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A KyCIR investigation raises questions about political maneuvering for a power plant in eastern Kentucky and whether leaders sacrificed the public good to benefit a few.

How Politics, Misinformation & Money Fueled A Power Plant In Coal Country

Industrial park in Hazard, KY. Jan. 29, 2014 (by Frankie Steele/Louisville Public Media)
Photographer: Frankie Steele
View from the site of the projected ecoPower plant.

HAZARD, Ky--Up a steep dirt road, atop a former strip-mine, sits a concrete slab roughly 30 feet square. It’s the only visible sign that a wood-burning, electricity-generating plant could someday occupy this remote industrial park.

Supporters say the biomass plant, 11 miles northwest of Hazard, would be an economic godsend for Perry County, creating hundreds of jobs and pumping millions of dollars into the heart of poverty-plagued Appalachian Kentucky.

And they contend that the plant would be environmentally friendly and its emissions carbon neutral, unlike coal mining, the longtime backbone of the region’s economy, which is now on the wane.

Despite the sense of optimism surrounding these claims by politicians and other proponents, however, the reality is much murkier.

Assertions of a job-creation windfall and “green” energy resulting from the billion-dollar project appear to be doubtful at best, an investigation by the Kentucky Center for Investigative Reporting has found.

And a review of several thousand pages of documents and dozens of interviews by KyCIR raised questions about whether political maneuvering crucial to the project’s success so far has sacrificed the public good to benefit a few.

Among KyCIR’s findings:

  • EcoPower Generation-Hazard, LLC, the company behind the plant, and state Sen. Brandon Smith of Hazard successfully pushed through a new state law giving the project special treatment. Their efforts included misleading letters of support, signed by Smith and several other prominent eastern Kentucky politicians. Later, Smith received thousands of dollars in campaign donations from people associated with the company.
  • The ecoPower plant would have an overall negative effect on the region’s strapped economy, according to the only analysis performed. Among other things, the average residential customer’s annual electricity bill would increase by more than $100.
  • The plant’s emissions generally would be as polluting, and as harmful to environmental and human health, as those from coal-fired facilities that are being phased out to combat global warming, according to scientific research.

Compounding these high stakes is the fact that little is known about the project among those it would affect the most. Though it would have a huge impact on the region, already among the poorest and unhealthiest in the state, the project was pushed quickly and quietly through the legislature.  And it has not generated sustained opposition from environmental groups and other advocates for Appalachia.

“The reality is that the organizations in Kentucky with interest in these issues are understaffed, with a full plate of environmental issues to track and address,” said Jim Scheff of Kentucky Heartwood, a Berea-based non-profit organization that works to protect the state’s forests.

“The last information I received on the ecoPower plant was more than two years ago,” he said. “Had we known more, we would have done more, to the best that we were able.”

A Plan Pushed Quickly Through The Legislature

EcoPower, a privately held, for-profit corporation, was formed in May 2009 by Richard Sturgill, a wealthy businessman and Hazard native.

During the 18 months, ecoPower obtained approvals from several state agencies. But it still needed a buyer for its power. And it faced a potentially insurmountable stumbling block at the Kentucky Public Service Commission, an independent state agency whose duties include regulating more than 1,500 utilities.

The PSC applied a “least-cost” legal standard to proposals to produce or purchase power. But because ecoPower’s electricity promised to be very expensive -- two or three times as expensive as that from other sources, including coal and wind energy -- the PSC likely would have rejected any contract involving the company.

So, after other legislative attempts stalled, ecoPower and Smith, a Republican and the senate majority whip, decided last year that they needed to change the rules of the game.

The result was Smith’s Senate Bill 46.

It directed the PSC to consider not only cost but also the economic benefits of contracts involving “the purchase of electric power from a biomass energy facility that has received a certificate” from the Kentucky State Board on Electric Generation and Transmission Siting.

That language was tailored specifically to ecoPower’s proposed plant, the only such “facility” in the state.

The bill sailed through the legislature last February without a dissenting vote, and with virtually no discussion, much less debate. Gary Crawford, ecoPower’s chief executive officer, and Smith attended and testified at committee hearings in both chambers.

The bill’s Senate hearing, on Feb. 6, 2013, consumed less than 17 minutes, including the introductions of Natural Resources and Energy committee members and their guests. Smith cited company-generated data about jobs. No one questioned the numbers. No one mentioned the prospect of higher utility rates, or environmental concerns.

Committee Chair Jared Carpenter said he’d done a lot of research on the subject, and that the economic-development prospects for eastern Kentucky were “exciting.” The bill sailed through without dissent.

Debate and opposition also were absent a few days later when the bill went to the full Senate. Sen. Robin Webb, expressing support for the bill, said she had “no doubt that this is in the best interest of Kentucky’s consumers…”

The vote was 38-0. The whole exercise, including the roll call, took barely five minutes.

