By Ronnie Ellis
CNHI News Service
Lawrence County officials and supporters of eastern Kentucky coal are reeling from the Public Service Commission’s approval of an agreement allowing Kentucky Power Company to idle its coal-fired generating units at its Big Sandy facility in Louisa.
They hope an appeal of the agreement by Attorney General Jack Conway might somehow result in the installation of scrubbers at Big Sandy that would allow the facility to continue burning about 2.5 million tons of eastern Kentucky coal each year.
But even if Conway’s appeal succeeds and KPC is persuaded to install scrubbers at Big Sandy, it’s no guarantee the facility would continue burning the low-sulfur, but more expensive, coal from eastern Kentucky.
The PSC approved KPC’s request to purchase half-interest in the Mitchell coal-fired plant in Moundsville, W.Va., currently owned by a sister company and which already has scrubbers. KPC would idle one of its two coal-fired units at Big Sandy and eventually convert the other to natural gas.
The agreement is opposed by Lawrence County officials and state Rep. Rock Adkins, D-Catlettsburg, who say it will cost the county $900,000 in lost tax revenues, at least 150 direct jobs and devastate the local and regional coal-dependent economy.
Conway has gone to Franklin Circuit Court, trying to reverse the PSC decision, saying it’s flawed because KPC relied on an internal analysis by its parent company, American Electric Power, to determine the Mitchell transfer is the least-cost option to meet emission standards imposed by a 2007 federal consent decree.
Originally, KPC proposed installing scrubbers at Big Sandy at a cost of $900 million, which might have raised rates by 30 percent or more. Conway opposed that request. In a May 2011 briefing, Conway’s office argued that the plan would produce “major rate increases” and might induce “major industrial customers to leave KPCo’s territory.”
Conway’s spokeswoman, Allison Martin Gardner, said the brief was based on Conway’s belief the company should have sought an independent analysis of the costs rather than relying on the AEP study.
KPC later withdrew the request in favor of the $536 million Mitchell transfer, which is expected ultimately to raise rates by as much as 19 percent (including a 5 percent surcharge to recover part of the transfer costs.)
When he filed the appeal, Conway criticized the transfer plan, contending the company should have looked at “retrofitting the Big Sandy facility in Louisa, Kentucky.”
Martin said the call for retrofitting isn’t a reversal of Conway’s original position.
“We’ve seen some studies of installing scrubbers at other utilities which were more in the $400 million range,” she said.
Adkins also thinks it may be possible to install scrubbers at Big Sandy for far less than the $900 million price tag. He said that would narrow the difference between the 30 percent rate increase estimates of the original proposal and the 20 percent range of the Mitchell transfer plan.
KPC spokesman Ronn Robinson said the numbers don’t back up Conway’s and Adkins’ arguments.
“I would disagree with those numbers,” Robinson said. “That was proved in the case we presented before the commission. The commission found unequivocally (the Mitchell transfer) was in the best interest of our rate payers.”
Even if scrubbers were cost effective, it might mean KPC would simply choose to burn lower-priced, high-sulfur coal from western Kentucky or Illinois.
“Scrubbers give you the ability to use a greater, more diverse mix of coal because the scrubber is going to remove the contaminants of the high-sulfur coal,” Robinson said. “We would probably look at a mix, but you would burn the cheapest coal to benefit your customers.”
The PSC allows utilities to include in their rates a cost of fuel adjustment, but only if the utility uses the cheapest fuel available for its particular generators.
“That’s what the commission would want you to do, to burn the cheapest coal,” Robinson said.
Adkins said the transportation costs would outweigh any difference in price between eastern Kentucky and high-sulfur coal from the west and said there are also high-sulfur coal reserves in eastern Kentucky.
Bill Bissett, president of the Kentucky Coal Association, said transportation costs might be significant for Big Sandy because it is located next to a river full of coal barges. “You literally have coal across the street.”
But he also pointed out that KPC’s parent company, AEP, is the largest coal user in the nation and would likely base its purchasing decisions on a national market rather than the regional picture.
It won’t matter unless Conway wins his appeal. Robinson would not comment on the pending litigation but said KPC expects to complete the Mitchell transfer by Dec. 31.
Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at email@example.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.