Sunday, July 08, 2001

Power grid at risk with more plants

Electric lines in jeopardy

By Joseph Gerth

        LOUISVILLE — With two dozen new electric generating plants planned around the state, Kentucky's energy exports might soon mean something more than coal shipments from Appalachia and Western Kentucky.

        But the power plant boom, an outgrowth of federal deregulation of the industry, has raised concerns about the capacity of Kentucky's system of electricity transmission lines.

        The concerns include whether brownouts or blackouts might occur along the grid because of overloads and whether upgrades to the system will be paid by the new plant's operators — mostly wholesale sellers of power to utilities outside the state — or by Kentucky's approximately 30 utilities and their customers.

        Unlike traditional utilities, the new plants are not subject to Public Service Commission rate regulation. Of the 24 proposed Kentucky plants, 20 are so-called “merchant” plants, independent generators that sell to utilities but not to consumers. The other four would be built by utilities that serve consumers directly.

        The companies building the new plants say they're taking into account grid capacity and the cost of tying into transmission lines and that utility ratepayers shouldn't be affected.

        “You don't just build the plant and pop electricity onto the line,” said Kate Perez, manager of public affairs for Duke Energy, which is building a plant in Marshall County and has applied for a permit to build one in Metcalf County. “You do studies to make sure it can handle it.”

Peaking for profits
               The deregulation of electricity generation and transmission, and the growing strain on the country's utilities to produce enough power at times of peak demand have created a boom of merchant plants in Kentucky.

        The new plants include mostly coal-fired or natural-gas-fired units capable of generating 6,400 megawatts, a 35 percent increase over current state capacity. Most will operate only at peak demand times, when electricity fetches top dollar.

        Some officials fear Kentucky's power grid might not be up to the task.

        Tom Dorman, executive director of the state's Public Service Commission, sounded the alarm in a speech to the state's Electric Restructuring Task Force.

        Although the peakers represent a new and as-yet-untried way of meeting power shortages, Mr. Dorman warned of potential blackouts because of overloads, cutbacks to homes and businesses to accommodate out-of-state power transfers, higher transmission costs and battles over where to put new transmission lines.

The price of power
               But critics fear as the new plants come online — and as Kentucky increasingly becomes a pass-through for electricity generated in other states — consumers will face much of the burden to upgrade lines.

        Although coal-fired plants will become new customers for the mining industry, the power stations themselves will create only a handful of jobs.

        The gas-fired plants could employ far fewer people. Theoretically, they could operate with no one on site, said Marty Blake, a Louisville economist and energy industry consultant.

        Because of uncertainties about the impact of the power plants, Gov. Patton has issued a moratorium on issuing new permits and has appointed an advisory board to study the issue.

Controlling consumer cost
               For regulators, there is a key distinction between utilities that generate power to sell to homes and businesses, and the new merchant plants that sell to utilities when demand is high.

        About 30 utilities operate in Kentucky, but not all of them own pieces of the power grid.

        The PSC controls how much utilities can charge for electricity and makes sure utilities don't run up bills and pass them along to consumers.

        But the PSC has no control over merchant plants, even though the plants must be given access to power lines owned and operated by regulated utilities.

        Joe Darguzas, a vice president of EnviroPower, the company building the Knott County plant, said it shouldn't cost Kentucky ratepayers anything because money has been set aside for transmission line expenses.

        But Kentucky's transmission lines will have to be upgraded eventually, said George Siemens, vice president for external affairs at LG&E.

        Power companies in other states are increasingly using Kentucky's power lines to transmit elsewhere.

Zero impact on ratepayers?
               The question of who pays for grid upgrades has become muddied by President Bush's recent appointment of Patrick Wood III of Texas to the Federal Energy Regulatory Commission. Mr. Wood has said he prefers the system used for years in Texas in which all users share equally the cost of improving the power grid.

        That would mean, for example, that LG&E customers would have to pay part of the cost of improving lines for Kentucky's merchant plants, even if those plants sell power to utilities in Michigan or Minnesota.

        That bothers some Kentucky utility officials and consumer advocates.

        “We don't believe our customers should have to pay for improvements they don't necessitate,” said Roy Palk, chairman and CEO of East Kentucky Power.

        Tony Martin, a Lexington lawyer who has represented ratepayers in actions against utilities and the PSC, said merchant plants, in theory, should have zero impact on ratepayers.

        “But unfortunately, the theory and practice are not always the same,” Mr. Martin said.


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