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.