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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.

Court Derails Plan For Controversial Biomass Plant In Eastern Kentucky

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.

A state appeals court has derailed plans for a controversial biomass plant in eastern Kentucky, ruling that the plant is unnecessary and would place a significant economic burden on the region’s residents.

The decision is a sharp rebuke to the state Public Service Commission, which previously approved the Perry County project, as well as of the plant’s supporters.

WFPL’s Kentucky Center for Investigative Reporting in 2014 examined the campaign contributions and political maneuvering behind the project, which included false promises and legislation tailored solely to ease the way for the plant.

(Read "How Politics, Misinformation, Money Fueled a Power Plant in Kentucky's Coal Country")

EcoPower Generation-Hazard, LLCand state Sen. Brandon Smith of Hazardsuccessfully pushed through a new state law in 2013 giving the project special treatment. Their efforts included misleading letters of support signed by Smith and other prominent eastern Kentucky politicians.

Later, Smith received thousands of dollars in campaign donations from people associated with ecoPower, including Richard Sturgill, a wealthy businessman and Hazard native who formed the company in May 2009 to build the plant.

In its ruling Friday, the Kentucky Court of Appeals ordered the Public Service Commission, which regulates utilities’ rates and services, to reverse its October 2013 decision approving the agreement between ecoPower and the Kentucky Power Co.

The PSC’s approval of the agreement constituted “a complete abdication of its statutory responsibility to ensure that the rates for public utilities in this Commonwealth remain ‘fair, just and reasonable,’ as required by law,” the court wrote.

Under the agreement with ecoPower, Kentucky Power would buy all electricity produced by the wood-burning plant for two decades, and recover from its customers more than $1.2 billion in costs. The plant would be built in an industrial park 11 miles northwest of Hazard.

While the agreement “would create a handful of regional jobs, almost every household and business in the 20-county service area would be subjected to a sizable rate increase for the next 20 years,” the court said in its 31-page ruling.

“All told, the citizens of these 20 counties in eastern Kentucky, many who live at or below the poverty line, are being asked to fork out over a billion dollars so that Kentucky Power can diversify its energy portfolio in the event the (U.S. Environmental Protection Agency) mandates renewable energy at some yet unknown future date.”

Implications of the court’s decision, and the likelihood of an appeal, could not immediately be determined. PSC officials could not be reached for comment Monday.  “We are disappointed with the decision and will review it to determine our options and what is in the best interest of our customers," said Allison Barker, Kentucky Power's spokeswoman, in a statement released Tuesday.

Just 10 days after then-Gov. Steve Beshear signed Smith’s bill into law, ecoPower had a customer for its electricity: Kentucky Power, which serves approximately 170,000 customers in the 20 eastern Kentucky counties.

Following PSC approval of the agreement, Sturgill and a half-dozen other ecoPower employees and family members donated a total of $6,500 to Smith’s 2014 re-election campaign, KyCIR found. None had ever given him as much as $100 previously.

Smith and Gary Crawford, ecoPower’s chief executive officer, did not respond on Monday to requests for comment. In a 2014 interview with KyCIR, Crawford said a final decision on the project’s fate wouldn’t come until the legal issues were resolved.

KyCIR also reported, and the Court of Appeals decision noted, that Kentucky Power did not conduct any economic analysis to determine whether the power-purchase agreement would be financially beneficial to the region, which includes some of the state’s most impoverished counties.

The only economic-impact evidence was provided by Kentucky Industrial Utility Customers Inc., an association of major energy-consuming companies that filed suit to contest the PSC’s decision. According to KIUC’s evidence, the agreement “would actually have a substantial negative net impact on the region's overall economy,” the appeals court said.

But the PSC chose to focus instead on general state and federal environmental policies favoring biomass energy, including President Obama’s 2013 climate action plan regarding carbon emissions by power plants.

“The Commission failed to fairly balance the competing interests,” the ruling concluded.

Dr. Mary Booth, an ecologist and director of the Massachusetts-based Partnership for Policy Integrity, and a vocal opponent of biomass burning, expressed satisfaction on Monday with the Court of Appeals decision.

“It’s increasingly clear that biomass power plants can’t stand on their own two feet, but need one sweetheart deal after another,” Booth said in an email. “It’s good to see common sense prevail by the court in this case.”

Franklin Circuit Judge Thomas Wingate ruled last year that the PSC acted legally and reasonably when it approved the purchase agreement -- even though the resulting electricity would be substantially more expensive than other power-generating options.

The three-judge Court of Appeals panel disagreed with Wingate.

“The evidence suggests that instead of improving the region's overall economic outlook,” the agreement between ecoPower and Kentucky Power “will actually strip away more jobs and money from the tax base than it will add,” the appellate court said.

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

This story has been updated to include comment from Kentucky Power Co.

[documentcloud url=https://www.documentcloud.org/documents/2995149-Kentucky-Appeals-Court-on-eastern-KY-biomass-plant.html format=normal sidebar=false ]

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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