Apr 17 - McClatchy-Tribune Regional News - Scott Sloan The Lexington Herald-Leader, Ky.



East Kentucky Power Cooperative is backing away, at least for a while, from its long-sought plans to build a new coal-fired power plant in Clark County.

The cooperative filed a request with the state Public Service Commission on Thursday asking that the panel allow it to withdraw its request for approval of up to $900 million in private financing. While East Kentucky Power would have obtained the money from banks and other lenders, such action requires the approval of the three-person commission, which regulates utilities in Kentucky.

The plant has drawn the ire of environmental groups for years and led to lawsuits, studies and more that urged the cooperative to look instead at renewable fuels and ways to convince customers to use less electricity.

The cooperative's filing stated only that it thinks financial prudence requires that it reassess its immediate need for financing. The cooperative stated it would refile the application "pending this reassessment."

 Spokesman Nick Comer said Friday that "it was a business decision" and that the cooperative intends to refile. He said he didn't think opposition to the plant was "a driver" in the utility's decision.

Its financial condition has been a major issue in recent years for the co-op, which produces power for its 16 member co-ops that in turn service more than 500,000 homes, farms and businesses throughout Central and Eastern Kentucky. The cooperative's position deteriorated so much that it failed in 2006 to meet one of the financial ratios required by its loan covenants. It lost money during 2004 and 2005 and narrowly had a profit in 2006. It has since applied for and received approval for two rate increases and has stated it plans more.

The withdrawal of the request for financing doesn't kill the power plant project. The cooperative still has what's called a "certificate of public convenience and necessity" from the commission that allows it to build the plant. That can expire, though. The co-op must begin construction on the plant within one year of receiving all the necessary permits from other governmental agencies.

Comer said the utility still needs permits that are linked to two studies it is preparing with the Army Corps of Engineers. Those reports are not expected to be complete until next spring, he said.

The withdrawal of the request for financing approval is a major victory for environmental groups that have hammered the cooperative in recent years for embracing a project that they said was dangerous for Kentuckians because of the health effects of burning coal for electricity. The 278-megawatt plant, called Smith 1 and to be located in the Trapp community of Clark County, would have provided enough electricity to power 150,000 homes.

The groups, including Kentuckians for the Commonwealth, the Kentucky Environmental Foundation and the Sierra Club, have commissioned studies showing that the proposed plant would be a major drain on finances, and they have filed suits to stop the construction process.

Indeed, the cost of the plant is among the factors most often pointed to by its opponents. The proposed cost has varied, and the estimate was at one point raised to $767 million from $553 million.

But as East Kentucky Power's request to the PSC pointed out, the costs could be up to $900 million, "an upper limit," cooperative spokesman Comer said at the time.

Nationally, financing of coal-fired plants has become a major issue. In the past, cooperatives nationwide had access to cheap money from the federal government, but concern about the carbon footprint of coal-produced power has helped choke off that funding.

Environmental groups have argued the cooperative would be better off spending money to educate customers about consuming less electricity.

Kentuckians for the Commonwealth member Steve Wilkins says the cooperative can meet its energy needs with aggressive weatherization and energy efficiency strategies.

This week's move by East Kentucky Power comes shortly before the expected release of a management audit of the utility by the PSC.

PSC spokesman Andrew Melnykovych said the report should be issued "fairly soon." It will explore to what extent, if any, the co-op's management structure has contributed to its financial problems.

There has been concern that the structure of its board, composed of representatives of its 16 member co-ops, is inherently flawed because the customers might be more interested in their own co-ops than the health of the parent co-op.

Reach Scott Sloan at (859) 231-1447 or 1-800-950-6397, Ext. 1447.

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