ELECTRICITY

Consumers trapped in the middle of Big Coal's fight for survival

FRANKFORT, Ky. -- Chris Woolery seemed impatient when he cornered a lawmaker inside an elevator at the Kentucky Capitol. It was his first shot at bending an ear as legislators hustled to their morning meetings.

"I've helped folks with $1,400 electric bills, and we've cut their bills in half," Woolery said, twisting his tall frame inside the packed shoebox to get closer to the state representative from Lexington.

Electricity rates are going up here, and the rising energy costs have grabbed the attention of grass-roots organizers like Woolery in a state where 93 percent of power generation comes from burning coal.

Woolery, a soft-spoken 43-year-old efficiency contractor and former builder, let his stories land softly as he folded a message about energy savings inside a more palatable pitch for legislation to spur job creation in rural Kentucky.

"We go in and finance it on their electric bills," Woolery explained. "Now they're paying for upgrades instead of kilowatt-hours. That creates economic development if we can get it to scale."

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The doors chimed open. "It's exciting and a blessing to help people," he told the legislator.

Through the Mountain Association for Community Economic Development, or MACED, Woolery helps run a small program that partners with rural electric cooperatives to finance energy efficiency retrofits for poor and moderate-income people. MACED, based in the small college town of Berea, aims to stimulate economic growth in ways that support sustainable energy development.

The virtue of a coal-based economy is still gospel in Frankfort. But organizers here say efforts to wall off the state's coal-dependent utilities from competing sources such as natural gas and distributed solar power are leading to higher costs for Kentucky's poorest communities.

In homes across rural Kentucky, air poured in through poorly sealed ducts this winter, driving up utility bills during peak hours.

"The leakage rate is close to the square-footage of the house," Woolery said, explaining how a large Georgian-style house in northern Kentucky could amass a $1,400 electric-heating bill during the 2014 polar vortex, his most extreme example of inefficient housing.

Woolery grew up visiting his grandparents in eastern Kentucky's coal country, which for decades has been a focus of anti-poverty campaigns aimed at improving conditions in rural Appalachia.

Financing energy-saving upgrades for homes built during the coal booms of last century is a challenge in Harlan County company towns like Benham and Lynch, where the coal mines are long gone and work is dried up. That's where Woolery and a new crop of outreach groups are focusing their attention, partnering with local power boards and cobbling together grant funding to control crippling utility bills for older people still there.

But efforts to scale up energy savings and alternative sources statewide have been consistently hamstrung. Anything that touches on energy is fiercely political in Kentucky and all the more so as the Obama administration presses on with plans to counter climate change.

Quelling solar

Woolery and the band of "citizen lobbyists" spent much of the cold day in February finding their way into legislative offices to pitch a renewable and efficiency portfolio standard.

To many it was clear the bill had no chance of reaching the state House and Senate floors, as similar proposals since 2010 had been scuttled long before getting a vote. It would require utilities by 2023 to get 12.5 percent of their power from renewable sources and to offset 10 percent of their retails sales through energy efficiency. The proposal would establish feed-in tariffs to encourage investment in wind, solar, biomass and hydropower projects.

The proposal in Kentucky largely matches North Carolina's renewable energy and efficiency standard put in place in 2007, which according to its boosters has created about 37,000 related jobs. It's a point supporters in Kentucky hope can nudge legislators to act on a "jobs bill" and get in place a modest clean energy standard.

Still, few in Frankfort's increasingly conservative legislative scrum anticipate action on any bill this year that could cut into the business of the state's dominant coal-burning utilities. With the average residential retail electricity rate at about 10 cents per kilowatt-hour in 2014, Kentuckians still pay a lot less than people in Connecticut. But utilities here face the same challenges around flat electricity demand and rising annual costs as everywhere else, and much of that has to do with aging infrastructure.

One proposal shopped around by a Louisville senator and quietly left on the Capitol's cutting-room floor in the past few weeks would lift a 30-kilowatt ceiling on net metering for rooftop solar. The cap makes it tougher for commercial consumers like Wal-Mart or a whiskey distiller to see a payoff to installing solar panels.

