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Analysis Recommends Closing Owensboro Coal Plant

Erica Peterson

A non-profit is recommending a Kentucky coal plant retire sooner than planned.

The Elmer Smith plant in Owensboro is old — it initially went into service in 1964. And over the past few years, it’s become a target for environmental groups, who point to the plant’s age and emissions, saying the upgrades it would take to comply with upcoming pollution regulations make it uneconomical to keep burning coal there.

At the request of the Sierra Club, the non-profit Institute for Energy Economics and Financial Analysis studied several documents from Owensboro Municipal Utilities, which owns and operates the Elmer Smith plant. IEEFA concluded that retiring the plant’s two units sooner rather than later would be the least-cost option for ratepayers, and urged the utility to consider replacing the capacity with renewable energy.

Among the problems IEEFADirector of Resource Planning David Schisselflagged in his analysis of Elmer Smith was that the area’s demand for electricity has remained relatively flat since 2004. So since then, the plant has been producing more power than it needs to supply its ratepayers. OMU sells the excess power on the wholesale market, but for only a fraction of its cost.

“I never went to business school, but the general comment is the way to make money is to buy low and sell high,” Schissel said. “Here, they’re buying high and selling low.”

Schissel said it would make sense for OMU to shut down Unit 1 by 2019 — which is what the utility is tentatively planning. He also recommends Unit 2 be shut down by 2022, but preferably sooner.

OMU spokeswoman Sonya Dixon said a shut-down of Unit 2 in 2022 is what the utility is considering, but nothing has been finalized.

“I think we do know that we’re going to have to change our portfolio,” she said. “But I think we’re considering all of the options before us. We do anticipate big changes and we’re preparing for those.”

Schissel’s findings also include steep increases in the rates that OMU customers will pay if both units aren’t retired. According to the IEEFA analysis, rates will increase by 20 percent as soon as 2018, and 80 percent by 2025 if both units are still burning coal.

State data show the average residential electricity price in Owensboro in 2014 was 10.45 cents per kilowatt hour, or slightly more than the state average of 10.05 cents per kilowatt hour.

The retirement of aging coal plants isn’t a uniquely Kentucky phenomenon; around the country, utilities are making economic calculations about whether it makes economic sense to install environmental controls to keep using the fuel. But in a state where coal still generates about 87 percent of electricity, Kentucky is taking a large hit.

At least 35 percent of Kentucky’s coal fleet circa 2011 has already been retired or has announced plans to retire by 2020.

“I think that’s what’s happened with the Elmer Smith plant is what’s happening to a lot of coal plants around the United States,” Schissel said. “It’s not Obama’s war on coal, it’s not the federal government’s war on coal, it’s the market. It’s the free, competitive market.”

Dixon said it’s a safe assumption that OMU will not replace the coal-fired units at Elmer Smith with more coal, but she said the utility hadn’t yet decided how to replace the capacity.

She denied charges in Schissel’s analysis that OMU has dismissed the possibility of bringing renewable energy into its portfolio. The report urges OMU to consider forgoing natural gas for wind or solar energy.

“I want to make it clear that we have not ruled out renewables and we’re still considering those and they are still part of our ongoing analysis,” Dixon said. “But at this point they’ve not risen to the top. But that doesn’t mean they won’t be part of that overall power supply strategy.”

Ultimately, the decision of when to retire Elmer Smith — and what to replace it with — will be up to the Owensboro Utility Commission. As a municipal utility, OMU isn’t subject to Kentucky’s Public Service Commission.

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