EDITORIAL
Tuesday,December 22, 2009
Skaky finances a risk to consumers
A year ago, the Public Service Commission described East Kentucky Power Cooperative's financial condition was "precarious" and "worsening." So much so, it questioned the utility's "continued viability."
Strong words from a regulatory body not inclined to drama.
And a real concern for the half-million households and businesses in 87 counties, including some in Fayette, whose power is generated by EKPC.
The utility is a wholesale supplier to 16 rural electric cooperatives, and consumers will pay for its shaky finances and deep debt in the form of higher electricity bills.
They also may have to chip in on a half-billion dollars in repairs by the Corps of Engineers to Wolf Creek Dam, where EKPC has a hydroelectric plant.
So even before incurring any costs for curbing greenhouse gas emissions, EKPC customers (who technically are co-op members) are looking at a big rate hit.
In response to a "situation that does not appear to be getting better," the PSC last December ordered a management audit, which should be ready next month.
Meanwhile, the PSC is considering EKPC's application for financing the $767 million Smith 1 coal-fired power plant that it plans to build in Trapp in Clark County.
The PSC approved the project in August 2006 when EKPC expected to gain Warren Rural Electric as a wholesale customer. That deal fell through. The PSC renewed approval in 2007, despite concerns that demand no longer justified the expense.
Since then the economy has tanked, driving down energy demand. Natural gas has become cheaper, making natural gas units to fill in during peak demand an attractive alternative to building more base-load generating capacity.
The federal agency that provides low-cost loans to rural electric cooperatives has a moratorium on new coal-fired power plants because of the financial uncertainties surrounding coal. That means EKPC will have to pay higher interest rates on the commercial market where it will also be penalized for its weak credit rating.
A group of Kentuckians who are rural electric cooperative members are petitioning the PSC to revoke its approval of the Smith 1 plant. They are concerned about the harm to air, water and human health from another large coal-burning plant.
But they also cite what outside financial analysts and EKPC's own executives say about the utility's deteriorating financial condition and the risk to consumers from taking on even more debt to finance the project.
Both the utility and PSC should examine and re-examine the demand projections. If it's possible to substitute aggressive conservation for a new power plant, this would be the time to do it.