In a series of closed-door meetings in recent months that brought electric utilities and solar interests to the table, Louisville Gas & Electric Co. and rural cooperatives warned that compensating larger-scale solar users for the excess power they feed to the grid would shift infrastructure costs to traditional customers.

That affects poor people, the utilities argued, according to a source in the room. "They don't have to say anything more than that," said the attendee. "There's just a power differential in the room."

Calling Kentucky's 30 kW limit a "significant barrier" to investment, the Kentucky Solar Energy Society in an October 2014 memo to the group proposed raising the cap to 1,000 kW to match other states and pull in commercial and industrial customers. In the national battle over solar, the American Legislative Exchange Council (ALEC), a powerful coalition of state lawmakers and corporate interests, including the Koch brothers and investor-owned utilities, has opposed solar incentives and pushed states to impose fees on utility customers who install rooftop solar.

Kentucky's solar net-metering group met again late last month to chip away at a compromise, but way too late for serious consideration during the short legislative session.

Utilites reject 'just say no' crowd

The solar talks were a skirmish. The war is about carbon, climate change and the realities of a rapidly changing energy sector.

Elected officials here are taking a scorched-earth approach to opposing Obama administration policies that affect utilities and nearby coal fields. Kentucky is arguably the epicenter of opposition to U.S. EPA's Clean Power Plan, which would require states to cut carbon dioxide emissions from their power sectors by varying amounts through 2030.

In November, the GOP-dominated state Senate and conservative Democratic majority in the House rode the coattails of U.S. Senate Majority Leader Mitch McConnell's "war on coal"-themed re-election campaign. Fueled by tens of millions of dollars in out-of-state money, the campaign pitted Kentucky's economy against EPA's enforcement of air quality standards and its coming carbon regulations.

The leading Democratic candidate in this year's governor's race, Attorney General Jack Conway, has joined a multi-state lawsuit aiming to stop a final carbon rule. He's tucked in just behind McConnell, a Republican, in promising a protracted legal and political battle.

Under Obama's climate regulations set to be finalized midsummer, states would have the flexibility to tailor their plans for meeting emissions targets. That could include using cleaner gas in place of coal, integrating zero-carbon sources like wind and solar, boosting power plant efficiency or carbon-capture technology, and promoting energy savings. It could also mean joining with other states to come up with a regional plan.

Last week, in an opinion piece in the Lexington Herald-Leader, McConnell called on states, and implicitly leaders in Kentucky, to simply reject the Clean Power Plan and not submit a state plan for compliance with the Clean Air Act.

That flexibility is "illusory" and EPA's legal basis is "flimsy," McConnell wrote, picking up on concerns expressed by state regulators and grid operators about tight compliance deadlines starting in 2020. High-level EPA officials have already signaled the agency is open to changes that would help ensure coal plant closures don't lead to blackouts and other electric reliability issues.

In the op-ed piece, McConnell urged states to "think twice" before submitting a plan. Doing so could "lock you into federal enforcement and expose you to lawsuits."

Increasingly, however, energy advisers around the sitting governor and Kentucky electric utility heads who until now have avoided the political fray are mounting a counteroffensive, pressing the state to get a plan ready to submit in 2016. They warn that Kentucky is better off crafting its own plan and keeping doors open for negotiation with EPA than slamming it shut and forcing the agency to impose a top-down federal compliance plan for the state.

That thrum is getting louder, even as the state Legislature keeps on the books tight constraints on Clean Power Plan compliance.

"I can't put my company at odds with the federal government if it's the law," said Greg Pauley, president and chief operating officer of Kentucky Power, a subsidiary of American Electric Power Company Inc.

Last year, the state Legislature unanimously approved H.B. 388, which effectively bans Gov. Steve Beshear, a centrist Democrat, and future governors from moving forward with any compliance plan that goes beyond what electric utilities can do to beef up efficiency at existing coal plants.

