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Kentucky Public Service Commission

From Wikipedia, the free encyclopedia

The Kentucky Public Service Commission is the public utilities commission for the State of Kentucky.

The commission is a quasi-judicial regulatory tribunal. It regulates the intrastate rates and services of investor-owned electric, natural gas, telephone, water and sewage utilities, customer-owned electric and telephone cooperatives, water districts and associations, and certain aspects of gas pipelines in the state.

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  • ✪ Made In Kentucky
  • ✪ A Great Communion and a Great Commission
  • ✪ Utilty Ratemaking, Part 1: Revenue Requirements

Transcription

>> NARRATOR: Through the years, Kentucky has been known for many proud traditions. Besides Bluegrass music, bourbon, coal and college basketball, it’s also known as the horse capital of the world. But today, the Commonwealth is making a new name for itself with another kind of horsepower. You might be surprised to learn that Kentucky produced well over 1 million vehicles in 2013, and that’s a jump of 22% from 2012. This industry alone has brought in over 17,000 jobs since 2010, along with over $4 billion in capital investment. Altogether, the automotive industry employs nearly 82,000 people in the Commonwealth of Kentucky. >> GREG HIGDON: When the ES350 Lexus comes on board in Georgetown next year, we will move past Ohio into second place. Only Michigan will be producing more trucks and cars than the Commonwealth of Kentucky, and from this old country boy’s standpoint, I like to say at every junction, “Who’d a thunk it?” >> NARRATOR: So why did the automotive industry come to Kentucky? Good question and the answer starts with energy. >> DAVE ADKISSON: Over 100 manufacturing plants followed Toyota to Kentucky, so that was really a transformational event when Toyota chose Kentucky for its first American plant. All of that relates to the inexpensive electricity we have. >> NARRATOR: It’s no secret. Kentucky’s electricity rates have been among the nation’s lowest for years, a factor that has helped attract valuable industry to the Commonwealth. Altogether, there are over 230,000 manufacturing jobs in Kentucky. >> TONY CAMPBELL: Kentucky is a heavy manufacturing state, and that's where a lot of our good paying jobs came from, and we got there because we had an abundance of low cost coal and an abundance of low cost coal generation. >> JIM GARDNER: Kentucky just doesn’t think of itself as being a manufacturing state. My understanding is it’s several hundred thousand direct employees in manufacturing. >> NARRATOR: The bottom line is cheaper electricity rates attract jobs. And a big, longtime factor in the cost-effectiveness of Kentucky’s energy rates has been the historic abundance of cheap coal. >> TOM FITZGERALD: Those businesses are here not because they like the climate but because the presence of a significant edge in terms of energy cost because of our historic reliance on coal. >> NARRATOR: Significant changes are taking place in the world of energy. And of course, any changes that increase electricity rates, have the potential to impact all parts of a state’s economy, including employment. >> TOM FITZGERALD: The presence of a significant coal reserve has caused the state to become very reliant on coal as the primary fuel for electrical generation. That in turn has attracted a number of very energy intensive industries to the state. >> REBECCA TAYLOR: When you look at the manufacturing sector, it is probably the biggest user of energy. If the cost of electricity is lower, it allows manufacturers to make their products more competitively internationally and be able to provide products to the consumers at a lower price. >> PAUL THOMPSON: Many of their products compete on a worldwide basis. So this all comes together: energy cost, economics, they come together, and it's worked for this state. It's worked very well for this state. >> JUSTIN MAXSON: It’s been a selling point that the Cabinet for Economic Development and local economic developers have really used to recruit industries, particularly electrically intensive industries like auto manufacturing or aluminum smelting. So it’s played an important role, but electricity prices in Kentucky are rising and it clearly is a challenge to some of those manufacturers who rely on cheap electricity. >> BILL BISSETT: I think manufacturing is critical to Kentucky’s economy in so many different ways. First, we’re number one in aluminum production. We’re number three in automobile part production, and it’s important to realize that it’s not just those jobs of where we make things. It’s also all the ancillary jobs that go along with them, much like the coal industry. >> NARRATOR: In 2012, the Kentucky Energy Cabinet predicted that a 25% increase in the real price of electricity could result in the loss or failed creation of 30,000 full-time jobs. >> GREG HIGDON: If you’ll look at some of our larger companies in Kentucky, they have operations in other states, and a lot of people don’t think that some of them could get up, pick up, and leave, but they absolutely can. If the cost of doing business changes drastically, they could move in a matter of months in some cases and less than a year and a half or two years in other types of cases and never miss a beat of production. >> REBECCA TAYLOR: Manufacturers really drive innovation. If you look at all of the private sector R&D, two-thirds is conducted by the manufacturing sector, which leads to the new greatest cars, the new greatest gadgets. So they’re innovators, they’re job creators, and they’re really contributing to the bottom line of the economy. >> NARRATOR: Bottom line, manufacturing is central to innovation at many different levels and is definitely a job-creating driver in Kentucky’s economy. But make no mistake, manufacturing is critically connected to cost-effective energy. >> NATHANIEL ADAMS: My name is Nathaniel Adams. I’m General Counsel at North American Stainless. North American Stainless is the largest dedicated, vertically integrated, stainless steel manufacturer in the United States. We produce all grades of stainless steels. Stainless steel is a commodity that is in high demand all around the world because of it’s durability. We make the kinds of things that you find in