The Kentucky Attorney General opposes a Kentucky Power plan to install a dry flue gas desulfurization (DFGD) scrubber on the 800-MW unit 2 of the Big Sandy coal plant, saying that project would mean too big a rate increase with too little benefit to the eastern Kentucky economy.
During a recent hearing, a Kentucky Power witness, upon cross-examination by the Attorney General, confirmed that the company had not conducted any studies indicating whether the proposed DFGD was in fact economically feasible for the company’s certified service territory, said the AG in May 11 testimony filed at the Kentucky Public Service Commission, which is considering whether to grant a Certificate of Public Convenience and Necessity. “This admission by the company is in and of itself tantamount to a prima facie finding by the Commission that the company has failed to carry its burden in demonstrating the economic feasibility of the proposed application,” said the AG’s brief.
“Notwithstanding this utter failure by the company to meet its burden, certain points should be emphasized to highlight the gravity of the consequences if the application were to be approved,” the AG added. “Specifically, it is beyond dispute that the instant case has the potential to be one of the most major rate increases which KPCo customers have faced in the past several decades. The potential ramifications are so great, in fact, that they would likely carry a significant impact on the viability of the economy of the counties comprising KPCo’s dedicated service territory. Indeed, there is the potential for major industrial customers to leave KPCo’s territory if the Big Sandy Retrofit is approved as filed.”
Kentucky Power, a unit of American Electric Power (NYSE: AEP), wants to scrub unit 2 and shut unit 1 at Big Sandy. It argues that the scrub is the most economic option for the utility.
Much of the utility’s service territory is below the poverty line in terms of personal income and can ill-afford the rate increase, the AG argued. “Nonetheless, AEP’s profitability strategy includes the goal of ‘grow[ing] rate base and earnings through adding environmental controls,’” the AG wrote. “KPCo’s customers can thus ill-afford, if at all, the whopping the $1.65 billion (pre-tax) bill for the proposed Big Sandy Retrofit promises to bring.”
Although the company filed its application on Dec. 6, 2011, it was not until the company provided an amended response to the AG on Feb. 22 that Kentucky Power acknowledged that the average residential customer would experience an increase of $38.02 per month by 2016, the AG said. The company subsequently revised that estimate upward once again to $39.39 per month by 2016.
The notion of affixing a brand new high-tech DFGD facility onto the 43-year old Big Sandy Unit 2 (together with the assumption that Big Sandy 2 would continue in operation until 2040) hardly seems reasonable, which calls into question the ”necessity” for the project, the AG wrote. Kentucky Power has said the DFGD project would bring additional socio-economic benefit to the region. However, upon cross-examination it appeared that the best the company can do in this regard is to preserve the status quo, said the AG.
A company witness highlighted the fact that the Big Sandy plant consumed a significant amount of Kentucky coal, but acknowledged that only 30% of the plant’s coal was mined in Kentucky, and said that with DFGD in place, Kentucky Power would likely expand the types of coal that it uses at the plant, thus using less low-sulfur eastern Kentucky coal, and replacing it with more higher-sulfur varieties such as Illinois Basin coal, the AG noted.
AG says the company should have looked harder at new gas capacity
Another big option is to replace Big Sandy 2 with new natural gas-fired capacity. “The Commission can take administrative notice that even if it orders the company to pursue the natural gas option, jobs will still be created for the construction of new plant, and many other workers would be needed maintain the plant once constructed,” the AG said. “While it seems clear that the PSC should at least consider socio-economic effects and impacts, they clearly must be weighed against the socio-economic impact which the massive rate hike will have for this impoverished region.”
The AG also questioned how AEP’s planners used the Strategist computer modeling system to come up with the DFGD as the least-cost answer. It contrasted that work with a recent commission case involving the Kentucky Utilities and Louisville Gas and Electric units of PPL Corp. (NYSE: PPL).
“In that case, KU/LG&E issued an RFP for replacement power, and received 116 offers from other electric generation entities,” the AG wrote. “The offers went through a 2-stage analysis, so that the best 24 offers were considered in the mix of options. Those top 24 offers – representing 24 additional options – were entered into Strategist [together with other options]. It is important to note that this is the same computer model utilized by KPCo. However, KPCo did not issue an RFP in connection with the instant filing, and when it came to considering alternative replacement sources of generation, chose instead to focus solely on resources internal to AEP.”
Kentucky Power had not filed anything as of the morning of May 14 addressing the AG’s May 11 brief.
Big Sandy 1 is a 278-MW, coal-fired unit completed in 1963. Big Sandy Unit 2 is an 800-MW, coal-fired unit completed in 1969. Kentucky Power said in the December 2011 application that it currently anticipates retiring Big Sandy Unit 1 by Jan. 1, 2015. A big negative for Unit 1 is that it lacks both selective catalytic reduction (SCR) and an FGD system and would need both for future air compliance. Unit 2 already has an SCR. Unit 1 is also a subcritical pulverized coal facility, while Unit 2 is a more efficient supercritical unit.
Kentucky Power proposes to commence scrubber site construction activities at Big Sandy on or about July 1, 2013. Kentucky Power requested that the commission issue its certificate of public convenience and necessity by June 5.