By Rich Heidorn Jr.
PJM Insider

PJM’s footprint is about to grow again with the addition of the 16-member East Kentucky Power Cooperative (EKPC). The Members Committee was briefed Feb. 28 on PJM’s takeover of reliability coordination and transmission operations for the generation and transmission cooperative effective June 1.

East Kentucky, which joined PJM as an Other Supplier in 2005, estimates it will save almost $132 million over the next decade by taking advantage of PJM’s economies of scale and generation diversity.

“Uneventful” Integration Expected

A winter-peaking system (2,500 MW), East Kentucky will increase PJM’s generation capacity by 2.5% and transmission network by 4%. Frank Koza, PJM’s executive director of operations support, told members on a conference call yesterday he expects the integration to be
“uneventful.”

The coop’s move to PJM was approved by the Kentucky Public Service Commission in December and still requires OKs from the Rural Utilities Service (RUS) and Federal Energy Regulatory Commission, according to coop spokesman Nick Comer.

East Kentucky has filed requests with FERC to participate in the PJM Reliability Pricing Model Base Residual Auction for 2016-17 (ER13-414-000) and to submit an out-of-time Fixed Resource Requirement Plan (ER13-478-000).

The Members Committee will be asked Thursday to ratify the coop’s entry with changes to the PJM OATT, Operating Agreement, Reliability Assurance Agreement and Transmission Owners Agreement. PJM expects to file the revisions with FERC in March.

Benefits to Coop

East Kentucky said its move was prompted by increasing transmission constraints with potential counterparties and federal environmental regulations, which made it expensive to continue operating as an independent control area and balancing authority. The coop has interconnections with TVA, Duke Energy, American Electric Power and Louisville Gas and Electric Co./Kentucky Utilities Co. (LG&E/KU).

It gets more than 80% of its power from coal-fired generation and has invested nearly $1.75 billion over the past decade in modern coal generators and environmental retrofits of older units.

A study by Charles River Associates estimated East Kentucky will gain almost $132 million (net present value) in the first 10 years after joining PJM.

The biggest savings will come from reduced reserve requirements. East Kentucky maintains a 12% reserve margin (360 MW). By joining the summer-peaking PJM, it will be able to reduce its reserve to 2.8% (70 MW), allowing it to sell the difference in the capacity market.

The integration also will result in more economical generation dispatch, as the coop replaces its higher cost generation with cheaper PJM power.

Potential Retirements

East Kentucky has 1,882 MW of coal-fired capacity at the H.L. Spurlock Station located near Maysville, John Sherman Cooper Station near Somerset and William C. Dale Station near Winchester.

Comer said all four units at Spurlock (two built in the last eight years, two with scrubbers) are well positioned to meet Environmental Protection Agency regulations while 300 MW of capacity — 1950s and 1960s vintage units at Cooper and Dale — may be vulnerable to retirement when EPA’s Mercury and Air Toxics Standards take effect in 2015.

The coop is currently reviewing responses to a request for proposal issued last year to replace the 300 MW.

Impact on KU

Kentucky regulators approved the move after the coop and PJM agreed to a stipulation intended to hold KU harmless from cost increases.

KU serves more than 100 MW of its native load using East Kentucky transmission at cost-based rates. KU feared that the coop’s full membership in PJM would increase its transmission rates.

Under the stipulation, PJM agreed to create a pseudo-tie with KU/LG&E and charge the utility transmission rates applicable to the East Kentucky pricing zone; PJM agreed not to bill KU for any other charges assessed on load in the PJM markets.

Kentucky regulators also expressed concern that the coop’s move to PJM created a risk it will face higher prices for energy due to transmission congestion. The commission required the coop to file an annual report detailing its strategies for hedging congestion risk and for competing in the markets for capacity and energy.

A pdf of this article is available for printing: PJM Insider Members Committee Preview – E KY Power Coop joins PJM – 2013-02-26