That means no solar, mandates around switching to gas or standards calling on utilities to push for more efficient use of electricity. Further, it provides no policy rationale for the state's Public Service Commission to work up a way to enforce a state plan and to start grappling with tough ratepayer issues around capital upgrades and more aggressive coal-unit retirements.

"H.B. 388 may need to be looked at and re-evaluated as we move forward," Pauley said.

Pauley's company is scheduled to take the 800-megawatt Big Sandy coal unit in eastern Kentucky offline this summer, after a yearslong and ongoing battle with state officials. East Kentucky miners at one time supplied 2.5 million tons of coal a year to the plant. And the business decision to purchase out-of-state power instead of upgrading Big Sandy with expensive scrubbers and asking for a significant rate increase turned into a bloody battle about coal.

"It's a big mistake to take a valuable resource like coal and put it on the shelf," said Rep. Rocky Adkins (D), the House majority leader and a critic of the decision to close Big Sandy, which serves his district.

"The Clean Air Act was implemented over a 30-year period," he added. "It gave the technologies time to catch up with the law."

Compliance plan at work

The "just say no" campaign now embraced by McConnell and the state Legislature comes from the playbook of Washington's powerful coal lobby. At the top of that heap is the American Coalition for Clean Coal Electricity, which is run by Mike Duncan, a top Republican powerbroker. In Kentucky, Duncan is simply known as the chairman and CEO of the small Inez Deposit Bank in Inez, Ky., a friend of McConnell's and an old-school guardian of coal interests.

Seemingly, the result is a state energy policy set in granite until EPA finalizes a rule.

Yet from inside the 12th-floor offices of a state office tower where Beshear's energy Cabinet sits, officials were chipping away at compliance options last month.

"As much as we'd like to say, 'No, let's not talk about a compliance plan', that's where it's heading," Kentucky Energy and Environment Secretary Leonard Peters said in an interview with EnergyWire.

Peters said he wants the bulk of a compliance plan drawn up before Beshear leaves office in December.

"The one thing that we have repeatedly heard from the utilities is that we don't want a federal implementation plan," he said. "Our utilities would be, it's fair to say, very disappointed if we didn't put in a plan."

Under the Clean Power Plan, Kentucky would have to cut its power-sector carbon emissions rate 18.3 percent between 2012 and 2030. In part because the state is so reliant on coal to keep the lights on, EPA's reductions target for Kentucky is among the lowest in the 13-state regional grid operated by PJM Interconnection, which serves 61 million people across the Mid-Atlantic region and Midwest.

Here state officials are in a multijurisdictional jumble. Kentucky's served by regional grid coordinators PJM and the Midcontinent Independent System Operator. Some of the western part of the state is powered by the Tennessee Valley Authority. The state is also served by subsidiaries of three of the nation's largest investor-owned utilities: Louisville Gas & Electric Co. and Kentucky Utilities Co., jointly owned by PPL Corp.; AEP's Kentucky Power; and Duke Energy Corp.

Sixteen small electric distribution co-ops get power from the East Kentucky Power Cooperative.

This state long has burned cheap Appalachia coal and emitted smokestack toxins and carbon for free. That kept electricity prices low here. But coal's no longer dirt-cheap, gas is the fuel of choice for new plants, and technology is driving down the cost of renewable power.

"PJM and MISO dispatch their electricity on a lowest-cost basis," Peters said. "Under a new carbon rule, are they going to change that so they're factoring emissions of CO2 into that decision? I find it difficult to imagine they aren't going to have to do something along those lines."

Within PJM, a "price on carbon" means dispatching a lot more electric power from combined-cycle natural gas plants across the region. Under a different method of calling on power generators, the cut-rate cost of using old coal units built in the 1960s and 1970s would no longer be the only factor in dispatching power in Kentucky or across the big grid, particularly as carbon limits ratchet up after 2020.

