LG&E's 'not actionable' energy plan earned poor marks from regulators
The window is closing to preserve the habitability of the planet. Climate scientists from around the world are calling on utilities to transition away from burning fossil fuels and switch to renewable energy sources like solar and wind.
Given the coming energy transition, the state’s utility regulators – known at the Public Service Commission – confirm it’s more important than ever that Kentucky’s utilities provide thorough, transparent insights into their future plans.
This year Kentuckians submitted an unusually high number of public comments in response to Louisville Gas and Electric and Kentucky Utilities’ plans. Many of them called on LG&E to reduce carbon emissions for the sake of the planet. Attorneys for the utility responded saying the comments were “not constructive.”
These “integrated resource plans” (IRPs) are voluminous, technical documents, but at their core it’s a simple idea: Utilities outline how they intend to meet energy demand while providing low-cost power at reasonable rates.
But a September report from state regulators says that’s not the 15-year plan that LG&E/KU submitted in October of 2021.
Public Service Commission staff told the state’s largest utility its IRP failed to produce a cost effective plan that could reliably serve ratepayers. The plan was so incomplete that regulators doubted LG&E/KU would actually use it.
“There does not appear to be a single party to this review – LG&E/KU included – who is likely to support implementing the optimal, base case plan at this point. Thus, LG&E/KU did not establish that the 2021 IRP produced a least cost plan to reliably serve its projected load.”
A spokesperson from LG&E said their 2021 plan used the best available data at the time, but that it was not intended to be an “actionable” plan.
“Reality often confounds expectations, though; international conflicts, significant inflation, federal legislation, fuel price spikes, and other events that occurred after LG&E and KU performed the analyses underpinning the IRP show the risk of placing too much emphasis on any given IRP,” Natasha Collins wrote in response to questions from WFPL News.
LG&E also excluded two new natural gas power plants that are currently under development from the plan; each would cost ratepayers hundreds of millions of dollars, last for approximately 30 years, and would not include carbon capture technologies.
Collins said LG&E developed the proposals for the gas plants after they submitted their long-term plan.
At the conclusion of an integrated resource plan, Public Service Commission staff complete a report offering critiques and recommendations. The report they released in September was scathing. LG&E/KU officials say the commission's desire for an “actionable” plan is a departure from the past.
Commission staff wrote LG&E/KU’s plan “unreasonably” excluded and failed to consider a number of potentially cost-effective options including out-of-state wind power, new energy efficiency programs, rooftop solar and hydroelectric energy storage.
The plan didn’t contemplate adding new solar generation until at least 2028, at a time when utilities across the country are making major investments in both wind and solar.
LG&E/KU’s plan specifically said current trends don’t support a new natural gas combined cycle plant without carbon capture and storage. In June, however, LG&E/KU filed a separate request to do just that -- build two new 660 megawatt natural gas combined cycle plants in Jefferson and Mercer counties that were never mentioned in the integrated resource plan.
Natural gas combined cycle power plants use both gas and steam turbines to more efficiently produce electricity than what are called “simple cycle combustion” turbines. They are more expensive, take longer to ramp up and turn off, and operate for longer periods of time, said Simon Mahan, executive director at the Southern Renewable Energy Association, a nonprofit stakeholder that intervened in the IRP.
“And so when you invest in a combined cycle unit, that means you basically buy that unit and don’t buy anything else. So no wind, no solar, no batteries,” Mahan said.
LG&E/KU officials who wrote the plan said they didn't consider these types of power plants because of their carbon emissions.
“Based on the Biden administration’s energy policy and the national focus on moving to clean energy, the current environment does not support the installation of [natural gas combined cycle] without [carbon capture and storage] due to its CO2 emissions,” the IRP reads, in part.
These carbon-emitting power plants cost hundreds of millions of dollars and have a lifespan of about 30 years. If they are built in 2027, as requested, they could still be around in 2057, Mahan said.
“Here we had an integrated resource plan saying ‘do not build combined cycle gas units,’ but in an entirely separate process that was not part of the IRP, the company was moving ahead on combined cycle natural gas units,” Mahan said.
The response from LG&E/KU attorneys was to say utility officials didn’t realize that regulators wanted an actual plan for how it would meet future energy needs, but would do so in the future.
“The Report’s stated intention for IRPs, namely to result in 'an actual plan for meeting projected load during the planning period,' is a significant departure from nearly 30 years of past practice, at least with regard to the Companies’ previous IRPs and the Staff’s Reports thereon,” LG&E staff attorneys wrote in response.
In a follow-up, Collins with LG&E said their integrated resource plan didn’t include any specific proposals because it was not an actionable resource plan.
“Finally, while we have not yet finalized our replacement generation decisions, we are certainly evaluating natural gas given its affordability, reliability, and ability to be nimble as we support more renewables and transition to net zero by 2050,” she said.