appliances and commercial kitchens. Also a very great deal of automotive products. We have everything right here on site. On any given day at North American Stainless, there will be about 1,300 employees and anywhere from 500-700 contractors. We have people who are in administration. Our commercial arm is all located right here. We also have everyone who actually handles the steel here on site as well . Our parent company is a Madrid, Spain-based company who came to the United States seeing the opportunities in the stainless steel market here about twenty years ago. And I think it’s fair to say that one of the primary factors that lead them to come to Kentucky was the stable and relatively low electric rates. Electrical energy is absolutely the most important aspect of making the stainless steel. We use it to melt the steel, we use it to roll and form the steel, and without it, it’s almost impossible to actually competitively make stainless. The process of melting a solid metal into a liquid form requires a very great deal of energy. If you walk through our melt shop and you look into the melted steel, especially when it’s in the vessels. Stainless steel melts at a much higher temperature than normal steel. We’re talking about 2,500 degrees Fahrenheit more or less. The more efficient way to do it, in a modern sense, is to heat it up using electric arc furnaces. Those are using graphite rods that are actually heated through the electrical process and lowered into the solid steel. It’s then melted into the liquid form, which is then molded into slabs and then formed into the final products that you see. In any of the hot mills, it’s necessary to maintain that heat at a very constant temperature while it’s being formed. This is one of North American Stainless’s great competitive advantages. We manage that process very carefully and we’re known in the industry as having very high quality stainless steel as a result. We use a lot of electrical energy and so a very small change in the incremental cost of that energy will have a profound impact, not only on our profitability, but on the way that we’re able to use the electric resource. Given that we use so much of it, even a small incremental change makes our products less competitive in the global economy where we compete. I think the average consumer could give a lot more thought every time they pick up a product that they use to the question of how it’s made, what kind of people made it, where they live, and what kind of values the product that they’re using actually supports. In Kentucky, you would be amazed at the very large number of products that you use every day that you never associate with our Commonwealth. And it’s not just bourbon and race horses that we export. There’s a very great deal of primary material that comes from Kentucky that goes into products that you use every day. Manufacturing has become part of Kentucky’s best exporting base. >> NARRATOR: When coal was discovered over 200 years ago in Kentucky, not only were people unaware of just how much of the black rock was under the Commonwealth, no one had any idea how much it would influence the entire nation’s growth. >> DAVE ADKISSON: We have coal underground both in East Kentucky and in West Kentucky. Two different kinds of coal of course, but a tremendous natural resource that has not only served this state very well for decades but also has helped fuel the growth of America. >> JUSTIN MAXSON: Coal from particularly Appalachian Kentucky really helped grow the cities, fueled the steel industry, the auto industry in this country and has been responsible for the growth of the country as we see it today. >> BILL BISSETT: I also think that there’s a cultural connection and a connection through history that we undervalue. That my father was a coal miner, my grandfather was a coal miner, and because of their hard work, I can now do what I do for a living and they want to see that continue. >> JUSTIN MAXSON: For a long time Kentucky was one of the largest coal producers in the country. Much of Kentucky’s economic history and cultural history particularly in Appalachian Kentucky but also in the coal fields of the western part of the state has really been defined by the economic importance of coal. >> NARRATOR: With its vast resources of coal, there is a tendency to think that Kentucky’s coal production has been nothing but a steady chart of growth for years. In fact, it’s been more like a roller coaster since the early part of the 20th Century. >> BILL BISSETT: Coal is a changing industry and not just in Kentucky and in this country but also in the world. We’re seeing changes in demand. We’re seeing changes in the amount produced and where it’s produced. >> TOM FITZGERALD: Western Kentucky coal production is up and is displacing the Eastern coal in the steam market because everyone who will continue to burn coal after 2016 is going to be scrubbed. So the high sulfur coal from most of the underground mining in Western Kentucky, the production I think has been increasing. >> NARRATOR: This rise and fall of coal production has naturally had an impact on Kentucky coal jobs. Although the perception is that the coal industry continues to provide large-scale employment opportunities here, the statistical reality of the early 21st Century provides a much more accurate picture. Coal employment is dropping. While Western Kentucky coal has been fairly stable in recent years, the drop in Eastern Kentucky coal jobs has been nothing short of dramatic. >> BILL BISSETT: Well in our Western Kentucky Coal field, we've seen an uptick. We've seen an increase in employment and an increase in production, and I think that trend will continue because it's part of what's called the Illinois Coal Basin. In the east we've seen a precipitous drop. Essentially since January 1, 2012, we've lost more than 7,00 direct mining jobs. >> TONY CAMPBELL: The demand for Eastern Kentucky coal is going down probably exponentially, actually, unfortunately and they are suffering. The people in our service territory are really suffering right now from that loss of jobs. >> DAVE ADKISSON: I think the key things that have lead to the decline, the dramatic decline of employment in Eastern Kentucky coal: One is technology. It takes fewer people to mine the coal. Secondly, harsh regulations coming out, primarily from Washington. The changing energy