Kentucky passes law to slow coal plant retirements over utility objections

Kentucky Gov. Andy Beshear (D) has allowed a bill to pass that could slow or halt the retirement of coal-fired power plants in the state.

Beshear had 10 days to sign or veto Senate Bill 4 after it was delivered to his desk March 16. Last week, the governor allowed the bill to pass into law without his signature. The new law prohibits the Kentucky Public Service Commission from approving utility requests to retire coal-fired electric generation resources unless the utility demonstrates that the retirement will not negatively affect customer electric rates or grid reliability and resilience.

The bill passed the Kentucky Senate in a 25-8 vote on March 2 and the House in a 66-28 vote on March 16.

Representatives from PPL Corp. subsidiaries Kentucky Utilities Co. and Louisville Gas and Electric Co., as well as Duke Energy Corp. subsidiary Duke Energy Kentucky Inc., told state lawmakers in February that the proposed law could effectively block utilities from retiring coal plants regardless of how uneconomical they had become. Lawmakers backing the bill argued that the rolling blackouts utilities implemented during a December 2022 winter storm prompted another look at retiring generation. Industry reports and federal data issued in the wake of the storm showed more than 100,000 MW of coal- and gas-fired generation were unable to start or knocked offline.

PPL's Kentucky utilities plan to add two new combined-cycle gas-fired plants, nearly 1,000 MW of solar generation, 125 MW of battery storage and more than a dozen new energy efficiency programs by 2028, according to December 2022 filings with state regulators. PPL reaffirmed those plans after the bill became law.

"We followed a well-defined and rigorous process to ensure delivery of safe, reliable and affordable energy for our customers. We're confident that our plan exceeds the standards set out by this new law and is the best path forward for our customers," PPL President and CEO Vince Sorgi said in a March 24 statement.

Although Duke agrees with the legislation's goal of enabling access to a reliable grid, the company does not believe this bill will help achieve that result, Duke spokesperson Sally Thelen said in an email.

"Rather, [Senate Bill 4], as drafted, will increase costs for our Kentucky customers and is likely to threaten reliability," Thelen said. "We will continue to advocate for responsible energy policies that are developed with broad stakeholder input and with regard to the best interests of our customers, today and for generations to come."

Coal plants generate the majority of electricity in Kentucky, according to the US Energy Information Administration. S&P Global Market Intelligence data indicates that about 9,500 MW of operating coal-fired capacity is sited in Kentucky.

The law requires state regulators to have regional grid operators provide evidence that retiring fossil fuel generating units will be replaced with new, dispatchable generation that maintains or improves reliability and maintains a minimum reserve capacity; that the retirement will not harm utility ratepayers by charging them for costs resulting from the retirement; and that the decision to retire fossil fuel-fired generating units is not the result of any financial incentives or benefits offered by federal agencies.

Utilities must also provide evidence that retiring such units will create cost savings for customers and must file requests for approval to retire fossil fuel-fired generating units with a 30-day notice and 180 days for state regulators to issue a decision on the filing.

Utility representatives told lawmakers that could create an "impossible hurdle" by misrepresenting the role regional grid operators play in the market since they do not sell to retail customers. Utilities in Kentucky participate in both the Midcontinent ISO and PJM Interconnection LLC markets.

The new law also established a state of emergency as the US retires coal-fired electric generating units "at an unprecedented rate, with retirements potentially affecting employment rates, tax revenues, and utility rates, and compromising the reliability of electric power service and resilience of the electric grid."

Nearly 58 GW of US coal plant capacity is projected for retirement by 2030, according to Market Intelligence data, with the potential for the federal Inflation Reduction Act to accelerate the trend. Federal power provider Tennessee Valley Authority, which operates in Kentucky, expects to exit coal generation by 2035, replacing at least part of the fleet with natural gas generation. Duke aims to reduce its coal fleet to about 5% by 2030 and completely exit coal by 2035.

Other states have also pushed back on utilities' plans for coal retirements. In December 2021, South Carolina regulators rejected Duke's preferred power plant construction plan, instead approving a plan that would allow the utility to continue operating some coal plants through 2035 rather than the 2030 deadline that Duke proposed.

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