A Continuing Effort to Extend Fossil-Based Power will Raise Rates and Continue to Impact the Health of Kentuckians

Many of these bills and resolutions below only serve to benefit the fossil fuel industry—not the consumer—by continuing to lock us in to older, dirtier, and increasingly inefficient fossil generating plants. Existing coal plants are already decades old and replacing them with gas plants only extends a legacy of impacts to public health. And recent weather events have also demonstrated that gas plants also experience reliability challenges. We anticipate that similar to last year, some electrical utilities serving Kentucky will object to these bills since they will curtail their ability to retire uneconomical coal plants, burdening consumers with an unnecessary cost to keep paying for increasingly obsolete generators under the rationale of protecting “reliability.”

Please call the legislative message line at 1-800-372-7181 (Monday-Thurs. 7AM-9PM and Friday 7AM-6PM) to express your views on these bills and resolutions. You may also email your legislators if the phone lines are closed.

Senate Bill 349 (Mills) (Strong Oppose)

ACT! Senate Bill 349 (Mills) is now on the Governor’s desk Ask the Governor to VETO.

See our memo on this bill as well as the letter from the Energy and Environment Cabinet on the impact of this bill.

The bill claims, among others, that "Further retirement, decommissioning, or demolition of fossil fuel-fired electric generating resources is not necessary for the protection of the environment or the health, safety, and welfare of the citizens of the Commonwealth." The intent of Senate Bill 349 is to prevent or restrict the retirement of fossil fuel-fired electric generating resources. It creates a new agency (that the Cabinet estimates will cost $1.5m a year!) with two (2) bodies: an 18-member Commission Board and a 5-member Executive Committee. The 18 member board is appointed by the governor, and confirmed by the senate, and must include seven members associated with coal, oil and gas, and/or nuclear resources with two members nominated by the Kentucky Coal Association, two members by the Kentucky Oil and Gas Association, and one member by the United States Nuclear Industry Council. One (1) member of the board represents producers of renewable electricity. The Speaker and Senate President also appoint two non-voting members. The secretaries of Energy and Environment and Economic Development are also board members. The 18-member board is charged with studying the broad spectrum of electric generation and transmission resource and supply issues with specific emphasis upon the continued operation, retirement, divesture, or other major action impacting any electric power generating unit or any pollution control equipment associated with any such unit, located in the Commonwealth and also the sufficiency of the dispatchability of energy resources in various loss scenarios.

The executive committee is composed of the director of the University of Kentucky Center of Applied Energy Research, and the governor appoints a member who has coal production experience and a member who has electric utility experience. The other two positions are filled by people nominated by the Board.

A utility is restricted from undertaking any decommissioning, demolition, or retirement activity at any existing coal, oil, or natural gas-fired electric generating plant, or any unit within the plant prior to submitting notice to EPIC and receiving findings from the Executive Committee. The Commission must hold a public hearing in the county in which the retirement is proposed to receive public comment. Within 270 days of the notice, the Executive Committee must issue a final report with written findings and recommendations. The Public Service Commission must consider the EPIC report before approving any retirement. The EPIC is granted standing to participate and intervene in the case before the Public Service Commission.

The bill requires the PSC to issue a decision for applications concerning certified territories, certificates of convenience and public necessity, site compatibility, change of control of assets, purchases relating to biomass facilities, and financing applications within six months. Also requires that any outside consultant used by the PSC to be required to respond to any written information requests regarding any final report or recommendation and must be made available for cross-examination. The result would be from dis-enabling the role of such a provider of service from that of advisory to that of an adversarial participant and, in turn, impairs the Public Service Commission’s deliberative process and internal operations.

The bill also requires the PSC to find that the new electric generating capacity replacing the (proposed) retired electric generating unit “[h]as the same or higher capacity value and net capability, unless the utility can demonstrate that such capacity value and net capability is not necessary to provide reliable service.” Also requires that the utility shall not commence retirement or decommissioning of an electric unit until the replacement generating capacity is fully operational. Adds definitions for “dispatchable” and “intermittent” (solar and wind) resources.