environment, especially with natural gas. The previous extraction of coal, we’ve mined a lot of those seams and the mine, the coal is simply gone. And then also pollution control equipment on utilities. So I think there are at least five things working against the employment of coal miners in Eastern Kentucky. >> NARRATOR: While it is difficult to identify one primary cause for this rapid decline in Eastern Kentucky coal production and employment, it’s clear that a variety of regulatory, economic and industry changes are contributing to the rising price of Eastern Kentucky coal. >> JUSTIN MAXSON: It isn’t as complex a story as is often described. It’s actually relatively simple. We’ve mined out the cheapest and easiest to get coal. And the coal that is left is more expensive because it’s harder to get at. >> TOM FITZGERALD: The unit cost of production of Appalachian coal has risen sharply as the reserves that are easily obtainable have been depleted. >> JUSTIN MAXSON: That really is the primary reason that coal is more expensive, why coal production has gone down of late and why there have been lots of layoffs. >> TOM FITZGERALD: Even absent any regulatory driver, if you look at the Energy Information Administration’s numbers, they had been predicting a precipitous decline in coal production from the Appalachian region and that has come to pass. And it is not likely to reverse anytime in the near future. >> BILL BISSETT: There are challenges in Eastern Kentucky that we face such as topography and you look at some of the Western Kentucky coal mines, they literally will conveyer out the coal from the prep plant directly into a barge. In Eastern Kentucky, we often have to go from a truck or a train to a barge at that point and then get it to the end user, so it is a greater challenge and you know it has been mined more extensively in Eastern Kentucky, but we’re mining coal right now that we couldn’t have twenty years ago. We have better technology now and better ways of extracting coal that we didn’t have access to in the past. >> NARRATOR: Another factor contributing to the decline in Eastern Kentucky coal is the continuing impact of environmental regulations from the 1990s. >> TONY CAMPBELL: When you look at the electric utility industry, we’re regulated more than any other industry in the country. When we look at the EPA, in particular the federal EPA, we are regulated with air, water, and waste. When we first really started the process it was for particulate matter and it was for nitrous oxide and sulfur dioxide. >> TOM FITZGERALD: The first phase of the sulfur dioxide controls that were put in place under the 1990 Clean Air Act provided a two-phase process of reining in the emission of sulfur. The first phase had a certain target in terms of the pounds per million BTU, and that goal could be met substantially by fuel switching rather than installing controls. >> BRENDA BRICKHOUSE: When we think about compliance with the Clean Air Act, in particular with say sulfur dioxide or sulfur emissions, you can burn higher sulfur coal or lower sulfur coal and you can, depending on your boiler and the type of fuel blends, you can look at your stack limits and meet it that way. Or if you can’t, then you would put scrubbers, controls on the back end to be able to scrub the SO2 out of the flue gas, and with that you might be able to burn a wider variety of coals, higher or low sulfur depending on the capacity of your control equipment. >> TOM FITZGERALD: Now with the second phase coming into play, everyone who is still burning coal is going to scrub. And once you install the scrubbers, you can take in much dirtier fuel, which typically is going to be less costly fuel. >> PAUL THOMPSON: Eastern Kentucky coal, generally speaking, is a lower sulfur, better quality coal, but a harder to mine coal. Because we put this equipment on, we are actually able to now purchase coal that has higher sulfur, but it’s easier to mine, less costly to mine. >> TOM FITZGERALD: So you’ve seen a reverse of what happened under the first phase. Now the Eastern Kentucky coal reserves are no longer as desirable for power plant use because you can buy the cheaper Western US coal or Western Kentucky coal and burn it because you’re going to be scrubbing the emissions. >> NARRATOR: Although regulations are often viewed with political skepticism, the fact remains that these early environmental regulations have had some reasonable success. Sulfur dioxide and nitrogen oxides have long been known to cause public health issues such as respiratory problems and acid rain. Since 1995, the emissions of both from Kentucky power plants have decreased dramatically. However, new environmental regulations concerning climate change have given rise to intense debate, especially regarding their impact on energy rates and the coal industry. >> JIM GARDNER: Right now, new coal generators are being built in the United States. Because of the uncertainty of future of environmental regulations, because of the concern about specifically carbon controls, none are being built. >> BRENDA BRICKHOUSE: On the federal side we’ve seen the Clean Power Plan, so that’s people that sometimes call that 111D or 111B and so the Clean Air Act, it’s actually section 111 of the Clean Air Act. CO2 has been declared a pollutant and the EPA is looking system wide. So 111B looks at new units, if you’re building a new coal plant or a new natural gas unit, what would those limits be on the stack. And then under 111D, they are looking at existing coal plants, gas plants, also looking at how renewables and nuclear and energy efficiency fit into the mix to be able to lower overall our carbon emissions. >> BILL BISSETT: Every form of electricity production has some type of environmental and economic impact to it, and I think it has to be looked in with context, but to take actions unilaterally I think, puts us at a tremendous disadvantage with a fuel source that we have in the ground here that the rest of the world wants. I think the President is looking in a very shortsighted view here. Leadership is one thing, an example is one thing, but it’s going to fall very unevenly on the states and I think that’s very unfair to states like Kentucky and West Virginia who are going to be impacted far greater than the rest of the 50. >> TOM FITZGERALD: The EPA rules on the existing power plants is not designed