KY PSC Eyes Generation, Transmission Adequacy

Citing recent events such as California's generation shortages and a nationwide jump in natural gas prices, the Kentucky Public Service Commission (PSC) last week said that it would take a closer look at the adequacy of the Bluegrass State's generation capacity and transmission system.

The action follows on the heels of an executive order by Kentucky Gov. Paul Patton last month that directed state agencies to temporarily suspend the acceptance of applications for new electric generating facilities. Among other things, Patton directed the PSC and other agencies to study the need for new electric generating capacity and the impact on the electric supply grid.

The PSC, in an order issued last Monday, noted that while electric restructuring does not appear to be imminent in Kentucky, the issue remains under study. Even assuming that Kentucky does not embrace electric restructuring, the changing market conditions sweeping the United States are likely to have an impact in the state. "We know from recent events in California that electric shortages and price spikes cannot be contained by artificial boundaries such as state borders." The PSC pointed out that most of the states that surround Kentucky have either adopted electric restructuring or are seriously considering it. The resulting impacts on wholesale electricity markets, as well as the price of natural gas, will likely be felt by utilities and ratepayers in Kentucky.

The state commission said that recent events, including generation shortages in California and the nationwide spike in natural gas prices, have led it to conclude that a formal review should be conducted to ensure that Kentucky continues to have adequate electric generation and reliable transmission. The issues to be examined as part of its review include the appropriate level of reliance on purchased power and the appropriate reserve margins to meet existing and future electric demand. Also, the PSC will look at the impact of recent spikes in natural gas prices on utility planning strategies and the adequacy of Kentucky's transmission facilities.

Under the PSC order, the four major electric generating utilities in the state, along with Big Rivers Electric Corp. and the Union Light, Heat and Power Co., have been made parties to the review. Kentucky's four major electric utilities are Kentucky Power Co., East Kentucky Power Cooperative, Kentucky Utilities Co. and Louisville Gas and Electric Co. Although noting that it has no jurisdiction over city-owned electric systems, the Tennessee Valley Authority (TVA) and TVA distribution cooperatives serving the state, or independent power producers, the PSC said that representatives from those entities and other interested parties were invited to intervene and participate in the review.

The six jurisdictional utilities in the proceeding have until July 17 to file responses to requests for information included in this week's order. Also, testimony from the utilities is due at the state commission no later than the end of this month. The first public hearing related to the review has yet to be scheduled.

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