House Joint Resolution 121 (J. Gooch) (Oppose)

(The bill was assigned to Natural Resources, had two readings and returned to A&R) A Joint Resolution that provides that air quality standards for permits for fossil fuel-fired power plants are not subject to federal regulation. Prohibits state agencies from collecting fines or penalties for any violations of federal requirements as they apply to fossil fuel-fired power plants. Declares that the Commonwealth of Kentucky is a sanctuary state from the United States Environmental Protection Agency's overreaching regulatory actions on fossil fuel-fired power plants. The preamble to the resolution is misleading, and while federal regulation may be one reason for coal plant retirements, other economic drivers like cheap renewable energy, cheap gas generation are the main drivers of retirements. Moreover, by not complying with federal Clean Air Act air quality standards, this resolution will put in jeopardy millions of federal dollars for environmental protection, enforcement, and federal highway funds, require the US EPA to impose its own Federal Implementation Plan for state Clean Air Act compliance, as well the possibility of the US EPA revoking it delegation of CAA responsibilities to the state.

Other Coal Proection Bills:

House Bill 445 (T. Smith) (Strong Oppose)

House Bill 445 requires energy providers to keep power plants online, even when they are not operating. The bill adds additional hurdles ot retire coal-fired power plants to SB 4 from last session. Prohibits the Public Service Commission from approving the retirement of a fossil fuel-fired electric generating unit unless the commission finds that the utility has no un-depreciated investment in the unit (meaning that the unit's value must be fully depreciated) and that the costs to operate the unit are greater than the revenue that it generates.

House Bill 628 (W. Williams) (Oppose)

House bill 628 requires the Public Service Commission to issue final orders within six months of the filing of an application by a utility. Requires final reports of investigations or special inquiries to be filed within the public record for the case for which it was prepared. And requires a contracted person to be subject to written information requests and cross-examination in any public hearing for the case in which the report was prepared. [KCC Note:The Public Service Commission is understaffed yet taking on an increasing workload. They should be provided more resources, and this bill constrains their ability to do proper oversight due to these timelines].

Senate Bill 364 (P. Wheeler) (Mixed. See details in description)

OVERVIEW:

This Bill’s Impact upon the Kentucky Public Service Commission:

• SB 364 further codifies Kentucky law concerning the adequate service requirement and can be read to prohibit certain utilities from any purchases of capacity or energy from a Regional Transmission Organization (RTO) for the purpose of maintaining adequate service. The bill also adds Integrated Resource Planning as a statutory requirement (as opposed to the current regulatory requirement). However, the bill can be read to remove generation and transmission utilities (Big Rivers and Eastern Kentucky Power Co-Operative) from the Commission’s existing regulatory integrated resource planning requirements.
  
  SB 364 also significantly alters Kentucky’s law regarding certified electric territories by expanding the adequate service inquiry from an electric-consuming facility to a much broader “facilities” within the certified territory. The change provides the PSC with discretion to allow another retail electric supplier to serve facilities within a certified territory. SB 364 also alters the factors that the PSC must consider when reviewing an application for a change in control and the Commission’s discretion concerning acquisition premiums.
  

This Bill’s Impact upon investor-owned retail electric utilities:

• Retail electric suppliers that are required to file an integrated resource plan (“IRP”), basically all investor-owned utilities, may have less flexibility in purchasing capacity or energy from a Regional Transmission Organization (RTO) or Independent Systems Operator (ISO). SB 364 recognizes a "privilege" of a utility to exclusively serve a certified territory as a "property right" of the Commonwealth. SB 364 contains additional requirements and PSC discretion for applications for a change in control of an investor-owned retail electric utility including the discretion to claim proceeds of the transaction on behalf of ratepayers and make determinations concerning the most beneficial type of ownership. These "privilege" and "property right" distinctions along with the claim of proceeds will likely be viewed as unconstitutional, including the confiscation of the utilities' private property.
  