to close down those plants. The flexibility that the EPA provided, they are allowing a number of different strategies to be employed rather than saying you have to install controls on CO2. What you’ve seen, this is the latest of a series of regulations that have caused an internalization of the cost of using coal as a fuel to generate electricity. Historically, the costs were paid downwind and downstream. And now that they’re required to start accounting for those costs, the cost of electricity is going up. >> DAVE ADKISSON: We need to be very careful about environmental regulations and how you disrupt the reliable energy that we’ve enjoyed in this state. And that’s why a lot of us are very concerned about the regulatory environment, because if the pendulum swings too far, too fast it can put Kentucky at a significant disadvantage. >> JUSTIN MAXSON: I think the rules are very flexible and provide many opportunities for Kentucky to meet our compliance standard without significantly driving up the price of electricity. As clear scientific consensus says that coal-fired power contributes to climate change and the economic cost of climate change is becoming clearer, I think there will be more rules that recognize that our power has been artificially cheap and that will have to change. >> NARRATOR: The bottom line here is, a variety of key factors is making the cost of using coal more expensive. Utilities, both in Kentucky and surrounding states, are being forced to evaluate other fuel options. Declining coal use has multiple causes, but beyond environmental and economic issues, one distinct, unforeseen cause has been the technological advancements that have made natural gas a more cost-effective and cleaner energy source than coal. Utility companies are taking note. >> DAVE ADKISSON: New technology in energy has completely changed the landscape of energy in the United States. >> TOM FITZGERALD: The primary driver has been the expansion of horizontal drilling and hydraulic fracturing, which is the introduction of water under significant pressure into a tight formation in order to extract natural gas or oil. >> PAUL THOMPSON: Fracking has been done in the oil and gas business for 60 years, but they are able to combine the two to make a very effective cost of production and the volumes are very substantial. >> ANDREW MCNEILL: When you look at it from a national standpoint, it’s been transformational. We have been able to develop these deep unconventional resources that were off limits more than ten years ago. >> BILL BISSETT: Fifteen years ago we were looking at ways to import natural gas because we didn’t have enough. Now, we have plenty of natural gas, and we’re trying to get it to other countries as fast as possible. >> REBECCA TAYLOR: The rise of fracking in the United States has really dramatically increased the availability of the pool of natural gas which drives prices down. And so if you’re looking just as an energy raw input, and you can get natural gas cheaper, you know you’re going to go for the natural gas. >> TOM FITZGERALD: It is becoming the fuel of choice because of a combination of significant changes in availability in the market price and the relative ease of construction and licensing and permitting natural gas-fired capacity. So, you are going to see a significant shift, you’re already seeing it. >> NARRATOR: Currently over 92% of Kentucky’s electricity is generated by coal-fired power plants, but current projections show that there will likely be a steady move toward natural gas-fired plants by 2050. While this transition is due in large part to low natural gas prices, proposed environmental regulations also play a significant role. >> ANDREW MCNEILL: Not withstanding whether or not you agree with the current policies of the current administration, the future looks like that there are going to be significant requirements upon the utility industry to reduce greenhouse gas and carbon emissions. >> REBECCA TAYLOR: When you look at increasing regulation, that means extra cost. Whether it is a technology that needs to be put in place to meet the requirements, whether it’s monitoring and data collection and data reporting, those are all costs that come with regulations. >> TONY CAMPBELL: With the given the proposed regulations on new source performance standard, which is all new plants, it has to be gas to meet those regulations. With CO2, the technology is not out there, it’s just not out there and available and cost effective to put on coal plants so we’re not going to be building any more coal. >> PAUL THOMPSON: We are kind of singularly able to go down a natural gas-fired path as the future for the time being with what’s being set up today as policies and cost issues today. It is not a coal direction. I think coal will become less and less used. >> TOM FITZGERALD: The utility is obligated to use what is the least-cost technology when they’re talking about new power plants. >> BRENDA BRICKHOUSE: Building a brand new coal plant today is a pretty big lift. The decisions that go into it would be both about the construction and the operations and maintenance of the plant long term. It would be a boiler and turbine, a typical coal-fired power plant, really with a chemical plant on the back end of it. We compare that to the cost of a new natural gas unit, they are fairly straight-forward. You really don’t have all that ancillary stuff on the back end of the plant. >> TOM FITZGERALD: You don’t have the ash to manage. You don’t the same sulfur content. >> JIM GARDNER: When we look at the environmental regulations, it has 50% of the amount of carbon that coal does, so one hears that because of that, natural gas is a bridge fuel to the future. >> ANDREW MCNEILL: Utilities could invest in base load generation based upon a natural gas portfolio that is going to be low cost with less carbon, and therefore has a certain viability perhaps over the next twenty to thirty years that potentially coal may have trouble dealing with in this current regulatory environment. >> NARRATOR: Despite being a cleaner fuel, natural gas has several detractions, including volatile prices, delivery issues and the inability to store it. >> TONY CAMPBELL: As CEO of East Kentucky Power Cooperative or an electric utility in general, I believe one of two things are going to happen. We are going to have reliability issues or price