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State Regulators: Driven By Reliability

Can natural gas supply keep up with demand for power?
Fortnightly Magazine - November 2004

such as weatherization and enrollment in even-payment plans as a means of bringing predictability to utility bills.

The PSC has encouraged local distribution companies (LDCs) to consider both physical and financial hedging programs as a means of ensuring adequate supply and reducing price volatility. LDCs engaging in hedging are required to submit their programs for PSC approval. The PSC also has monitored summer storage activity by LDCs.

Q: What is next on the RTO agenda in Kentucky?

A: The Kentucky PSC has consistently supported the creation of regional entities to improve the reliability, stability, and flexibility of the transmission system. However, if regional transmission facilities are improved in order to facilitate the long-distance transport of electricity, the costs of the improvement should be borne by the beneficiaries of the services, i.e., the cost-causers, and not by the native-load ratepayers. In addition, membership in an [RTO] should not be detrimental to Kentucky consumers, either with respect to preserving the priority of native loads-as required by Kentucky statute-or with respect to maintaining Kentucky's low electric rates.

With respect to specific RTO matters, there is a case pending before the Kentucky PSC investigating whether or not Louisville Gas and Electric (LG&E) and Kentucky Utilities (KU) should remain a member of the Midwest Independent System Operator (MISO). We will also be monitoring the integration of AEP into PJM Interconnection Inc. (PJM).

Q: Does Kentucky have enough gas and electric infrastructure to ensure service reliability, and are adequate incentives in place to encourage building new facilities?

A: In Administrative Case 387, the Kentucky PSC concluded that there is sufficient infrastructure to ensure electric service reliability in the near future for native load within Kentucky. However, the same investigation noted the presence of potential bottlenecks should there be substantial growth in wholesale transactions that would increase north-south interstate flow through transmission infrastructure in Kentucky. There are concerns that the infrastructure would need upgrades to facilitate such wholesale transactions.

In the wake of the August 2003 blackout, the PSC initiated another review of the electric transmission infrastructure, focused on system stability and reliability. This review is due to be completed this fall.

Because of the ability of jurisdictional utilities to recover costs through rates, adequate incentives are in place to maintain sufficient infrastructure to meet the needs of ratepayers. Jurisdictional utilities are required to conduct long-range planning through Integrated Resource Plans that are submitted for PSC review.

Gas infrastructure generally appears to be sufficient at this time. There are some concerns regarding the capacity of gathering lines in portions of eastern Kentucky that are undergoing significant new exploration and production activity.

In the interim, our focus is on ensuring system reliability and promoting an efficient market.

Q: What is the future of retail competition in Kentucky for gas and electric consumers?

A: Kentucky enjoys the lowest electricity costs in the nation. These low costs, as well as a high degree of service reliability, have been achieved within the framework of a traditional model of vertically integrated, regulated utilities. Given this situation, there is little advantage to or impetus for

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