The bill’s Feb. 14 trip through the House Tourism Development and Energy Committee was nearly as speedy -- less than seven minutes, start to finish, including time for one member to wish the “lovely ladies” in attendance a happy Valentine’s Day.

Rep. Keith Hall, the committee chair, referred to this “wonderful piece of legislation” and attempted to call the roll immediately, until Smith interrupted him to interject a few comments. When the vote came moments later, it was unanimous.

On the House floor, a few days later, debate was absent, again. The vote: 100-0.

Gov. Steve Beshear signed the bill on March 5. Among those clustered behind him at the table were Sturgill and Crawford of ecoPower and Leonard Peters, secretary of the state Energy and Environment Cabinet.

(Read a timeline of events)

A New Law, New Political Contributions

After the legislature approved Smith’s bill late last February, Crawford posted a letter on ecoPower’s website thanking Smith for his support and urging others to do likewise.

And following PSC approval in October of the contract involving ecoPower -- a major boost for the project -- Crawford, Sturgill and five others associated with them donated a total of $6,500 to Smith’s 2014 re-election campaign.

Sturgill and his wife, Tracie, each contributed $1,000, the maximum allowed by law. Crawford donated another $1,000.

Smith had been in the legislature since 2001, and a state senator since 2008. But none of the seven donors had ever previously given him as much as $100. One donor’s contribution to Smith was only the second she had made to any Kentucky political candidate since 1998.

Sturgill did not respond to repeated messages from KyCIR seeking comment.

Asked why he gave money to Smith’s campaign, Crawford said in a recent interview: “We make contributions periodically to those we trust and believe are doing a good job.”

Crawford said the timing of the contributions was coincidental, and that he was “troubled by the insinuation” of a quid pro quo.

Smith too denied that the donations represented a payback. Instead, he said, he viewed them as “their way of thanking me” for “what I was trying to achieve.”

“I think they appreciate knowing that I’m a pro-energy legislator,” he added.

Ten days after Beshear signed Smith’s bill into law, ecoPower found a customer for its electricity. Kentucky Power, which serves approximately 170,000 customers in 20 eastern Kentucky counties, agreed to buy all of it.

With a new law in place and a contract signed, the next step was to gain PSC approval. The commission would weigh several factors, most importantly the new law, but also expressions of legislative support.

Those expressions had been provided back in July 2011, when some of eastern Kentucky’s leading politicians had jumped on the plant’s bandwagon -- writing, or at least signing, enthusiastic letters urging Kentucky Power to consider doing business with ecoPower.

Those signing the letters included U.S. Rep. Hal Rogers; Greg Stumbo, speaker of the Kentucky House of Representatives; and Rocky Adkins, the House majority floor leader. All three refused requests from KyCIR to discuss their letters. Smith and four other state legislators also sent letters.

Except for Rogers’, the letters were virtually identical. And all eight of the legislators significantly inflated the actual number of jobs that the project allegedly would create.

The seven letters signed by state legislators all claimed that the project would result in the creation of 500, or “about 500,” permanent jobs. Rogers’ letter put the number at “more than 400.” But both ecoPower and Kentucky Power repeatedly have asserted a far lower number -- 225 long-term jobs.

Moreover, none of the legislators addressed the environmental pollution that would result from the plant’s emissions. Rogers’ letter, in fact, said he was “extremely interested in ecoPower’s efforts to develop sustainable green energy right in our backyard.”

Smith and Crawford acknowledged in interviews with KyCIR that they “probably” had a hand in drafting at least some of the letters. Democratic Sen. Johnny Ray Turner, the minority caucus chair, said Crawford asked him to write one.

The letters could be viewed as standard politicking, except that they were part of the public record available to the commission. And PSC spokesman Andrew Melnykovych said the letters “further informed” the commission’s decision. “They do illuminate legislative intent,” he said.

Peters, the cabinet secretary, also weighed in with his approval, in a letter to the PSC last August that referred to the “broad energy security, greenhouse-gas reduction and economic-development benefits of projects of this type.”

He added in an e-mail response to questions from KyCIR: “This project will create jobs and can also be used as an important model for development of future projects.”

Asked about the evidence that showed economic and environmental downsides to the plant, Peters responded: “I am not aware of the specific assertions made in the ecoPower case proceedings.”

Peters said he does not typically lobby the PSC about a pending case, but did so in this instance because “this project is unique and represents the types of projects that support the policies of the administration and the General Assembly….”

(Read the letters for yourself in our companion piece)

With Law & Legislative Support, Commission OK’s Plant

Last October, the PSC made its decision.

With Smith’s bill now law, the commission was required to consider whether the energy contract would “create new jobs and new investments, and create new sources of tax revenue,” even if the power involved was more expensive than other options.

And ecoPower’s definitely would be more expensive -- much more expensive.