Power produced today by Kentucky coal units scheduled to shut down before 2020 could be offset by other resources within PJM, according to a recent PJM study on regional Clean Power Plan compliance. Regional coordination as coal units come offline in Kentucky and Ohio would hold down wholesale power prices, PJM analysts said, as state regulators wrestle with integrating capital costs for building cleaner generation into retail rates.

Kentucky uses more coal than other coal-heavy states and at a higher cost through 2020, with still little gas generation, renewables, efficiency or nuclear power getting to homes and businesses. In PJM's portion of Kentucky, combined-cycle gas plants aren't running yet, and there's barely any renewable energy and efficiency standards at work at the start of compliance.

By 2025, one PJM scenario assumes Kentucky has just enough renewable power and efficiency in place to keep the state's energy price increases low. Under faster changes, coal-unit retirements would pick up steam from 2020 to 2030, as gas generation grows by between 39 percent and 137 percent, pushing up electricity prices as gas prices rise.

According to multiple analyses, Kentucky can easily hit EPA's carbon target if the agency credits the state and its power generators for coal units in line to retire or being upgraded to comply with new federal mercury and air toxics standards. Cleaner gas-fired units are slowly replacing old coal units.

Peters' team is pressing that point, and he's signaling that a Kentucky compliance plan would rely on credit for planned closures. Besides Big Sandy in the east, two coal units are closing at TVA's massive Paradise coal plant in western Kentucky to make way for gas. LG&E's Mill Creek coal-fired power station is completing about $1 billion in environmental upgrades. The utility's 60-year-old Cane Run coal station in Louisville is adding a new gas unit.

'Citizen lobbyists'

Along with Woolery, about 90 people gathered in the Capitol complex room that morning in February to get set for Clean Energy Lobby Day.

Lisa Abbott, an organizing director for environmental advocacy group Kentuckians for the Commonwealth, checked her crumpled list of scheduled meetings and talked with a small group of late arrivals about expectations.

"What you will hear is, 'We're all for it. I'm an all-of-the-above kind of guy, I just don't like mandates,'" Abbott said, parroting the polite declines she hears from legislators. "Unfortunately, the mandate is needed to get utilities to do the right thing. There's no competition for those utilities."

Woolery, dressed in loose blue jeans and a yellow shirt, led with jobs and rising energy costs once inside lawmakers' offices. He referenced New York financial advisory Lazard Ltd.'s bullish predictions about competitive solar power as easily as he explained the importance of heat pumps and solid floors.

"We want to democratize the energy system," he told Rep. Tom McKee (D), a former tobacco farmer from northern Kentucky.

"If we have grid parity in five years and you want solar at your tobacco barn or house, you'll have to contract from a company outside the state," Woolery said.

"Y'all mentioned North Carolina. What did they pass?" McKee asked.

"They created a market," said Tona Barkley, a climate activist from Owenton, Ky.

In 2011, as a member of her local distribution co-op, Barkley started working with its supplier, the East Kentucky Power Cooperative, on how to build more renewable power and efficiency into its portfolio. Progress has been slow. East Kentucky Power operates about 3,000 megawatts of generation that includes three large coal-fired plants and is a large power supplier to the state's beleaguered coal-producing region.

"It's also a process that would reduce carbon emissions for the state," she added. "I don't know how you feel, but I'm very concerned about that."

"So am I," McKee answered. The 18-year House veteran crossed his red boots and listened, under bookshelves lined with political paraphernalia: "Tom McKee: The Jobs Legislator," boasted a campaign sign.

"Everybody's afraid we're going to take something away from coal," McKee said to the people in his office. "Of course coal is still going to be part of the mix."

Later in the day, a Republican state senator put political reality in the state Capitol in blunt terms, after expounding on New Zealand's use of geothermal energy.

"You have to understand that both the House and Senate are basically controlled by what I would call the East Kentucky coal-heavy-supporter leadership," said Sen. Tom Buford of Jessamine County.

"You're up against a rock and a hard wall," Buford said. "They control the flow of legislation."

Twitter: @JoelKirkland2 | Email: jkirkland@eenews.net

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