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Ky. appeals court remands decision approving biomass production agreement

The Kentucky Court of Appeals reversed a lower court'sdecision that upheld a renewable energy production agreement for a biomassplant in the state.

The appeals court on July 15 overturned a Franklin Circuit Courtdecision and returned the case to the Kentucky Public Service Commission,ordering the PSC to deny KentuckyPower Co.'s application seeking cost recovery for the plant,according to the court document.

In February 2015, the Franklin Circuit Court the renewable energyproduction agreement, or REPA, between Kentucky Power and ecoPowerGeneration-Hazard LLC for the biomass plant.

Circuit Court Judge Thomas Wingate said the PSC's October2013 decision to approve the agreement was both "lawful andreasonable." The 20-year agreement permits ecoPower Generation-Hazard tobuild and run the 58.5-MW biomass plant in Perry County, Ky., which will burnmaterials such as tree bark, wood chips and "low quality logs."

Kentucky Industrial Utilities Customers Inc., a nonprofitmanufacturers group, and the state's attorney general initially challenged thedeal but were unsuccessful.

According to the appeals court decision, under the terms ofthe REPA, "the price paid by Kentucky Power for the energy outputgenerated by the biomass facility will escalate by a fixed percentage each yearthe agreement is in effect during its initial twenty-year term."

In its decision, the appeals court said that based on 2012jurisdictional revenues, Kentucky Power predicts that its revenue requirementwill increase by roughly 7% during the first year of the contract. "TheCommission's approval means Kentucky Power would be able to recover its costsby increasing the rates it charges its customers," the court noted. Thetotal cost of the biomass energy over the initial 20-year period of the REPA isestimated to be $1.26 billion, according to the court.

The appeals panel found that the PSC essentially approvedthe REPA solely on policy grounds and "failed to fairly balance thecompeting interests."

"While the Commission was entitled to give somepositive weight to the fact that this was a biomass facility, it was stillrequired to consider other factors such as the reasonableness of the costs incomparison with other alternatives," the appeals court said. "TheCommission's failure to do so represents a complete abdication of its statutoryresponsibility to ensure that the rates for public utilities in thisCommonwealth remain 'fair, just and reasonable.'" (No. 2015-CA-000398-MR)