COAL:

Groups challenge approval of Ky. plant's financing

Two advocacy groups filed another legal challenge yesterday against a proposed coal-fired power plant near Lexington, Ky., saying the federal Rural Utilities Service failed to consider the environmental impacts of its decision to approve private financing for the plant.

According to the complaint, filed in the U.S. District Court for the District of Columbia by the Sierra Club and Kentuckians for the Commonwealth, the agency violated the National Environmental Policy Act (NEPA) and Rural Electrification Act when it allowed East Kentucky Power Cooperative to pursue loans for the proposed J.K. Smith plant in Clark County.

The 75-year-old Rural Utilities Service (RUS), a division of the U.S. Department of Agriculture, was formed to provide financial and technical support for infrastructure projects in remote areas of the country. The agency long pumped money into the construction of coal-fired power plants, historically the cheapest way to bring electricity to the Appalachian areas served by utilities such as EKPC.

Because more than $1 billion of EKPC's debt from previous power plants is held or guaranteed by the agency, the utility needed to secure a lien accommodation before it could get loans for the project. Under the terms of the $900 million accommodation approved by RUS, private lenders would get first crack at the cooperative's money if it failed to pay off its loans.

The agency failed to conduct the environmental assessment required by NEPA before approving the financing, said Amanda Goodin, an attorney at Earthjustice representing the advocacy groups. The agency has imposed an effective moratorium on coal because of environmental and economic factors, and those same concerns should have prompted the agency to reject the utility's request, Goodin said.

"The coal plant is clearly a direct effect of this lien accommodation, both as a practical matter and legally," Goodin said. "The EKPC could not take on additional debt without RUS approval, and no new lender would agree to grant EKPC hundreds of millions of dollars if RUS would be holding a first lien on this debt."

A USDA spokesman declined to comment, saying it is agency policy not to comment on active litigation.

The Sierra Club and other environmental groups have gone to multiple state and federal agencies to challenge the proposed 278 megawatt coal plant. Another lawsuit filed last year in federal district court in Washington claimed EPA Administrator Lisa Jackson violated the Clean Air Act by failing to block construction of the plant (Greenwire, Nov. 11, 2009).

"In recent years, East Kentucky Power Cooperative and its regulators have faced frequent lawsuits by the Sierra Club and its allies. Clearly, their strategy is to use lawsuits to prevent or obstruct any proposals for fossil-fuel power plants," said Nick Comer, a spokesman for the utility.

Increased regulations supported by environmentalists make it more likely that taxpayers would get stuck with the bill for a coal plant, said Tom Sanzillo, a senior associate at New York-based consulting firm TR Rose Associates who conducted an audit of the plant's financing on behalf of the Sierra Club.

A recent audit of the utility's finances commissioned by the Kentucky Public Service Commission concluded that the utility's business model had become riskier because of "tightening environmental requirements generally, more volatile coal pricing as the commodity's pricing has become more intertwined with international markets, and the looming potential for carbon penalties or CO2 limits."

While EKPC may have had financial challenges in the past, it earned $110 million in profits between 2006 and 2009, Comer said. The utility "has made investments it believes are necessary to serve its members as reliably and as affordably as possible," he said.

Click here to read the complaint.

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