Kentucky’s largest utility tests new law creating barrier to retire fossil fuel plants
Published 10:29 am Tuesday, May 16, 2023
Republican lawmakers in Kentucky, raising concerns that planned and ongoing retirements of coal-fired power plants could affect the reliability and resilience of the electric grid, passed a new law that creates an extra barrier for utilities to retire such plants.
Kentucky’s largest electric utility, which strongly opposed that law, is now testing it before the state’s utility regulator, arguing that the planned retirement of some of its coal-fired power generation is economical and will improve — not hurt — the reliability and resiliency of the electric grid.
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Louisville Gas and Electric and Kentucky Utilities filed an application May 10 before the Kentucky Public Service Commission requesting approval to retire three generation units at some of its aging coal-fired power plants by 2028: Mill Creek Unit 2 in Jefferson County, Ghent Unit 2 in Carroll County, and E.W. Brown Unit 3 in Mercer County. The utility originally notified the commission in December of the retirements citing new federal environmental regulations and maintenance costs as reasons for shutting them down. The utility is also requesting permission to retire three gas plants because repairing major mechanical issues for the plants would be “uneconomical.”
Senate Bill 4, primarily sponsored by Sen. Robby Mills, R-Henderson, is the new law that requires utilities like LG&E and KU to now seek explicit commission approval for retirements of fossil-fuel fired power generation. The bill creates a series of prerequisites the commission must check off in a utility’s retirement proposal before they can approve it, including:
• A replacement generation facility “maintains or improves the reliability and resilience of the electric transmission grid”
• The retirement won’t harm the utility’s ratepayers by having a utility recover “incremental costs” of the retirement from ratepayers
• The retirement isn’t the “result of any financial incentives or benefits offered by any federal agency.”
LG&E and KU in its filing last week said its proposal meets all the requirements of Senate Bill 4, with the utility planning to replace the coal-fired power generation with natural gas plants and two solar installations.
“[T]he proposed unit retirements and replacement resources will result in significant (revenue) savings for customers over nearly three decades, maintain system reliability year-round, maintain reserve margins in excess of minimum target levels, and improve system resilience with improved start times, ramp rates, and dispatchable capacity,” the utility report states.
“All seven of the fossil fuel-fired electric generating units the Companies anticipate retiring by 2028 will be at least 50 years old by their proposed retirement dates, are at or near the end of their useful lives, and would require significant investments to continue to operate in compliance with all applicable laws beyond their proposed retirement dates.”
Saving money, keeping the heat on
The utility says going ahead with the retirements would result in significant savings for its more than 1.3 million customers. It estimates the retirements and replacements would bring in future revenue for the utility ranging from $344 million to almost $1.3 billion.
The utility also provides data on the estimated ongoing costs to keep open the coal-fired power plant units, showing that those ongoing annual costs of the units generally increase through 2050. In particular, E.W. Brown Unit 3 annual costs for routine maintenance increase from $27 million to $35 million in the 2020s to over $50 million by the 2040s. All of the coal units would be more than 70 years old by 2050.
In testimony before the PSC, an LG&E and KU executive said the retirements aren’t the result of federal benefits or incentives.
“The Companies’ decision to retire the seven units at issue here does not result from such incentives; indeed, the Companies are unaware of any such financial incentives or benefits for retiring fossil fuel fired electric generating units,” said Lonnie Bellar, the chief operating officer for LG&E and KU. “There are, however, federal tax credits provided for certain renewable generation resources … [it] would be unreasonable and unfair to customers to have such benefits eliminated from consideration when evaluating generation units.”
The utility also argues that replacing coal-fired power with natural gas plants and some solar power will more than meet goals for the amount of unused electricity supply available to the utility, what’s known as reserve margin. The reserve margin is measured as a percentage of a utility’s total electricity capacity.
LG&E and KU states that its reserve margin goal is to have 17% of its electricity capacity available for use during the summer and 24% during the winter. If the coal plant unit retirements took place and new natural gas plants and solar installations were added, the reserve margin would be well above the utility’s goals at 38.4% during the summer and 32.3% in the winter, according to the utility’s own analysis.
Bellar in his testimony also directly addressed rolling blackouts that utilities including LG&E and KU had to implement last winter due to arctic temperatures with key components of a gas pipeline freezing and interrupting supply to power plants in Kentucky. Some GOP lawmakers used the blackouts as a reason to pass SB 4 and tout the continued use of coal.
Bellar said the risks of not having fuel to supply power plants during extreme weather is more than just a natural gas issue.
“Those risks exist for all generating units, not only gas units: coal piles can and do freeze in extreme conditions; fuel transportation by rail, barge, and truck can be interrupted, just as it can by pipeline,” Bellar said. “Also, following the unprecedented load shedding event in December 2022, the Companies worked with the pipeline operator at issue, Texas Gas Transmission, to ensure it was taking appropriate measures to mitigate the risk (of) the malfunction that resulted in inadequate pipeline pressure.”
KY Coal Association and renewable energy groups not happy
LG&E and KU’s application comes as stakeholders, both pro-coal and pro-renewables, try to influence what energy decisions the utility ultimately makes. The Kentucky Coal Association, a lobbying group representing major coal companies in the state, intervened last year in a separate PSC case filed by LG&E and KU in an effort to oppose the coal retirements.
The association pushed for the passage of SB 4, specifically referencing LG&E and KU’s move to retire some of its coal-fired power generation in arguing that the “relentless and dangerous push” to retire coal plants could result “in an economic catastrophe.” The coal association’s executive director did not respond to an interview request.
LG&E and KU’s effort to retire some of its coal-fired generation is a part of a broader trend of utilities across the country pivoting from coal to lower-cost natural gas and renewables as coal has generally struggled to economically compete as a cost-effective electricity generation source.
Other organizations that plan to intervene in the utility’s case before the PSC argue the utility isn’t doing enough to address heat-trapping greenhouse gas emissions with its retirement proposal by adding natural gas plants instead of investing more in renewable energy.
Ashley Wilmes, the executive director for the Kentucky Resources Council, is planning to represent the Kentucky Solar Energy Society, the Metropolitan Housing Coalition, Kentuckians For The Commonwealth, and the Mountain Association in LG&E and KU’s retirement case as joint intervenors.
“Joint Intervenors believe that the business case has been made for retirement of the coal units identified in the SB 4 filing, but believe that the full range of alternatives that can reliably meet the capacity needs of LG&E and KU ratepaying customers at lower cost without defaulting to construction of two new gas plants, should be rigorously explored,” Wilmes said in a statement.
Wilmes also referenced new federal regulations being proposed by the Biden administration that aim to cut carbon emissions at fossil fuel-fired power plants, as calls to address the increasing threat of climate change become sharper.
“Climate exigencies and recently-proposed regulatory controls on carbon emissions underscore that replacement of one type of fossil fuel combustion with another in order to meet energy needs, may be less prudent, and likely to be more costly and risky than vigorous investment in energy efficiency, demand management, and development of distributed renewables and storage on both sides of the meter.”