Even though its ultimate effect will be to reduce air pollution, something really stinks about the 30 percent “environmental surcharge” Kentucky Power is seeking from the state Public Service Commission.
Kentucky Power is asking the PSC to allow it to begin billing customers for the cost of improvements to the Big Sandy power plant, just north of Louisa. If approved — and all indications are that it will be — the proposal will see customers paying an additional 30 percent on their electric bills, to pay for the nearly $1 billion installation of a scrubber at the plant.
We won’t quibble with the necessity of the upgrade. Kentucky Power is facing a federal consent decree that it lower the plant’s emissions of nitrogen dioxide and sulfur dioxide or stop burning coal altogether. Considering that coal burned at the plant accounts for up to 500 coal mining jobs in the region, the loss of coal at the plant would be an economic hardship Eastern Kentucky could ill afford.
What really sticks in our craw is how the state law authorizing the surcharge is written. According to the law, Kentucky Power is entitled to recoup not only the entire cost of the scrubber’s construction, as well as operational costs for as long as it is in service, but also a “reasonable rate of return” on the investment — in this case, 10.5 percent.
We couldn’t argue against Kentucky Power receiving a return on its investment, if the utility was using its own money. But it isn’t. Consumers are paying construction and operational costs, and Kentucky Power will reap a profit on their investment.
If anyone should be entitled to a return on the cost of the scrubber, shouldn’t it be the customers who are paying for it?
In addition, the scrubber will not be the salvation of the Kentucky coal industry, as it is being billed. Yes, allowing the Big Sandy plant to continue to burn coal will forestall an economic disaster in the local coal industry to some degree, but not completely. That’s because, buried deep in the documents associated with the environmental surcharge, is a hint of Kentucky Power’s plans, once the scrubber is operational.
Currently, the Big Sandy plant exclusively burns Kentucky coal, because of its low sulfur content. Once the scrubber is operational, however, the plant will be able to mix in high sulfur coal from places like Pennsylvania and Illinois, and the utility has already signalled a desire to do so — at a 50-50 mixture — because the cheaper high sulfur coal will allow the utility to save 8 percent on fuel costs.
Simple math tells us that if Kentucky Power reduces the amount of Kentucky coal it uses by half, then half of the 500 coal mining jobs dependent on the Big Sandy plant will be in jeopardy.
We would call this a corporate giveaway of the highest order, but it is much more pernicious than that. Kentucky Power’s customers, the vast majority of whom cannot afford this gargantuan rate hike, are being asked to sacrifice their money and their jobs, so that the utility can profit even more. This environmental surcharge is nothing short of a robbery of John Q. Public, and it is fully sanctioned and blessed by Kentucky state law.
So, let’s see … Kentucky Power gets a 10.5 percent return on a $1 billion scrubber shouldered entirely by customers, and an 8 percent fuel savings to boot. For this, the utility and its shareholders are not being asked to sacrifice one thin dime of their substantial profits. Customers, on the other hand, get a 30 percent hike in their electric bills, beginning in January 2016.
Any way you add it up, this is a bad deal for Kentucky Power’s customers.