Kentucky PSC revisits EKPC coal-fired plant

Bob Matyi
June 25, 2010

Citing changing economic economic and environmental conditions for electric utilities, Kentucky regulators will force East Kentucky Power Cooperative to again defend the need for a controversial 278-MW coal-fired power plant, Smith 1, proposed for Trapp in Clark County.

The PSC originally approved construction of the baseload plant that could cost more than $900 million in 2005. But the landscape has been altered considerably since then.

"They will have to go back and justify the need for the project now," PSC spokeswoman Andrew Melnykovych said Thursday. The commission's decision, he said, "is based on changing economic conditions, but also the fact that the operating environment for utlities has changed, particularly with respect to construction of coal-fired generation."

When the PSC initially approved Smith's construction, East Kentucky's forecast of future demand included the nearly 60,000 customers of Warren Rural Electric Cooperative, which had agreed to become part of the East Kentucky system. But in late 2006, Warren rescinded that decision, opting to continue purchasing its power from the Tennessee Valley Authority.

The commission subsequently reviewed East Kentucky's continued need for Smith and several new natural gas-fired combustion turbines proposed by the Winchester-based generation and transmission co-op following Warren's ultimate decision. As a result of that 2007 review, East Kentucky voluntarily reduced the number of new turbines it planned to build.

The PSC also ruled that Smith could proceed based on East Kentucky's projections of future growth in electric demand. Although the co-op has acquired key components of the plant, no construction has begun.

Indeed, East Kentucky has been busy fending off legal challenges to the project from several environmental groups, including the Sierra Club.

Earlier this month, Sierra Club and Kentuckians for the Commonwealth filed a complaint in the US District Court for the District of Columbia to overturn the Rural Utilities Service's approval of a "lien accommodation" earlier this year to assist East Kentucky's private financing efforts for Smith.

East Kentucky was forced to seek private financing after RUS ceased making loans for power plants, including coal facilities.
Melnykovych said the commission also approved East Kentucky's request to withdraw its application to incur up to $921 million in new debt to pay for Smith.

East Kentucky, which is under new management, is re-evaluating its future power needs but is continuing to pursue regulatory approvals for Smith.

Responding to the PSC's latest certificate of need decision, Nick Comer, a co-op spokesman, said the East Kentucky board of directors is "stepping back and doing the due diligence required to ensure that Smith 1 continues to be the best option for reliable power for members."

He could not predict when the internal review will be wrapped up. "We're reviewing a lot of aspects of the plant, the timing of the plant and various alternatives identified in this order to Smith 1, and certainly we will be providing that information."

In the past five years, East Kentucky has brought on line two new coal plants - 268-MW Gilbert and 278-MW Spurlock 4, both at the 1,150-MW Spurlock baseload plant near Maysville in Mason County.

East Kentucky supplies power to 16 distribution co-ops that serve more than 500,000 customers in more than two-thirds of the state's 120 counties.