issues in this country or both from natural gas. >> PAUL THOMPSON: With coal fired, you have depending upon your desires, 30 days of fuel siting there in case you have a frozen river or a rail transportation problem. Natural gas, completely the opposite. There is no storage of the volume necessary on site, so you have to rely on the pipeline capability. >> TONY CAMPBELL: One of the biggest risks, we saw it in the Polar Vortex in January and February of 2014, and that’s availability. Some people couldn’t get it, some people couldn’t afford it, it got so expensive they couldn’t take delivery. We were fortunate in Kentucky we have some major pipelines and we were always able to get natural gas for our gas units. It was a little bit pricey but still was reasonable and we were able to get it. >> BILL BISSETT: If we have that kind of event again, I think it will draw more attention to the reliability question and to me that’s an immediate need that we are not discussing. We are so sure that these light switches and electrical sockets are always going to provide this life giving resource. I think we expect it, but any time we tamper with a fuel source, we are tampering with reliability as well. >> ANDREW MCNEILL: Reliability with natural gas is based upon supply, but it’s also based upon having sufficient infrastructure in place to deliver, because it’s almost a on-time delivery fuel source. >> MARILYN BROWN: I think that the problems with natural gas availability last winter during Snowmageddon, is probably a fleeting issue, because we’re going to build up our natural gas infrastructure to the extent that gas will eventually be more reliable, but for the moment we do face an investment requirement to strengthen that pipeline infrastructure. >> BILL BISSETT: Right now in building pipelines is a questionable move for Kentucky, as you’ve seen the reaction to the Bluegrass Pipeline. And going to natural gas will require more pipelines in Kentucky, so I think we’ve got to look at the cost of that. >> ANDREW MCNEILL: I think that that’s an issue that requires more discussion and a deeper understanding for how they fit within our energy portfolio here in the state, but without pipelines going forward, the delivery of the fuel source and therefore the electricity that’s generated from it is going to be more complicated than it needs to be. >> NARRATOR: Energy industry experts are also not hesitant to remind us that the historic volatility of natural gas prices has been well documented. >> DAVE ADKISSON: One thing I think we have to keep in mind is what appears to be stable today can change very dramatically over a 3 to 5 year period. Look at what has happened with fracking and natural gas. I don’t know of anybody who was predicting that over a decade ago, and it’s been dramatic. But natural gas prices are relatively volatile. >> PAUL THOMPSON: For natural gas, it has been historically much more volatile in it’s price. Coal has been fairly consistent in its price. >> ANDREW MCNEILL: What has happened in the last five years, is that we’re actually becoming more energy independent in particular with natural gas here in the United States. That could have profound impact on future pricing and could have a very taming effect on whether not we see price volatility going forward that we have necessarily seen in our past. >> BILL BISSETT: The reliability questions, the volatility of natural gases prices, the fact that natural gas will likely not come from Kentucky, I think is important to remind the public when we consider other fuel sources. So again, doing what’s best for Kentucky has to be our driving force here. >> TOM FITZGERALD: Doing full cost accounting is essential because for years we kind of cooked the books and now literally the books are kind of cooking us. We are starting from a pretty difficult place. >> JUSTIN MAXSON: For too long Kentucky’s energy portfolio has had all our eggs in one basket and that basket has been coal-fired power. Because of the economic decline of coal, because of those regulations that help ensure clean air, land and water, and because the overwhelming consensus that coal-fired power is a real significant contributor to climate change, all of those things combine, in fact, require us to begin to diversify our energy portfolio. So I think utilities see the writing on the wall. >> NARRATOR: As the energy landscape changes nationally and globally, Kentucky needs proactive decisions concerning energy generation and use. These decisions will have a far-reaching impact on our economy, well beyond the coal industry. >> BRENDA BRICKHOUSE: Our mission is low cost reliable, clean power, economic development. Some of the poorest people in America live in Kentucky and in the Valley. In a minimum, we care about those folks, we care about serving those folks. Now layer on manufacturing, industrial load, economic development, jobs. Keeping electric rates low, it helps the people pay their electric bill and be able to afford the advantages that electricity provides in their homes as well as keeping the jobs and the economic vitality and the opportunity in this area. Without low cost power, that whole equation really breaks down. >> JUSTIN MAXSON: How do we grow new jobs, new economic opportunity, particularly in East Kentucky, but all over the state. The reality is that there is no one silver bullet to the loss of 7,000 jobs over three years. There is no single thing that we can do. The answer is going to be much more about smart, silver BB’s. A range of strategies that we have to invest in to build the sort of economy we want. >> NARRATOR: One strategy that could lead to a stronger Kentucky economy is diversifying our portfolio in order to avoid dependence on a single fuel source. >> JIM GARDNER:: I would be concerned if a utility came to us and said because of the low price of natural gas, we want to mothball or sell all our coal fleet and we want to convert it to natural gas. But that would not be good because you would be totally reliant on the price of natural gas which is a market driven commodity. >> ANDREW MCNEILL: When you look at some of the projections that we would go from 90% coal to potentially 90% natural gas, over a 50 year period, even Kentucky’s natural gas industry isn’t or wouldn’t advocate for that. We understand the benefits of a balanced portfolio. >> TONY CAMPBELL: I am a firm