How Ky. utility regulators interpreted a new law that protects fossil fuel power

Last week’s order from the Kentucky Public Service Commission was the first time in state history an electric utility was required to receive approval to retire fossil fuel generating units.

That’s because Kentucky’s Republican-led Legislature and Democratic Gov. Andy Beshear recently approved a law making it harder for utilities to retire coal-fired power.

Under the new process, utility regulators approved the retirement of two coal generating units at the Mill Creek Generating Station in Jefferson County, but deferred the retirement of two other, larger coal units in Mercer and Trimble counties.

In the first case, their interpretation found that LG&E/KU’s plans to replace the two Jefferson county units with a single, combined-cycle natural gas unit would improve reliability and affordability for ratepayers.

In deferring the retirements of two other coal units, the commission said the timing was “premature” given uncertainties around timing and future environmental rules.

Republican Sen. Robby Mills of Henderson and sponsor of the legislation expressed skepticism about the commission’s interpretation in a post on X, formerly known as Twitter.

For their part, the commission said concerns their order would result in a “sudden shift” in the state’s energy mix were “overstated.”

“LG&E/KU’s reliance on gas as opposed to coal is only marginally shifted, and the addition of a battery and solar, the latter of which will materially contribute to reliability during the LG&E/KU’s summer peaks, improve the system’s reliability,” according to the order.

The fight to preserve fossil fuels

Kentucky’s Republican-controlled Legislature passed Senate Bill 4 earlier this year to make it more difficult to retire fossil fuel generating units.

The law established a “presumption against retiring” fossil fuel generating units. To overcome that presumption and build new generation, utilities have to prove the following:

• The new generation will result in cost savings for customers
• the replacement power maintains or improves grid reliability
• there’s enough power to maintain minimum reserve capacity requirements
• the replacement power is “dispatchable” – meaning it can be deployed immediately
• is not the result of state or federal financial incentives

Environmental advocates are concerned the law could slow the energy transition at a time when the world is coming perilously close to running out of time to end reliance on fossil fuels and avoid the worst impacts of warming. Allowing the world to warm more than 1.5 degrees Celsius, for example, would risk the planet losing most of its coral reefs and could render a key ice sheet’s melt unstoppable.

Several Kentucky Republicans and pro-coal associations said the legislation was necessary to ensure grid reliability.

As recently as late October, Republican Senate President Robert Stivers of Manchester wrote an op-ed saying Kentucky needs coal now more than ever. He blamed blackouts last winter on the failures of natural gas, but did not mention that coal energy failed too.

“Our Kentucky utilities are under pressure from the federal government, their parent companies, and shareholders to replace coal-fired power plants with gas and solar power,” Stivers wrote. “The groups calling for these closures fail to acknowledge the importance of coal in Kentucky’s energy mix.”

LG&E/KU President John Crockett responded with his own op-ed entitled “Correcting the record on energy.” In it, Crockett said that last winter’s storm was the first time the utility forced blackouts. He argued that retiring some coal generation and replacing it with natural gas and renewables was actually the best way to improve reliability and affordability for customers.

“Our proposal falls squarely in the middle of the debate between the coal industry and the environmental advocates, is the lowest cost solution when compared to any other alternative, and by 2030 results in a diversified energy mix of approximately 50% coal, 40% gas and 10% renewables,” Crockett wrote.

How the PSC interpreted the new law 

The Public Service Commission largely sidestepped renewable energy in last week’s decision, which involved whether to retire four coal-fired generating units and three much smaller gas turbines.

Instead, they found that LG&E/KU could retire two coal units and the three gas units, which total around 650 megawatts (mw), and replace them with a single 640 mw natural gas combined-cycle unit while improving reliability and affordability.

“Replacing those five retiring units with Mill Creek 5 [a natural gas plant] is cheaper than the cost of maintaining and upgrading those units, based on known, likely, and expected expenses,” the order states.

And while LG&E/KU received approval to build and buy around 1,000 mw of solar and battery storage, and a smaller amount of natural gas electricity, the commission specifically said that it doesn’t need to consider the impacts of those renewables to prove the cost-effectiveness and reliability of retiring the coal units and replacing them with the natural gas unit.

What this means for renewables

The future of renewable energy – as least as it relates to utilities – in part hinged on the commission’s interpretation of the word “dispatchability,” which generally means a type of power generation that can be deployed immediately. Under Kentucky’s new pro-coal power law, utilities are required to prove that any new power is “dispatchable.”

The Kentucky Coal Association pointed out in testimony that the word often refers to coal, gas and other thermal resources that can be turned on and off when power is needed. The group contends that solar and wind resources are therefore “not dispatchable,” according to the order.

Other groups including LG&E/KU said solar and wind can be dispatchable. For example, utilities can buy electricity from wholesale energy markets, which often consists of renewable energy. That energy is available when needed, and is therefore dispatchable.

This is all rather down in the weeds, but if utilities can’t replace fossil fuel generating units with renewables, utilities won’t be able to transition to greener power generation on a timeframe that’s compatible with what climate scientists say is necessary.

However, the commission seemed to leave the door open for more renewable energy to be brought online at some point.

“Here, the context in which dispatchable is used supports an interpretation that does not exclude intermittent resources, because it refers to generation capacity as being dispatchable,” the order states.

But again, the PSC circumvents the whole issue by saying it’s not necessary to resolve the meaning of the “dispatchable” in the current case because bringing more natural gas power online would resolve any concerns about the retirements.

“Importantly, no other proposed facility, including the solar and battery facilities, is necessary for the Commission’s findings regarding the cost-effectiveness of the retirement and replacement,” the order states.

Kentucky Resources Council Attorney Byron Gary said the commission in some ways left the door open for interpretation.

“They expressed an opinion, but it wasn't important to the outcome of the case. Therefore, it's not something that you could say is a definitive authority going forward,” Gary said.