  For all utilities, the changes in the certified territory law allows the exception to swallow the rule in that the Commission would have the discretion to allow a utility into the certified service territory of another utility to address a lack of adequate service to facilities rather than a lack of adequate service to a single electric-consuming facility. It is a significant increase in the ability of the Commission to alter service within certified territories.

This Bill’s Impact upon customers:

• The impact upon customers of investor-owned retail electric utilities is largely indirect. Nonetheless, if the ability of an electric utility to make short-term market purchases of energy or capacity from an RTO or ISO is eliminated, it may cause a greater investment in utility plants and infrastructure and/or contracts which, in turn, stands to increase rates. If generation and transmission entities are excluded from integrated resource planning, it risks a greater (and perhaps unneeded) investment in utility infrastructure and/or contracts (due to a reduction in supervision by the PSC) which, in turn, stands to increase rates. HOWEVER, the potential ability of the Commission to allow a utility to serve customers within another certified territory could be helpful to customers in areas that do not receive adequate service.

FULL DETAIL ANALYSIS OF SB 364 BY SECTIONS:

The primary problems posed by SB 364 concern the lawfulness of trying to control the management of utilities rather than regulate the utility’s provision of rates and service. Overall, there is a risk of higher rates and less transparency in resource planning (and less resource planning). While that would adversely impact customers, another a group that is likely to be adversely impacted by SB 364 are the "retail electric suppliers" subject to the IRP process, and the investor-owned utilities in change of control transactions.

The first section of this bill codifies the PSC's current requirements that retail electric suppliers must maintain adequate service through owning or contracting for sufficient generation capacity to meet, with reasonable reserves, customer demand. SB 364 contains a subtle but significant variation in the scope of the IRP process. Specifically, SB 364 reduces the scope of integrated resource planning from “electric utilities” to “retail electric utilities” while retaining the exemption for a distribution company with less than $10,000,000 in annual revenue or a distribution cooperative. While the coops can speak for themselves, it appears that this would likely cause larger coops like BREC and EKPC, presently subject to the Commission’s IRP regulatory process, to fall outside of the scope of the statutory IRP requirement because neither is a “retail electric supplier.” Thus, while IOUs like LG&E/KU, Duke, and Kentucky Power will be required to submit IRPs, BREC and EKPC would not.

Section 1(4) creates a very significant change in utility regulation. SB 364 Section 1(4) states “retail electric suppliers required to file integrated resource plans shall not purchase capacity or energy from regional transmission organizations [“RTO”] or independent system operators [“ISO”] to satisfy the requirements of this section.” The PSC currently does not allow any regulated utility to depend on the market for generation or capacity for any sustained period of time. However, this new statutory mandate, like with IRPs, does not apply to coops like BREC and EKPC, only IOUs. The use of the use of “retail electric supplier” rather than “electric utility” in SB 364 should not be presumed to be inadvertent.

In the short-run, the impact to customers of a retail electric supplier (that is required to file an IRP) is a continuing exposure to higher rates due to a decrease in flexibility in purchasing generation or capacity. In the long-run, the impact to customers of retail electric suppliers that are exempt from the IRP requirement is, at minimum, less Commission supervision of the supplier’s resource planning and, possibly, less resource planning which, in turn, raises the risk of unfavorable resource outcomes and higher rates.

Kentucky presently regulates retail electric suppliers through a framework (KRS 278.016 through KRS 278.18) that includes the creation and assignment of certified territories through which a retail electric supplier is the exclusive supplier within its certified territory. KRS 278.018(1) establishes an “exclusive right” to serve a territory.

