Home » Weighing the economic and environmental costs of electricity production

Weighing the economic and environmental costs of electricity production

By Kathie Stamps

In early July 2015, LG&E and KU announced that Kentucky’s first natural gas combined cycle generating unit – known as Cane Run 7 or CR7 – became commercially available.
In early July 2015, LG&E and KU announced that Kentucky’s first natural gas combined cycle generating unit – known as Cane Run 7 or CR7 – became commercially available.

Kentucky, long touted for offering some of the lowest electricity costs in the country, continues to use that data point in economic development with good reason. In July 2015, the U.S. Energy Information Administration released its 2012 cost report listing Kentucky’s average retail price at 7.26 cents per kilowatt-hour. Industry must venture far from key U.S. markets to find the four states with lower costs per kWh: Wyoming (7.19), Washington (6.94), Idaho (6.92) and Louisiana (6.90).

Utility companies say they are determined to continue providing safe, reliable electricity to Kentucky but are concerned about the economic impact of the Environmental Protection Agency’s Clean Power Plan to lower power plant sulfur dioxide emissions 90 percent from 2005, and nitrogen oxides by 72 percent. The EPA’s 1,560-page final rules issued in August 2015 require each state to submit its compliance plan (or an initial step accompanied by an extension request) by Sept. 6, 2016. Compliance begins Jan. 1, 2022, toward meeting 15-year plan goals by the first day of 2030.

Kentucky, whose commercial mining began in 1790, is the only state with a footprint in two coal basins: the Central Appalachian Basin and the Illinois Basin. At its production peak in 1990, Kentucky mined 173.3 million tons of coal; in 2014 the commonwealth produced 77 million tons, ranking third behind Virginia and top producer Wyoming, which delivered 196 million tons.

The highly regulated coal industry today employs remote technology. The Kentucky Coal Association today emphasizes telling the story of coal’s place in the present and future. The vast majority of Kentucky production is “steam coal” used to create electricity.

East Kentucky Power Cooperative, a not-for-profit organization formed in 1941 and based in Winchester, generates electricity and delivers it to the systems with 520,000 commercial and residential customers in 87 counties. EKPC is part of PJM Interconnection, a Pennsylvania-based grid operator and electricity marketplace for 13 states and Washington, D.C. Members can buy or sell electricity as needed on a minute-to-minute or day-by-day basis. If an EKPC power plant is down or the market price of electricity is cheaper than local production, EKPC can tap PJM and save money for its 16 Kentucky member co-ops.

The commonwealth’s largest investor-owned water utility is Lexington-based Kentucky American Water. It provides water to 128,000 customers plus waste water service to 1,000 customers in 11 Kentucky counties, including Fayette.

As part of its $20 million in annual capital improvements, KAW is replacing a 90-year-old filtration building to increase reserve capacity at its headquarters water treatment plant on Richmond Road. Kentucky American Water is a subsidiary of New Jersey-based American Water, which from 2003 to 2009 was owned by Germany-based RWE.

Kentucky Utilities, established in 1912, serves 543,000 electricity customers in 77 Kentucky counties and five in Virginia. Louisville Gas and Electric Co. acquired KU in 1998, and LG&E-KU has been part of the PPL Corp. of Allentown, Penn., for five years. LG&E-KU is investing almost $3 billion in environmental upgrades across its remaining coal-fired generating units to meet previous environmental regulations.

In summer 2015, LG&E-KU fired up a new 640-megawatt natural gas unit at Cane Run Station in Louisville, replacing most of the 800 megawatts of coal-fired generation the utilities announced retirement plans for in 2011. The unprecedented current construction phase includes Kentucky’s largest solar power facility at the E.W. Brown Generating Station near Harrodsburg, expected to go online in 2016.

Natural gas market prices have fluctuated over the years, but prolific new U.S. production from hydraulic fracturing of shale basins has driven rates to a 20-year low for Columbia Gas of Kentucky’s 135,000 customers in 30 counties. Natural gas distribution companies do not mark up the cost of the commodity, so Columbia Gas passed on a 48 percent decrease in August 2015; the price is at $2.7190 per 1,000 cubic feet until at least the gas cost adjustment period in December.

Headquartered in Lexington, 110-year-old Columbia Gas is one of seven regulated utility owned by Indiana-based NiSource. Columbia Gas of Kentucky operates 2,600-plus miles of pipeline in the state.

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