The Richmond Register

July 12, 2013

Stakes ‘enormous’ in KPC attempt to close coal plant

By Ronnie Ellis
CNHI News Service

FRANKFORT — Officials with the Kentucky Power Company claim a proposal to acquire half-interest in a coal-fired generator in West Virginia while it shuts down coal-fired units at its Big Sandy plant in Louisa is the best low-cost option for its ratepayers.

But opponents – and even some who support the move – questioned that contention during the first two-days of a marathon hearing before the Kentucky Public Service Commission.

Lawrence County Attorney Mike Hogan argued passionately for the PSC to reject the proposal saying “Lawrence County will cease to exist as it is today” if it is approved.

He was joined by Rep. Rocky Adkins, D-Sandy Hook, and Lawrence County School Superintendent Mike Armstrong who argued the move would devastate the community in northeast Kentucky, cost jobs and damage the already embattled coal industry.

Also opposing the move is the Kentucky Attorney General’s office, which contends the KPC should have investigated other low-cost options to provide electricity to roughly 175,000 customers in 20 eastern Kentucky counties. The AG wants the company to advertise for proposals to meet the federal pollution guidelines.

Dennis Howard, an attorney with the AG’s office, and PSC staff attorneys also repeatedly asked officials from KPC and its parent company, American Electric Power, why they did not seek an outside, independent analysis of the value of the two plants and the costs associated with bringing Big Sandy into compliance with air quality laws and regulations.

It will likely be several weeks before the PSC issues a ruling, but the stakes are enormous.

Even before President Barack Obama recently ordered the Environmental Protection Agency to come up with new regulations to govern carbon emissions, KPC was under a federal consent order either to reduce its emissions at Big Sandy or to close the plant by July 1, 2015.

KPC originally sought a rate increase of roughly 31 percent to finance a $980 million installation pollution control devices called scrubbers at the two coal-fired units in Louisa. The rate increase was opposed by the attorney general, rate-payers and environmental groups and KPC subsequently withdrew that request.

Instead, it asked the PSC to grant it permission to acquire half interest in the Mitchell Power Plant at Moundsville, W.Va., which is owned by Ohio Power, another AEP subsidiary, while closing the Big Sandy operation at an estimated cost of $536 million. The Moundsville facility already has installed scrubbers.

Then in late May, the company agreed to a partial settlement with Kentucky Industrial Utility Customers (KIUC) and the Sierra Club, both of which had previously joined the attorney general as interveners.

The agreement would allow the transfer and calls for base rates to remain at current levels through at least May 31, 2015. The company will provide $100,000 a year for five years for economic development in Lawrence and surrounding counties, a portion of it for job training and the remainder for energy efficiency measures. It also calls for converting one coal-fired unit at Big Sandy to natural gas, which is cheaper and cleaner-burning than coal.

Witnesses for both KIUC and the Sierra Club testified there may actually be lower-cost options to bring Big Sandy into compliance, but they said the settlement offers other benefits such as eliminating the coal-burning units, economic development funds for the area and avoids costly litigation.

The attorney general declined to participate in the settlement and the PSC must approve the agreement for it to take effect.

Ranie Wonhas, managing director of regulatory power for Kentucky Power, testified the move would require a total rate increase of just less than 14 percent to finance the transfer. That doesn’t include other market factors unrelated to the transfer which also may create the need for higher rates, he said.

Adkins wants the commission to seek additional information about the cost of installing scrubbers at Big Sandy, contending the data in the company’s various rate requests indicates the costs of scrubbers have declined.

That would allow Big Sandy to continue burning about 2.5 million tons of coal each year, save about 150 jobs and protect $900,000 in annual property taxes paid by KPC to Lawrence County and the Lawrence County School District.

He said it’s unfair to ask Kentucky ratepayers to pay for scrubbers on the West Virginia facility while those jobs and benefits are lost in Kentucky.

“Kentucky rate payers will pay for scrubbers at the West Virginia plant that are already installed when scrubbers should have been put on (Big Sandy) Unit 2 years ago,” Adkins said. He called it “another stake” into the heart of eastern Kentucky’s hurting coal industry.

Hogan said the $500,000 in economic development won’t offset the loss of $900,000 in tax revenues or lost jobs which will devastate the community. Armstrong, the Lawrence County Superintendent, said the lost tax revenues will cost the district teaching position while the rate increase will cost it another $200,000 in utility bills.

Wonhas disputed Adkins’ contention about the cost of scrubbers and said the cost has gone up since KPC’s original proposal.

He said if KPC is not allowed to acquire interest in the West Virginia facility it will have to close the Big Sandy units by mid-2015 and buy power on the open market.

“Over the long term, that’s a much more expensive proposition,” Wonhas said.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.