Although Crawford has asserted that the project offers a “least-cost source of electricity to Kentucky residents and businesses,” Kentucky Power would in fact pay at least $50 million per year over two decades for electricity that has an average market value of just $15 million, according to evidence presented to the PSC. And the entire $35 million annual difference would be passed along to ratepayers.

Kentucky Power also has acknowledged that it has no immediate need for the electricity. Rather, it would serve as a “cushion” in the event of “growth and development in eastern Kentucky,” company President Greg Pauley told the PSC last August.

In its October ruling approving the contract, the commission cited as fact the companies’ claims for the employment boost that the plant allegedly would provide -- 230 construction jobs, 30 full-time jobs at the plant and 225 timber- and trucking-related jobs.

Paul Coomes, a former University of Louisville economist who analyzed the project last year for an association of major energy-consuming companies opposing it, had told the PSC that the plant would have an overall negative effect on the area, eliminating more jobs than it created.

But Melnykovych said the new law required the PSC only to consider the economic benefits of the proposed plant, not to perform a cost-benefit analysis.

“The evidence in the case was that the facility would create construction jobs, permanent jobs and other benefits,” Melnykovych said. “Therefore, the PSC found that the project met the statutory requirements.”

Coomes was the only economist to testify before the PSC.

The commission’s decision has been appealed to Franklin Circuit Court by Kentucky Industrial Utility Customers Inc., the companies that, along with the state attorney general’s office, opposed the contract at the PSC.

Crawford said he believes his project’s “long-term status is not in doubt,”  with the major remaining hurdle being the pending court case, which potential sources of financing want resolved prior to making a commitment.

Citing the pending lawsuit, Kentucky Power officials declined to be interviewed by KyCIR.

However, they told the commission that they believed paying more for biomass-generated electricity was justified because renewable energy is inherently more expensive than fossil fuels and because the ecoPower project would create jobs.

Power Plant Comes At Great Costs

In contrast to its approval of the ecoPower contract, the PSC in 2010 rejected -- on grounds of excessive cost  -- a Kentucky Power proposal to purchase wind-generated energy for $43 per megawatt hour. That was barely a third of what the company would pay for ecoPower’s electricity.

Yet, three years later, as a result of Smith’s bill, the PSC approved Kentucky Power’s purchase agreement with ecoPower for $112.58 per megawatt hour the first year, with the price rising 2.25 percent annually throughout the life of the contract.

Coomes told the PSC last August that the proposed ecoPower plant is “not a very favorable proposition” due to the impact that higher electricity costs would have on the region.

As a result of the rate increase, Coomes estimated that reduced consumer spending would deprive the region of more than 100 jobs, overall.

He also said that the total economic cost to consumers of more expensive electricity would be two or three times higher than whatever economic benefits might result from the plant, because some businesses would cut jobs, raise prices, go broke or leave the area.

Crawford refused to discuss Coomes’ economic analysis.

“It serves no useful purpose at this point,” he said. “It’s just a difference of opinion.”

Kentucky Power officials testified before the PSC that they performed no economic analysis of their own.

“I did not do a study to verify those (job creation) numbers,” Pauley said. “It was a new opportunity, economic development opportunity. Obviously there were going to be jobs associated with it….”

Asked by KyCIR if ecoPower had any evidence of the plant’s potential economic benefits, Crawford pointed to state Cabinet for Economic Development data contained in a three-page “fact sheet.” The document estimates the value of adding new jobs in various industries, including utilities.

But a notation on the bottom of the sheet states that it is “for informational purposes only,” and that it “should not be relied upon as fact.”

Moreover, cabinet spokesman Joe Hall said in response to an inquiry from KyCIR that the document “is a generalized overview, and can’t really be used to determine the value of a specific project.”

There also is no guarantee that all of the new jobs promised by the companies would be filled by local residents. And not all of the trucking jobs necessarily would be new, because some lumber-yard waste that could help fuel the plant is now being hauled to a paper mill in Tennessee and could simply be rerouted to Perry County.

Crawford said ecoPower had done its “own analysis” of the project’s potential economic impact on the region. But he declined to discuss it or provide the results, saying, “that’s very confidential information.”

Sturgill and Crawford repeatedly have claimed that  they are motivated by a desire to help the region. EcoPower’s website, for example, advertises it as a company “formed in 2009 to build and operate a wood-powered bioenergy plant in Eastern Kentucky.”

And after the PSC approved the contract last fall, Sturgill was quoted in The Hazard Herald newspaper as saying:

“We started this project in 2009 wanting to develop and create jobs in Hazard, Kentucky, and Eastern Kentucky, and jobs are the most important reason that we’re here.”

But just months after ecoPower was founded, it threatened to build the plant in West Virginia if it didn’t receive millions of dollars in financial incentives from the state of Kentucky.

