The parties unanimously agreed that KU and LG&E should be allowed to spend almost $1 billion on projects that will enable the 1,932-megawatt Ghent, 1,472-megawatt Mill Creek, 1,274-megawatt Trimble County and 749-megawatt E.W. Brown plants to comply with federal Environmental Protection Agency (EPA) regulations. Together, KU and LG&E serve about 1.2 million electric customers.
If the Kentucky Public Service Commission (PSC) approves the settlement, as expected, later this year, KU will be authorized to spend $678 million and LG&E about $316 million primarily to meet the EPA’s new Coal Combustion Residuals Rule that took effect on October 19, 2015.
KU and LG&E, subsidiaries of Pennsylvania-based PPL Corp. that burn about 15 million tons of steam coal annually, sought to recover the project costs through a special mechanism under Kentucky’s 1992 environmental surcharge law. Enacted by the Kentucky General Assembly a quarter-century ago to encourage the state’s utilities to continue burning coal, the law authorizes utilities to recover the costs of complying with federal, state and local environmental requirements related to coal combustion wastes and byproducts, commonly known as coal ash, from facilities used to produce energy from coal.
Approximately 85% of the electricity produced by KU and LG&E is fueled by coal, much of it produced within the commonwealth. To receive approval from the PSC to recover the environmental compliance costs, an electric utility must submit an application to the commission containing a compliance plan that identifies the particular projects and their associated costs.
KU is requesting approval to build seven new projects that will enable the Ghent, Trimble County and Brown plants and three inactive generating stations to comply with environmental regulations. LG&E is seeking approval to construct three new projects that will allow the Mill Creek and Trimble County stations to reach EPA compliance.
Seven of the proposed projects involve closing active surface impoundments and constructing new process water systems “to allow economical coal-fired generation to continue producing electricity,” LG&E and KU said in the settlement also entered into by Kentucky’s attorney general and the Kentucky Industrial Utility Customers trade group.
KU and LG&E are proposing to amortize project costs through their environmental surcharge recovery mechanisms for up to 25 years. The compliance plan’s costs include what the parties described as a “reasonable return” — 10% — on capital expenditures and reasonable operating costs. According to the settlement, a KU customer using 1,146 kilowatt hours of electricity a month would see a bill reduction of $1.96/month while a LG&E customer using 976 kilowatts a month would pay 44 cents/month.
The settlement also includes cost recovery for surface impoundment closures at the Green River, Tyrone and Pineville generating stations, totaling about 800 megawatts, all of whom were retired during the past year or so.
If the settlement is approved by the PSC, LG&E and KU intend to begin the projects before the end of 2016 and complete them by the end of 2023.