EPA Plan Threatens Affordability And Reliability Of Kentucky’s Electricity

“Clean Power Plan” published in Federal Register on Friday

The member-owners of Kentucky’s electric cooperatives stand to pay a disproportionate price for the changes required in the Environmental Protection Agency’s “Clean Power Plan” (CPP), published in the Federal Register on Friday.

Kentucky’s electric cooperatives are not-for-profit, member-owned entities which serve more than 1.5 million people (about 35% of the state’s population) in 117 of Kentucky’s 120 counties.  All costs are paid by members.  Cooperatives serve some of the most remote areas of the commonwealth, where members are often the least able to afford rate increases.

The EPA plan targets coal, the main source of Kentucky’s electricity, in new and aggressive limits on carbon emissions.  About 90 percent of electricity generated in Kentucky is by coal fired power plants.  The CPP fundamentally changes how electricity is generated, distributed and consumed in the United States.

“The new limits in the plan are impossible to achieve with our current fleet of generators,” said Chris Perry, President and CEO of Kentucky Association of Electric Cooperatives (KAEC).  “The time frame is inconsistent with time needed to build alternative sources. This makes the potential great for increased costs and potential reliability problems.”

In the last decade, the two main suppliers of electricity to cooperative customers, East Kentucky Power Cooperative and Big Rivers Electric Corporation, have invested more than $2 billion in coal assets.  These are 20- to 30-year investments.

Cooperative member-owners face compounded costs under the Clean Power Plan:

  • cost of the electricity as generated, including construction of new plants
  • cost to pay for debt of prematurely retired coal-fired plants as non-producing stranded assets
  • cost to pay carbon credits to other states which have an easier burden under the CPP

In 2013, Kentucky had the 3rd most electricity-intensive economy in the U.S., based on electricity consumption per state GDP dollar.

Kentucky has lost one-quarter of its manufacturing jobs since 2000.  The Kentucky Energy & Environment Cabinet estimates a ten percent increase in the cost of electricity would trigger a loss in Kentucky of almost $2 billion GDP.

The CPP assumes an increased dependence on natural gas, a commodity which is also used in residential heating, making it prone to price volatility and supply concerns.  The North American Electric Reliability Corporation (NERC) projects a 30 percent increase in demand for natural gas, straining availability during periods of heavy demand, such as in extreme heat or cold.

While coal-fired power plants generally keep 30- to 45-day coal stockpiles, natural gas – by its nature – is not stored, but conveyed by pipelines in a “just-in-time” delivery model.  While the coal supply has redundant delivery channels, the natural gas supply is limited to one or two pipelines.

In addition, the NERC report on potential reliability impacts of the Clean Power Plan questions whether adequate equipment (e.g., generators, solar panels, wind facilities, transformers, and conductors) and resources (e.g., engineering, procurement, and construction) will be available to support the plan’s requirements.

Though Kentucky’s electric cooperatives support the coalition of 24 states and energy companies who filed suit today to challenge the regulatory package, cooperatives will comply with federal mandates and have a fiduciary responsibility to plan accordingly, even while courts contemplate whether to vacate the regulations.