The steps toward net zero carbon emissions
Utilities across the country are in the midst of generational transition away from dirty carbon-emitting fossil fuels like coal and toward cleaner, cheaper sources of renewable energy.
On the one hand, the nation’s fleet of coal-fired power plants are reaching the end of their useful lifespans. On the other hand, renewable energy is cheaper than ever. It’s been two years since the International Energy Agency declared solar the cheapest form of electricity in history.
There’s also a compelling scientific reason for reducing carbon emissions: Climate scientists warn the world must essentially halve greenhouse gas emissions by 2030 in order to limit global warming to 2.7 degrees and protect the habitability of the planet, according to the Intergovernmental Panel on Climate Change.
A recent Sierra Club report found LG&E/KU plans to retire only a fraction of its coal generation by 2030 while replacing it with even less renewable energy. The utility ranked third on their list for keeping the most coal-fired electricity online past 2030.
Officials from LG&E, KU and their parent company PPL Electric Utilities Corporation say they are committed to achieving net-zero carbon emissions by 2050 with interim reduction goals of 70% of 2010 levels by 2035 and 80% by 2040. The company also says it’s committed to not burning coal past 2050 unless it can capture the carbon with removal technologies.
The utility also plans to burn natural gas after 2050, but says it will still meet net-zero commitments using unproven carbon capture technologies that their own official described as “aspirational,” according to testimony from company officials.
PSC staff found LG&E/KU’s 15-year integrated resource plan was at odds with its own carbon reduction goals. In part, because it heavily relied on natural gas simple cycle combustion turbines without carbon capture and storage and also because it included plans to continue burning coal at an existing power plant through 2060.
“If the Companies felt their analysis justified their commitment to the carbon emission plan, they should have incorporated their commitment into the [integrated resource plan] and explained the basis for their analysis and the uncertainties associated with it,” staff wrote in the report.
Regulators’ concern is that the LG&E/KU could end up building expensive fossil fuel infrastructure that will last for decades, but may end up as stranded assets that turn out to be worth less than expected as a result of the energy transition -- leaving consumers on the hook to pay for them.
“Commission Staff believes the [integrated resource plan]’s assessment and discussion of potential carbon regulation was too limited and should have been more thorough and assessed the regulatory risk and its effect on costs over a longer period of time, including any effect on the economics of resources that could be selected in the planning period,” staff wrote.
LG&E/KU told regulators its plan is consistent with carbon reduction plans because both reflect the same coal unit retirements through 2035 and anything after that is irrelevant.
Regulators are mostly powerless to enforce actionable plans
Mahan with the Southern Renewable Energy Association said Kentucky’s planning process is among the weakest of any southern state.
In other states, commissions can reject integrated resource plans and force utilities back to the drawing board. In Kentucky, the way the rules are written, utilities can turn in basically whatever they want and face no consequences.
“And in this case, Louisville Gas and Electric really phoned-in the IRP and just did not do a good job at all,” he said.
PSC Chairman Kent Chandler told a group of regulators at a Federal Energy Regulatory Commission conference on transmission planning in September that Kentucky lacks a “robust” process where utilities in Kentucky aren’t responsible for adhering to the plans they share with regulators.
“Their IRP may look one way and say ‘we don't need anything for the 15 years’ and they may show up for a certificate for a 660 megawatt [natural gas] combined cycle two years later and say ‘oh things have changed,’” Chandler said.
Federal influences on state plans
A lot has changed since LG&E/KU submitted its integrated resource plan. The ongoing pandemic, inflation and the war in Ukraine have caused dramatic increases in fuel prices. Natural gas prices have risen so much they’ve exceeded even the high-price scenarios that LG&E/KU considered in its plan.
Then in August, President Joe Biden signed the Inflation Reduction Act. The legislation is the most significant climate legislation in the country’s history, providing nearly $370 billion in climate and clean energy tax credits and investments that’s projected to cut U.S. greenhouse gas emissions by about 40% below 2005 levels in 2030.
Mahan with the Southern Renewable Energy Association says investments will pave the way for zero emissions technologies including wind, solar, energy storage, hydrogen and carbon storage and sequestration.
“The Inflation Reduction Act changes the entire game where we’ve never had a 10-year horizon of investment tax credit, production tax credit for zero emission energy production,” Mahan said.
Between higher than expected fuel prices and new incentives to invest in renewable energies, utilities across the country will be re-thinking their future energy plans, he said.
Collins with LG&E/KU says the utility is also weighing future energy plans in light of the Inflation Reduction Act and fuel prices increases.
“Again, these developments show the value of not making binding resource decisions during an IRP, i.e., sooner than they must be made; the Inflation Reduction Act and significant fuel price increases came about after LG&E and KU filed their IRP in October 2021,” she said.
LG&E plans to file an application before the end of the year for new power generation plans, and energy efficiency programs, Collins said.