SB 364 Section 2 establishes a new section of KRS Chapter 278 that identifies an “exclusive privilege” of a retail electric supplier to furnish retail electric service within its certified territory and characterizes the exclusive privilege as a property right of the Commonwealth. The characterization of this privilege directly impacts applications for a change in control of a jurisdictional utility. Section 2(2)(a), the new section of KRS Chapter 278, requires the Commission to consider the amount paid in excess of a retail electric supplier’s net book value as representing the value of the privilege when reviewing the acquisition, sale, or transfer of control of a retail electric supplier. Section 2(2)(b) states that the Commission has the authority (in the context of the corresponding amendment to KRS 278.020 through Section 7) to determine the amount of the proposed purchase price in excess of net book value, if any, that should be paid to the customers of the retail electric supplier. Section 2(3) states that the newly-recognized property right of the Commonwealth provides the Commission with the discretion to cause an excess of net book value propose to be paid in a change of control transaction be captured for ratepayers. Section 2 purports to give the Commission the discretion to claim the payment of this premium on behalf of the ratepayers.

The property of the utility, including the value of rights, subject to such an assignment is protected against confiscation; therefore, it is quite likely that the assignment provision would be determined a confiscation of the utility’s property and unconstitutional. While the Commonwealth has the right to establish certified territories, it does not have the ability to appropriate the utility’s property without compensation. On its surface, Section 2 appears favorable to ratepayers; however, it is likely unconstitutional.

Section 5 modifies the Commission’s authority regarding adequate service. At present, the Commission has authority to make any investigation it deems appropriate upon the issue of the adequacy of service and also hears complaints regarding the adequacy of service. The Commission also has jurisdiction over claims that a retail electric supplier is not rendering adequate service to an electric-consuming facility and may order a correction within a reasonable time, to be fixed in such order. SB Section 5(4) focuses upon whether the failure to render adequate service is a result of insufficient generation capacity to meet customer demand.

KRS 278.018 presently authorizes the Commission to order a correction of a failure to an electric-consuming facility, and, if uncorrected, authorize another retail electric supplier to furnish retail electric service to the particular facility. SB 364 Section 5(5) would expand the Commission’s existing authority by extending the authorization of another retail electric utility to service facilities (meaning that the portion of the certified territory containing facilities for which there is not adequate service as a result of insufficient generation capacity to meet customer demand could be reassigned to another retail electric service provider). The significance is the increase in scope which could, as a practical matter, significantly erode the certified territory framework.

Section 6 amends KRS 278.020, which includes the Commission’s instructions and authority concerning applications for a change of control, through adding a new subsection. The force and effect are not entirely clear. Under existing law, a utility does not have a right to achieve a change in control in absence of prior Commission approval. However, under existing law, the Commission does not determine the best purchaser, but instead determines if the identified purchaser meets certain requirements. A Commission decision to deny a change in control based upon the Commission’s determination of the best purchaser moves the Commission from regulator into the management of the utility and implicates confiscation of utility property.

Securitization: There is also a concern with KRS 278.676(1)(e) regarding securitization bonds. If there is, by Order, an authorization of a securitized surcharge, the surcharge is nonbypassable and is paid by all existing and future retail customers receiving electric service from “the electric utility, its successors, or assignees under commission-approved rate schedules even if a retail customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of public utilities in the Commonwealth (emphasis added).” One of the fundamental premises of allowing utilities to provide service as monopolies and, for electric utilities in certified territories, is the benefit of economies of scale allowing the spreading out of common costs (minimized through the avoidance of competition) throughout a large customer base. If there is an erosion in the certified territories, one result is the assignment of nonbypassable charges to an even smaller customer base that stands to see increases in costs due to the reduction in economies of scale (through loss of customers).

Conclusion: If the limit of the legislation permits the PSC to make findings concerning purchase price under different scenarios, then, arguably, it is permissible. Nonetheless, the Commission has the authority to disallow the recovery (by the purchaser) of an acquisition premium under current law. What the Commission does not have the authority to do is claw back from the seller any premium that a purchaser is willing to pay in favor of ratepayers (because that is confiscatory and likely unconstitutional).