believer that we really need all available sources of energy in our country. And I think a diverse portfolio is extremely important. I think and I believe our company and our board of directors believes that transitioning everything, all our eggs in one basket to natural gas or renewables, not having diversity in your power supply portfolio as a country is terrible public policy. >> TOM FITZGERALD: You don’t want to become too reliant on any particular fuel. You want the most robust portfolio that you can reasonably develop. You want to make sure you have some redundancy in supply regardless of what the fuel is that you’re using. >> NARRATOR: The introduction of renewable energy sources has been one of the most discussed methods for diversifying Kentucky's energy portfolio. While renewables in Kentucky have some unique challenges, they also have unique opportunities. >> JIM GARDNER: Kentucky is not the best state for renewables because of the cloud cover, because of the terrain, but Kentucky has some potential for renewables. >> TONY CAMPBELL: East Kentucky Power Cooperative, we have more renewables than any other utilities in the state. There are limited renewables in the state of Kentucky. So if we are going to really exercise renewables at a much greater amount, we are going to have to go out of state. >> PAUL THOMPSON: In hydro, there really is the Ohio River, and that has been principally all consumed in terms of how the change in elevation can be used for production of power. Then you have solar and wind. And in all of the evaluations that we have done, almost all of Kentucky, the geography of Kentucky, we see very little ability to have the more cost effective solar and wind. >> JUSTIN MAXSON: In the near term, there is no way renewables will replace the size that coal provides to our electrical production, but we could reduce our dependence on coal 10 or 20 or 30 percent over the next ten or twenty years with smart investments and good state policy. >> BRENDA BRICKHOUSE: The cost of renewables is a debate that I think a lot of folks are having. At TVA, we have a fair portfolio of renewables now that’s both wind and solar. It’s changing the game for many utilities. It’s an exciting place to be, to be able to see how we can become more diverse than we have been, be able to better serve our customers needs and wants. >> MARILYN BROWN: I think that generating a lot of interest in the state of Kentucky over building up its solar industry would be well worth it in anticipation of needing more of it and being able to afford more of it as we go forward. >> JUSTIN MAXSON: Twenty-nine states have a Renewable and Efficiency Portfolio standard. So that’s over half of the states in the country have much more experience than Kentucky does. There’s a lot we could learn. >> NARRATOR: Though renewables could prove to be a valuable resource, it’s important to remember that diversification can also have impacts on Kentucky’s baseload generation. >> BRENDA BRICKHOUSE: When we think about diversifying our portfolio, we certainly, you know renewables comes to mind first and foremost for many people. But actually it’s broader than that. When the wind's not blowing, or the suns not shining, you’ve got to have something else to be able to be backup for those. >> JIM GARDNER: Kentucky’s manufacturing base requires base load. With respect to the fossil fuels and I guess even nuclear, they can run all the time, or close to all the time. >> ANDREW MCNEILL: We believe that coal will and should continue to play an important role in our electricity portfolio here in the state. There’s a role for nuclear. There’s a role for renewables and there’s a role for natural gas. >> BRENDA BRICKHOUSE: When you’ve got a balanced fleet or a more diverse fleet, then you've got the opportunity to burn more coal when gas prices are higher and gas for whatever reason may be interrupted. There’s a hedge if you will against price, as well as a niche in terms of where in the system integration do those kinds of plants fit in. >> MARILYN BROWN: I think that nuclear power needs to be a part of the diversification equation as well. It is currently meeting 20% of US electricity. It’s a major player. We know how to do it. >> NARRATOR: Currently there are 99 licensed nuclear power plants in the United States. Though there are no plants in Kentucky, 5 of the 7 states that border Kentucky produce energy from nuclear power. >> PAUL THOMPSON: We do have in the state the legislation that prevents nuclear power from being developed in the state. So lets assume though that that was changed. The real significant issue today is the capital cost for a new nuclear plant. Very substantial. >> TOM FITZGERALD: It has priced itself out of the marketplace with the history of incredible cost overruns. Before you get to the break point of saying “Nuclear is our least-cost alternative” you will have a number of other options available. Gas-fired power, renewables. >> BRENDA BRICKHOUSE: It is a very expensive endeavor to undertake new, and so you know when we think about a green field nuclear plant or a new nuclear unit, you really are talking billions of dollars. That’s a lot of money, that’s a lot of up front costs. The good news on nuclear is that the operational costs and the Per Megawatt Hour costs are really very very low. >> REBECCA TAYLOR: When you talk to industry, nuclear is for sure on their radar. You talk to individuals, they say, “We don’t have any nuclear plants anymore.” Well, yes we do and actually six more are due to come online by 2020. >> MARILYN BROWN: With the addition of these new units to the nuclear fleet, the public may gain some more confidence and perhaps legislators will begin to reconsider bans on nuclear power, because it is a zero carbon option. >> TOM FITZGERALD: I think there are less risky ways of boiling water than splitting atoms. In order to produce very inexpensive electricity, we are saddling future generations with the responsibility to manage waste that will for a millennia be toxic. >> BILL BISSETT: Nuclear is very reliable. What are we going to do with the fuel rods? Every form of energy production has some type of environmental and economic cost to it, and I just think we have to try to have as honest as possible dialogue about how we’re going to power this country. >> JUSTIN MAXSON: It’s our responsibility to figure out how to