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Kentucky OKs Building, Purchase of Natgas-Fired Power Plants

Regulators with the Kentucky Public Service Commission (PSC) have approved plans by two PPL Corp. subsidiaries to build a natural gas-fired power plant in Jefferson County and to purchase an existing gas-fired plant in Oldham County.

The subsidiaries, Kentucky Utilities Co. (KU) and Louisville Gas & Electric Co. (LG&E), plan to construct a 640 MW combined-cycle generating plant at LG&E's Cane Run facility and build a natural gas pipeline to the site, a project estimated to cost $583 million. The companies will also purchase a 495 MW simple-cycle generating plant from Bluegrass Generation Co. in LaGrange, KY, for $110 million.

According to their application to the PSC, KU and LG&E said the additional generating capacity from the new plant at Cane Run is needed to replace coal-fired power plants at Cane Run, KU's Green River facility in Muhlenberg County and KU's Tyrone facility in Woodford County, as well as to meet a projected increase in demand for electricity by 2016. The companies said the three coal-fired plants are being retired by the end of 2015 to help comply with stricter federal air quality regulations.

"...The companies [have] proven the need for the replacement generating capacity and demonstrated that the proposed gas-fired plants were the least-cost, reasonable option for providing the needed power," the PSC said, adding that the new power plant at Cane Run will run most of the time, while the LaGrange plant will run during times of peak demand.

The PSC said it disagreed with the Sierra Club and Natural Resources Defense Council, which asserted during public hearings on the matter that KU and LG&E could economically meet power needs "through a combination of wind power and more aggressive efforts to reduce the demand for electricity. However, [we agree] that the utilities should more aggressively pursue cost-effective demand-side management [programs], particularly those targeting commercial customers."

KU has about 506,000 electric customers in 77 counties across Kentucky, while LG&E has about 401,000 electric customers in nine counties, all in the Louisville area. The state regulatory agency said LG&E's 312,000 natural gas customers would not be affected by the proposals.

The PSC said that based on the need for replacement power, a majority of the cost and ownership of the Cane Run plant would be allocated to KU, while most of the LaGrange plant would be allocated to LG&E. The agency added that the companies do not expect the project to affect rates for LG&E customers, while KU customers would see about a 4% increase once the Cane Run plant is operational.

Separately, in neighboring Ohio, regional transmission organization PJM, this week asked FirstEnergy to continue operating three coal-fired plants that the utility had planned to close later this year. PJM asked for reliability-must-run arrangements for FirstEnergy's Eastlake, Ashtabula and Lake Shore plants, according to Reuters. In January FirstEnergy said it planned to retire the coal-fired electric generation plants and three others (Bay Shore Units 2-4 in Ohio, the Armstrong Power Station in Pennsylvania and the R. Paul Smith Power Station in Williamsport, MD) due to more stringent federal mercury and air toxic standards (see Daily GPI, Jan. 27). The plant retirements were subject to review by PJM for possible reliability impacts.

The plants slated for shutdown had been operating primarily as peaking or intermediate facilities, generating on average about 10% of the company's power production the past three years. FirstEnergy has said it has no plans (or need) to replace the capacity lost from the retirements.

In March Akron, OH-based FirstEnergy filed an application with PJM to interconnect 800 MW of new combustion turbine peaking generation, to be fueled interchangeably by natural gas or oil, at the Eastlake plant.

A report released last month by the Federal Energy Regulatory Commission's Office of Enforcement said continuing low natural gas prices would make it attractive for power generation (see Daily GPI, April 20). Meanwhile the Energy Information Administration, in its Short-Term Energy Outlook for April, predicted that natural gas prices through 2012 will be driven primarily by the demand for power generation (see Daily GPI, April 11).

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