Does a Biomass Plant Make Sense for Eastern Kentucky Ratepayers?

The Public Service Commission is scheduled to decide this week whether it will let Kentucky Power enter into a contract to buy all of the electricity produced by a proposed biomass plant in Eastern Kentucky. But the proposalis meeting opposition from groups who say the company doesn’t actually need the electricity to meet demand and the plan would unnecessarily raise rates.The PSC is tasked with making decisions on the basis of whether both the proposal and possible rate increases are “fair, just and reasonable.” Utilities have to propose options that are reliable and the least-cost option. More than 90 percent of Kentucky’s electricity still comes from coal—though the share of power from natural gas is slowly growing—partly because for years, that’s been the lowest cost option for utilities.But a bill passed during last year’s General Assembly directs the commissioners to give additional weight to biomass projects. They still have to determine whether the proposal is “fair, just and reasonable,” but applies a standard to biomass that’s different from the standard that’s applied to other types of energy.The bill was sponsored by state Senator Brandon Smith (R-Hazard) with a particular biomass plant in mind: a project from Lexington-based company ecoPowerin Hazard. The plant’s not built yet, but when it is, Kentucky Power wants to buy the electricity it’ll produce (about 58 megawatts). This electricity, along with some from a coal-fired power plant in West Virginia and potentially some natural gas, will replace the capacity lost when the Big Sandy Power Plant retires in 2015.Kentucky Power Regulatory and Finance Director Ranie Wohnhas said the contract makes sense for the company, even though there’s currently no renewable portfolio standard in Kentucky, which would mandate that utilities invest in renewable energy.“It really goes around a couple of things. Number one, it provides jobs for economic development in Eastern Kentucky,” he said. “It provides a renewable resource that the governor, in his plan, wanted to see come to Kentucky. It’s in our service area, which helps tremendously.”But the proposal is opposed by Kentucky Attorney General Jack Conway and the Kentucky Industrial Utility Customers, Inc.Both take issue with the seven percent rate increase that Kentucky Power ratepayers will see on their electricity bills if the plan is approved. That’s in addition to a 14 percent increase that the PSC approved earlier this week, for the company to replace generation from the Big Sandy plant with electricity from the Mitchell plant in West Virginia.“The Office of the Attorney General is not opposed to exploring biomass options; however, in this case, it seems this will adversely affect ratepayers and not comply with Kentucky law in mandating that the least-cost source of generation be utilized,” Conway spokeswoman Allison Martin said.The Kentucky Industrial Utility Customers, representing the interest of several large industrial customers in the commonwealth, also said it wasn’t against biomass or renewable energy. In the group’s post-hearing brief, it argued there’s no evidence to suggest that this plant would even provide the cheapest renewable energy for the region. In response to KIUC 1-13 which asked whether Kentucky Power “performed any studies in order to identify the least-cost means of providing energy and capacity to Kentucky Power,” the Company stated “[t]here were no studies performed.” Not only did Kentucky Power make no attempt to determine whether the proposed REPA will provide the least-cost capacity and energy, Kentucky Power did not even attempt to determine whether the REPA will provide the least-cost renewable capacity and energy. In response to KIUC 1-12, Kentucky Power stated that it “ did not conduct an RFP to determine the least-cost “renewable” capacity and energy.”' Therefore, Kentucky has not met its burden of proof under KRS278.271 and the Commission should reject the proposed REPA on this basis alone.The group also brought in University of Louisville economics professor emeritus Paul Coomes to testify to the economic benefits of the project. ecoPower says the plant will create 225 jobs (30 permanent at the plant), and infuse the local economy with $9.1 million in wages. But Coomes and KIUC argued that when compared with the $39 million local ratepayers will pay in rate increases, the net economic effect is negative.  Kentucky Power’s Ranie Wohnhas acknowledged the project’s expense—and the fact that the company doesn’t need the biomass capacity to meet its base load. But he said the plant will provide a cushion for the company, and represents an investment in a promising renewable resource.“You know, renewable are expensive whether it’s wind, biomass, solar,” he said. “So this is more expensive than if we went out for coal or gas. For us, this is all around giving the state of Kentucky the opportunity to decide if they want a renewable resource such as biomass.”Though biomass is renewable, it's come under fire from environmental groups in the past. Biofuels can be burned sustainably, largely by using switchgrass, woody biomass or wood scraps (which is what ecoPower says it will use on its website). But biomass plants that use whole trees or fuel like soybeans can have other environmental consequences.If the contract is approved, it’ll essentially have no effect on Kentucky Power. The company won’t own the plant and won’t make any profit off of the electricity the biomass produces. It will pass the costs directly on to ratepayers.The Kentucky Public Service Commission is expected to approve or reject the proposal by Friday.