diversify our portfolio so we are less at risk as a state. Our manufacturers are less at risk. Our home owners are less at risk. And that will take leadership to enact smart policies and investments that grow a more diverse portfolio. >> NARRATOR: In addition to focusing on energy production, efficiently managing our current energy usage will play a vital role in any energy strategy. >> MARILYN BROWN: You’ve probably heard the term of energy efficiency is the fifth fuel. We have coal, natural gas, nuclear, renewables, and we have energy efficiency. I really like to put energy efficiency at the top, really the first fuel. >> JIM GARDNER: One of the things we at the Commission have been assertive about are energy efficiencies. It doesn’t mean that you’re uncomfortable, that you turn down your thermostat, it just means you're being smarter in how you use it. >> BILL BISSETT: Coal is a valuable resource and like many things, I think we need to be cognizant that, even if it’s as simple as turning the lights off, it’s a smart thing to do, I think, not only for ourselves but also for the places where we work. >> TOM FITZGERALD: There’s a significant amount you can do on the other side of the meter. We are, because coal has been so and coal-fired energy has been so artificially cheap in the past, we haven’t insulated, we haven’t built smart. >> MARILYN BROWN: Residential customers can look to improvements in their homes, both the envelope, tightening it up, and also by improving the equipment that’s used to heat and cool their homes. In the industrial sector, there are new smart ways that they can help to contribute to the reliability of the grid and be rewarded by doing it and use energy more efficiently. So that’s by using what we call Demand Response. So clipping the peaks from their power consumption. >> GREG HIGDON: Manufacturers as a whole are looking to do energy audits. Having teams coming in, and some are in-house teams, to continually evaluate how the operations are running and looking at how they can conserve the use of kilowatts in energy in their operations. >> MARILYN BROWN: Most of the large industrial plants have professional energy managers on site that know the premises well and are taking advantage of the best lighting technologies, the LED options, and ways to heat and cool their buildings, but the small manufacturers probably could use some assistance into providing building audits and assessments of their facilities by experts that are brought in to do that would probably be very effective. >> JUSTIN MAXSON: East Kentucky Power Co-op is a good example of one that is really working hard to try to figure out how energy efficiency can help them not have to build that next coal-fired power plant. >> TONY CAMPBELL: When industrial customers come to us and have a issue where their energy cost have creeped up on them, we’ll go out and do a complete analysis of their facility, find out where they are losing energy, how they can save it. Sometimes it's lighting, some time i's air processes. A whole host of things they can do to help them be more energy efficient. >> MARILYN BROWN: For the larger industrial plants, I’m a proponent of Combined Heat and Power or Co-Generation, so that we take advantage of the waste heat that they are producing and put it to good use to generate electricity. >> DAVE ADKISSON: Businesses are making dramatic strides in conservation and energy efficiency. There is a tremendous amount of opportunity for us to achieve some of our environmental goals through just normal conservation. >> JUSTIN MAXSON: Energy efficiency will never replace coal, but it could contribute 10 or 20 percent of our electricity needs over the next twenty years. That’s a huge contribution and from that contribution can come real economic opportunity. >> CAREY SMITH: My name is Carey Smith. My title is CBA, Chief Big Ass, here at Big Ass Solutions in Lexington, Kentucky. When we started, we called it, what we thought at the time was a very catchy, HVLS Fan Company: High Volume Low Speed. We thought that was very descriptive. Fortunately, our customers and potential customers didn’t think so, so when we’d answer the phone, they’d say “Are you those guys who make those big ass fans?” We said, “Heck yeah!” And, not being any smarter than we are, it took us about a year, year and a half to change the name but we did and it’s worked out quite well. Energy efficiency, I think, is primary here at Big Ass Fans. It relates to everything we do. That is our business. I mean, we manufacture ceiling fans and we’ve known for a long time that the use of circulating fans is a very, very efficient, very, very inexpensive way to provide cooling. When we looked at the original fan, the big fan. Well, ceiling fans, honestly, they’d been around almost literally, well, since 1880’s. And they really hadn’t been improved on during that period of time. And so when we looked at it with the big fans, that was different. People weren’t accustomed to thinking about it in those terms, but what we did was we just looked at the problem in a slightly different angle. An awful lot of our customers, our real base even today, is industrial. So we were attuned to making the workspace, the workplace, much more comfortable. But at the same time, once you get into manufacturing, you recognize that it’s very, very cost driven and so the products that you offer, that you manufacture, have to be, they have to pay for themselves in some fashion. One of the most interesting things that we’ve done in the last couple of years here at Big Ass Solutions is develop our Big Ass Light and that is an LED light. There’s an awful lot of lighting out there, industrially that is, that is very, very inefficient. In an industrial space, in a light manufacturing space where you’re not, you don’t have a foundry or a forge, a lot of your energy goes towards your, towards lighting the place. And so we said, “Our customers are looking for something. They’re asking us to address this part of the market and this is what we’re going to do. And we’re going to do it in the way we do things.” Which means we’re going to over-engineer it. We’re going to make sure this light is going to be here for the next 50 years. And so we built a light that not only would, was well made, the fixture, but built it so that you could actually change the chips within the light so that what you’re