Covering Kentucky

Feb 28, 2011 2:35 PM

PSC Approves EKPC Request To Cancel Power Plant

The Kentucky Public Service Commission (PSC) on Monday approved the cancellation of a power plant that East Kentucky Power Cooperative, Inc. (EKPC) had begun constructing in Clark County.

In a related case, the PSC also permitted EKPC to establish a regulatory asset for consideration of future recovery through rates of the $157.4 million that it has already spent on the plant. EKPC will attempt to sell or put to other use the plant components and materials that it has already purchased, thus reducing the amount it will seek to recover through rates.

Both the plant cancellation and the establishment of the regulatory asset are addressed in a settlement reached by EKPC with other parties to the proceedings. They include the Kentucky Office of Attorney General, Gallatin Steel Co., and Wendell Berry, John Patterson and John Rausch, who are member-customers of rural electric cooperatives in the EKPC system.

EKPC is owned by and provides power to 16 distribution cooperatives with a total of more than 500,000 customers in 87 Kentucky counties.

Today's orders conclude the PSC's third review of the plant, known as Smith 1. A 278-megawatt, coal-fired unit, it was to be built at the utility's Smith Generating Station in Trapp.

The PSC first approved the plant in 2006 and endorsed it again in 2007, following the second review. A detailed timeline follows this release.

The review that ended today began in June 2010, when the PSC opened an investigation into the continued need for Smith 1 and incorporated into the investigation a complaint case filed by Berry, Patterson and Rausch. At the same time, the PSC accepted EKPC's withdrawal of a case that sought approval of the financing for the plant.

A subsequent review by EKPC of its future needs for new generating capacity concluded that a new plant will not be needed until 2018. The need for new power declined substantially from earlier forecasts, largely due to the economic recession.

The EKPC analysis showed that several options would be less costly than completing Smith 1 and that at this time the lowest-cost options for ratepayers would be to meet future power needs by building a natural gas-fired plant, either by 2018 or in 2022. In the latter case, EKPC would purchase power from outside sources to meet its needs in the interim.

The settlement agreement also addresses several issues outside the PSC's jurisdiction, notably environmental permits for the plant and several legal challenges filed against EKPC related to environmental matters.

Also included in the settlement agreement is a provision establishing a group that will assess EKPC's efforts in renewable energy and energy conservation. In addition to the parties to the settlement, it would include EKPC's member cooperatives and several environmental groups that were not parties to the case.

A regulatory asset is an accounting tool that allows unusual or one-time costs to be deferred for a period of time for possible future recovery through rates. The PSC will determine the recovery of the regulatory asset in a future rate proceeding.

EKPC said that it could take as long as 18 months to determine the disposition of the Smith 1 components it already owns. The largest and most expensive is the generator for the plant. Any revenue would be used to reduce the amount of the regulatory asset and the potential cost to ratepayers. EKPC is to file regular progress reports with the PSC beginning July 1, 2011.

Today's orders, documents in the cases and videos of the hearing are available on the PSC website, psc.ky.gov. The investigation is case number 2010-00238 and the regulatory asset case is 2010-00449.

The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,500 gas, water, sewer, electric and telecommunication utilities operating in Kentucky and has approximately 100 employees.

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