“The cheapest kilowatt hour is the one you don't have to produce in the first place,” said Byron Gary, a Kentucky Resources Council attorney. (Photo by Scott Olson/Getty Images)

For many years, Kentucky’s three-person, non-partisan Public Service Commission (PSC) has presided over Kentucky’s investor-owned and co-operative electric utilities.

It has been guided by two principles — that utilities should meet the energy needs of residential, commercial, industrial and institutional customers using the reasonable least-cost alternative. And that those utilities, for the privilege of having a geographic monopoly over providing that service, should deliver adequate, safe and reliable energy to customers.

These principles have worked, for the most part, delivering electricity at rates that are among the nation’s lowest and which, even considering extraordinary weather events like Winter Storm Elliott, are highly reliable in delivering electricity to customers. The outages from that storm event were a function of problems with delivery and operation at fossil-fueled power plants, and not renewable energy.

In recent years, a number of market and other forces have led those utilities to diversify their portfolio of generating units, as natural gas and renewable energy costs have trended lower while the costs of coal-fired electricity have increased due to pollution controls, production and transportation costs, and maintenance costs for an aging fleet of coal-fired plants.

The result is that, based on the least-cost principles that once favored coal, other fuels are displacing coal as the fuel of choice for new electricity generation. And the PSC is managing that transition, requiring that a high standard of reliability be maintained, and that the least expensive and most reasonable portfolio of strategies be used on both sides of the meter to best meet customers’ needs going forward.

Clinging to coal: Kentucky utilities could have more hurdles to clear before retiring power plants

It is understandable that coal interests would want to maintain their market share, and that their supporters might want to change the rules to extend the life of uneconomic power plants while creating roadblocks to diversifying the mix of sources of electricity that utilities own or contract with to meet Kentucky consumer needs.

But changing the rules, as Senate Bill 349 proposes, will not stop the transition that is occurring in how and where electricity is generated, transmitted and used.? It will only make the transition more chaotic, more inefficient and more costly to Kentucky’s ratepayers. And in so doing, it will further burden Kentuckians, many of whom already struggle to meet utility costs and to address other essential needs for food, clothing and shelter.

Kentucky’s utilities interact with the Public Service Commission, and the public, in three major ways. They have to plan for the projected needs of their customers and how they will meet them, including the combination of new generation, energy efficiency and energy demand management that produces the highest value, lowest cost to customers. They need to ask permission before they build any new generation and show that it is the most reasonable approach, including the type of fuel to be used (coal, natural gas, nuclear, hydro, wind, solar or a combination). And they need to seek approval for the rates they propose to charge for the electricity, showing those rates to be fair, just and reasonable.

That has been our energy utility policy for many years — meeting Kentuckians’ electricity needs at the lowest reasonable cost while providing highly reliable energy at rates deemed fair, just, and reasonable.

To assure that the Public Service Commission can continue to do its critical work as gatekeeper and regulator of these monopoly utilities it needs four things — four things that SB 349 fails to support or provide but could provide if amended.

First, the PSC needs a staff adequate in number and sufficient in salary to address the many complex cases that come before it, from electric, gas, water and wastewater utilities to wholesale solar plants to cell towers. Right now it lacks sufficient staff and must in some cases rely on advice from outside consultants.??

Senate Bill 349 would make using consultants more difficult by subjecting them to cross-examination as if they were witnesses. PSC decisions are based only on evidence in the record, and the consultants do not provide evidence but only assist agency staff in analyzing the incredibly complex evidence produced by utilities. If lawmakers don’t want the commission to use consultants, they should fund it to hire technical staff to address increasingly complex issues. It is doing far more with less than it had years ago and loses dedicated staff to the regulated community due to inadequate pay and heavy workload.

The second thing the commission needs is adequate time to hear and decide cases. Many utility cases involve numerous parties, from businesses to industries to government intervenors and those representing persons with low-income and environmental concerns. To assure that utility requests for new construction or higher rates are thoroughly vetted, months of discovery and analysis of testimony are needed. Yet SB 349 would impose an unworkable and unwise six-month deadline on commission action, resulting in more hasty or less positive outcomes. One or two outlying cases do not justify imposition of unworkable deadlines, and those provisions should be removed from the bill.

Third, the commission needs to be able to analyze utility plans and proposals for delivering highest value, most reliable and lowest cost power without the rules being gamed in order to favor or pick winners and losers. Yet SB 349 as written would skew the planning and replacement process against expanding use of renewable sources and towards keeping older, higher-cost, fossil-fueled power plants.?

The PSC would be hamstrung in its gatekeeper function by having to allow uneconomic fossil-fueled electric generation units to continue for longer periods rather than be retired, and by not being able to approve renewable energy to replace retired coal units even if shown to be as reliable, as dispatchable and lower cost to the public in both pollution and utility rates than the older units being replaced. The General Assembly is right in wanting to assure highly reliable utility service but should not attempt to dictate the mix of resources or to skew the resource planning process.??

Fourth, the new energy policy commission created by the bill would not produce what is needed to guide Kentucky’s energy policy. The new commission proposed by the bill, stacked with representatives of special interests, would not produce the objective, high quality studies and analyses needed to help guide regulatory and utility decisions into the future.?

Rather than interjecting an industry-heavy commission into specific Public Service Commission cases, where its involvement would add little value and raise due process concerns, SB 349 could charge and empower the Center for Applied Energy Research at the University of Kentucky and the Conn Center at the University of Louisville, in conjunction with related academic resources from other state universities, in a new Energy Policy Institute. The legislature could create an advisory panel to guide it, made up of the interests identified in SB 349 and representatives of environmental interests and of residential, commercial and other ratepayers. The institute could generate high quality energy policy research to help guide Kentucky’s path forward, considering many of the issues identified in SB 349 that are not within the PSC’s role and other matters directly affecting ratepayers, such as pollution, climate change and affordability for low- and fixed-income Kentuckians.

SB 349 as written is not what Kentucky’s ratepayers need. But with modifications, it could fund and allow the Public Service Commission to continue to do its critically important job of requiring utilities to produce the most reliable, safest, and most reasonable, lowest cost electricity without undue preference for any fuel or fuels. It could harness the brainpower and expertise of our centers for applied and renewable energy, to assure maintenance of our energy competitiveness and to make and keep energy affordable, reliable and sustainable for Kentucky’s ratepayers.