buying as a customer are replacement chips because they're going to get more efficient. Some of the lights that our customers are replacing with our lights, we’re able to increase the efficiency by a factor of 2 and so we’re able to make a huge impact right there. We have a very, very long term approach. We don’t have to do something today that’s going to be to our detriment in 5 years or 10 years. We’re here to build a company for the Community of Us, I mean our tribe, and our tribe is the people that work here. In order to do that, we have to engage all of the employees in the thought and in the endeavor to keep the firm alive and growing, to provide benefits for those people that are currently here, but not just those people. People that are here, their kids and their kids’ kids and so on. I personally feel it’s very, very important as a manufacturer, as anybody that deals with, with other people that you ought to do your absolute best. I mean, there’s no excuse to do anything other than your best. We’re driven, as engineers, and basically as an engineering company to manufacture and provide products that are efficient. You don’t want to waste, you don’t to use any more resource than you absolutely have to to get the job done. I mean that’s, that’s what makes engineering, if it’s done right, close to an art. >> NARRATOR: Dramatic shifts in energy use and production are already happening. Undoubtedly, all viable sources of energy and conservation strategies should be explored to maintain a healthy environment and a growing economy. All of our current energy sources will have to be developed and utilized carefully. There are many factors in play regarding each available energy resource. >> TOM FITZGERALD: What has occurred in the past ten years has really dramatically changed the face of our nation in terms of electricity generation, in terms of energy production, and we’re not done. >> DAVE ADKISSON: We are going to see movement within the various uses of energy in Kentucky. We need to tap into all of those to try to remain competitive and to try to have the most advantageous energy prices that we can for companies to grow and for companies to add jobs for our kids and grandkids. >> REBECCA TAYLOR: The innovation is just going to floor us. So these things that might seem like, oh well they’re not robust enough and that just seems like a twinkle in somebody’s eye. I think we’re going to, in 10, 20, 50 years see things we hadn’t thought about today. >> JUSTIN MAXSON: We’re in an energy transformation as a country and a globe and Kentucky should be a leader in what it looks like to not just produce coal-fired electricity, but how to also produce clean power in a way that creates jobs and opportunities for our people. >> NARRATOR: The shifts in the fuel used to create electricity are taking place in power plants nationwide and even here in Kentucky. The challenge for the Commonwealth is that we must make important, proactive decisions at both government and industry levels to address this complex issue of energy. >> BRENDA BRICKHOUSE: We’re here to serve the people. And we are here to make sure that low cost reliable, clean, economically viable, economically vibrant, I mean we all share those values. That’s what we’re here to be able to do. >> TOM FITZGERALD: Every energy source has a footprint. Every energy source. It is, I think, incumbent on all of us to try to responsibly manage our own utilization of energy and to demand that, that the, those costs associated with it are born by those who benefit rather than being shifted onto the backs of a relative few people. >> BILL BISSETT: We do believe that coal is going to be produced for hundreds of years in the future for our grandchildren's grandchildren’s lives, there’s going to be coal production in Kentucky, but who uses that coal I think is the really big question. >> TONY CAMPBELL: We are an energy hungry nation. While we are going to make great strides in energy efficiency and renewables, Demand Side Management, and we need natural gas in our portfolio, I believe when you look at the amount of energy that we really will need if we have a robust economy and country, that we can’t just write off coal. >> JUSTIN MAXSON: It’s critical that our state really think about how do we lead into a clean energy economy in a way that produces jobs and economic opportunity that matter to people in the coal fields, and to say our only strategy is to protect the coal industry is to put our heads in the sand. >> NARRATOR: The future strength of our economy at all levels will be based largely on affordable and reliable energy. Nowhere is this more critical than within our important manufacturing sector. But an energy course must be charted that protects both job growth and the environment. That won’t happen without leadership. >> DAVE ADKISSON: Clearly this is going to continue to unfold, but we need to be informed and on top of the situation. >> TONY CAMPBELL: I think we have a responsibility to use energy as wisely as possible. But I think we equally have an obligation as a cooperative to do whatever we can to help our end consumer who owns us to save money or at least minimize the impact to them. >> PAUL THOMPSON: The simple thing that I think people should recognize is that when it comes to laws and policies that their representatives and senators are talking about, there are tradeoffs. There are economic tradeoffs with energy and with the environment. >> REBECCA TAYLOR: We have to have a multigenerational view of how we’re using energy and what the impact is on our environment because we want to leave it a good place for all of our descendants to enjoy, so we have to be smart about how we use the energy. >> GREG HIGDON: We can’t live in a vacuum of uncertainty. If you do that you’re going to fall behind. We’ve got to bring some clarity and resolve to the issue. Otherwise, not only Kentucky will lose, but the nation will lose as a whole from my perspective. >> NARRATOR: The continuing challenge for the Commonwealth is that we must make wise decisions at all levels to address the critical issue of energy. Because no matter how you interpret the history, the law and the data, Kentucky needs a common sense, viable energy strategy to ensure our continued prosperity, our environmental health, and our joint future.

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