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Merchant Plant Proposals Threaten Kentucky’s Low Rates

of the issues about to be debated by legislators now meeting in
Frankfort could raise your electric rates and threaten Kentucky’s
status as the state with the lowest rates in the nation.

The issue arises from plans to
build "merchant power plants." (For more background on
merchant power plants, see the "Future of Electricity"
column.) These are power plants not built by utilities to serve
their customers, but by companies betting they can make a profit
from selling electricity to whoever will pay the highest price.

The conflict comes because
some of these merchant plant owners want electric utilities to pay
part of their costs. The merchant plant owners suggest utilities,
including electric co-ops, pay for the power line upgrades and new
power lines needed to sell the merchant electricity out of state.
The merchant plant owners further suggest that part of their
pollution control costs should be paid by the electric utilities.

We’re always happy to welcome
new business to Kentucky. But we don’t always expect existing
businesses to unreasonably subsidize the costs of new businesses.
Electric co-ops are especially concerned about the merchant plant
subsidies because part of the funding could come from electric
co-op members.

Merchant plants need special
scrutiny since they’re not included under many of the regulations
covering electric utilities. For example, merchant plants are not
subject to the rules and regulations of the state Public Service
Commission. And the merchant plants would be using Kentucky’s
resources, in all likelihood, to sell electricity outside the
state at market prices higher than Kentucky rates.

In the past year Kentucky has received 24 applications
to build power plants. So many plants have been proposed that in June Governor
Patton stopped accepting applications until the state can sort out all the issues.
That moratorium was a good idea. Some of the issues raised by all these merchant
plant applications may be considered in this year’s legislative session. Whatever
action the legislature takes, we hope it won’t fund a merchant plant industry
by taking money from Kentucky co-op customers.

Paul Wesslund


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