According to December 2009 records of the Kentucky Economic Development Finance Authority, “the company stated that without the tax incentives, the project would not locate in Kentucky” and “has examined and identified an alternative potential location in West Virginia.”

On Dec. 10, 2009, the authority granted preliminary approval of up to $15 million worth of incentives for the project.

Crawford refused to discuss ecoPower’s consideration of building the plant elsewhere, saying “we...consider that information confidential.” But he disputed the notion that the company’s threat to build elsewhere suggested a lack of commitment to Perry County.

“Our efforts have always been to improve the opportunity for folks in eastern Kentucky,” he wrote in an e-mail.

Little Known About Project Among Those It Would Affect The Most

Despite his crucial political support for the ecoPower project, Smith seems to be unfamiliar with several important aspects of it.

In a lengthy interview with KyCIR, he called its impact  “an absolute win-win for us.” But in response to questions, he said he did not know how much the plant would increase the average consumer’s utility bill. Nor was he aware of extensive testimony before the PSC about the inevitability of rate hikes.

“I think that...there won’t be any difference,” he said. “I’ve seen stories out there where they scare these people to death, telling them their rates are going to climb by some astronomical amount….I personally don’t see it like that.”

Smith also said he is unconcerned about the plant’s impact on the environment.

“I believe in the technology,” he said. “I believe in the science.”

Smith described himself as “pro coal,” referred to biomass burning as “clean energy” and said scientific research to the contrary is “the same argument they make against coal.”

“I don’t accept the premise that coal is all that dirty,” he said.

Recent interviews by KyCIR with more than a dozen people in and around Hazard indicated that most of them -- including several public officials -- also were only dimly aware of, or else knew nothing about, the proposed plant.

Perry County Judge-Executive Denny Noble, who previously expressed support for the project, said he is now opposed to it due to the prospect of higher utility bills. But Noble refused to elaborate, and said he was not aware of any environmental issues.

Hazard Mayor Nan Gorman said she had no knowledge of rate increases or pollution concerns.

And Mike Miller and Annette Napier, two top officials of the Kentucky River Area Development District, an eight-county agency that administers the business park where the ecoPower plant would be located on a 125-acre site, said they were unfamiliar with questions about its overall economic impact, or about the air pollution that it would generate.

“I would say a whole lot probably is not known,” Napier said.

Plant’s Impact On Environment

In addition to the ecoPower plant’s emissions, diesel exhaust from the 100 big trucks hauling wood to the site each day would degrade the area’s air quality.

And still more ecological harm could result if lumber yard waste for the plant’s fuel supply had to be supplemented by cutting swaths of nearby forest land.

After environmentalists expressed concern to the state Division for Air Quality in 2010 about pollution from the plant, Crawford responded that they had painted “a bleak picture for the future,” and were “totally misplaced in suggesting our facility will contribute to global warming.”

He added that using woody biomass for fuel “should be considered carbon neutral and part of the solution to climate change concerns." (Carbon neutral means that net emissions neither increase nor reduce the amount of carbon dioxide released into the atmosphere.)

But two authorities on biomass burning told KyCIR that Crawford’s claims for ecoPower’s “clean” and “environmentally friendly” energy were at best simplistic if not just plain wrong, and that achieving carbon neutrality by  burning wood can take decades -- or longer.

Dr. John Hagan, president of the Manomet Center for Conservation Sciences in Massachusetts, said Crawford’s assertions “greatly oversimplify the story or are erroneous,” given the current level of scientific understanding.

Hagan added, however, that because Crawford’s statements were made in 2010, “they could be excused” because the science of biomass burning and its greenhouse gas emissions was “poorly understood at the time.”

Dr. Mary Booth, an ecologist and director of the Massachusetts-based Partnership for Policy Integrity, said Crawford’s contention that the plant would be “carbon neutral” and not a contributor to global warming is “ridiculous on its face.”

“If that were true, we could cut down every tree on the planet and it wouldn’t increase global warming,” Booth said.

Crawford, said his comments in 2010 were “my personal belief,” and that he continues to think that biomass “is a renewable energy source that would be carbon neutral.”

(Read more about the environmental implications in our companion piece)

A Project Site Sits Ready

Meanwhile, some storefronts on Main Street in Hazard remain shuttered. Indications of support for the declining coal industry are everywhere, from placards in windows to bumper stickers on pickup trucks.

Few passersby seem to know much if anything about the proposed plant, even though it would greatly impact Perry County. Never heard of it, they say.

So, dreams of a potential economic bonanza remain just that. And the weathered, concrete slab on the mountaintop sits, and waits.

Reporter R.G. Dunlop can be reached at rdunlop@kycir.org or (502) 814.6533.

R.G. Dunlop is an award-winning investigative reporter whose work has exposed government corruption and resulted in numerous reforms. Email R.G. at rdunlop@lpm.org.

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