Daily Independent (Ashland, KY)

October 10, 2013

KPC given OK for 20-year deal with biomass facility in Hazard

By RONNIE ELLIS
CNHI News Service

FRANKFORT — Kentucky Power Company will be allowed to enter a 20-year contract to purchase electrical power from a biomass-fuel facility planned near Hazard. But the agreement also means higher rates for customers.

It’s the second time in a week the Public Service Commission agreed to a request by KPC. On Oct. 5, the PSC granted KPC’s request to shut down its Big Sandy coal-fired unit and purchase half interest in a West Virginia generating plant to replace 800-MW of power generated at Big Sandy.

Although biomass power is more expensive than electrical power generated by coal or natural gas, the PSC said its order responds to a law sponsored by Sen. Brandon Smith, R-Hazard, and passed  by the General Assembly earlier this year that “directs the PSC to consider factors other than cost” in requests to purchase biomass generated electricity.

“While the commission recognizes that the cost of the proposed (contract) would not have withstood scrutiny based strictly on a least-cost analysis, our consideration must also take into account the policy mandates” of the legislature, the PSC order said.

Normally, the PSC bases its decisions largely on what is the lowest-cost option for utilities and consequently their ratepayers.

The decision will increase rates to ratepayers by 5.99 percent in the first year, the order said. That’s on top of an eventual 14 percent rate increase necessary to pay for the purchase of the half interest in the West Virginia generator. The latter increase doesn’t kick in until after May 31, 2015, however.

KPC serves roughly 173,000 customers in 20 eastern Kentucky counties.

KPC will purchase electricity from a yet-to-be constructed 58.5MW ecoPower Generation-Hazard facility which is planned by the Lexington-based company, ecoPower.

The PSC order said the annual cost to KPC to buy the biomass power will begin at about $50 million in 2017 when the Hazard facility is operational. That cost will be passed on to ratepayers on a dollar-for-dollar basis, the order said, meaning KPC won’t mark up its prices to record a profit.

“We’re pleased the commission saw the value of renewable energy,” said Ronn Robinson, spokesman for KPC. “Renewable energy is more expensive whether it comes from wind or from solar, and we recognize that. But this in keeping with the governor’s 2008 energy plan to diversify our energy portfolio.”

Dr. Len Peters, secretary of the Energy and Environment Cabinet, agreed.

“I am pleased with today’s decision by the Kentucky Public Service Commission to approve Kentucky Power Company’s request to purchase renewable electric power produced from biomass,” Peters said.  “As Kentucky faces increasing challenges to address federal climate policies, we will need to be looking to projects such as this, as envisioned in the governor’s comprehensive energy plan. This is an important step for Kentucky to meet growing demands for energy, create economic development opportunities, mitigate price increases, and reduce power plant emissions.”

The request was opposed by the Kentucky Office of Attorney General which represents ratepayers in PSC rate request cases and by Kentucky Industrial Utility Customers, Inc. on behalf of industrial customers. Both opposed the projected rate increases.

“The Office of the Attorney General is not opposed to exploring biomass options,” said Daniel Kemp, a spokesman for Jack Conway. “However, in this case, it seems this will adversely affect ratepayers and not comply with Kentucky law in mandating that the least-cost source of generation be utilized.”

 KPC’s Robinson said the company or its parent company, American Electric Power, will have no connection to the Hazard plant beyond purchasing power. But the plant will boost economic development through construction jobs, truckers and plant employees, he said.

 According to testimony before the PSC by KPC, construction of the ecoPower plant will employ 230 people for two years and when operational the facility will employ 30 workers. It’s estimated another 225 jobs will be created for loggers and truckers.

The Hazard facility will generate electrical power by burning “wood wastes and low-quality timber.” It has already received the necessary permits to begin construction.

The company testified before the commission that the power KPC purchases from ecoPower-Hazard will partially replace capacity lost at Big Sandy near Louisa in Lawrence County and help meet future power needs.

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.