would be legislation that gives the PSC more flexibility in assessing least cost, followed by joining the majority of states that require diversification in energy sources.

Such measures could mean a happier ending for the ecoPower story. More important, they would be a big step toward energy security for future Kentuckians.