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Kentucky Resources Council, PO Box 1070, Frankfort, KY 40602 Phone [502] 875-2428

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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Re: Proposal for Siting Procedures And Criteria For Merchant Plants  Posted: September 26, 2001

Kentucky Resources Council, Inc.

Post Office Box 1070

Frankfort, Kentucky 40602

(502) 875-2428 phone (502) 875-2845 fax

e-mail FitzKRC@aol.com

September 24, 2001

To: Members, Energy Policy Task Force

From: Tom FitzGerald

Re: Proposal for Siting Procedures And Criteria For Merchant Plants

I apologize that a conflict prevents my attending the September 25, 2001 Task Force meeting (although I am certain that my absence will make for a shorter meeting!) I am sending this memorandum in order to present some preliminary thoughts concerning a framework for management of the environmental effects of siting of merchant power plants.

The framework is grounded in the proposition that the siting and operation of facilities for generation of electricity from fossil fuels present a range of environmental consequences that must be anticipated and addressed in a proactive and comprehensive manner, in order to fully mitigate and offset adverse environmental and economic impacts. The lack of an adequate mechanism for advance review by state and local officials of a proposed merchant plant is a matter of significant controversy, and has resulted in decisions whose immediate economic benefits accrue to private interests while imposing social, environmental and economic costs to host communities and downwind populations. Absent a comprehensive framework for decisions concerning the siting and operation of merchant plants, decisions have been made absent sufficient public or government scrutiny that may not be in the best interests of the Commonwealth and local communities, in terms of the dedication of land and water resources, the reliability of the power grid, and the ability of regulated utilities within the state to service native load needs.

In order to empower local communities and state agencies to address the air, land, water and systemic impacts of merchant plant siting, construction and operation, both at an individual and cumulative scale, I propose a siting process that would require application for a certificate of compatibility by any electric generating facility for siting, construction and operation of a merchant plant:

* The siting review process would encompass both the siting and operation of proposed merchant plants and all associated service and transmission facilities;

* The siting review process would apply to all electricity generation facilities not otherwise reviewed for environmental compatibility by the Public Service Commission or the Federal Energy Regulatory Commission (i.e. those electricity generating plants generating and selling wholesale power);

* The siting review process would be under the authority

of the Public Service Commission, with review and concurrence

by the Natural Resources and Environmental Protection Cabinet, and with input from other state and federal resource agencies (i.e. Kentucky and U.S. fish and wildlife and park agencies, etc.) and the public;

* The siting process would be weighted towards location of projects utilizing existing utility infrastructure rather than requiring new construction or upgrading of transmission capability;

* The siting process would include adequate notice and a meaningful opportunity to be heard by the public concerning the proposed project and all potential health, safety and environmental concerns;

* The siting process would assess the direct, indirect and cumulative impacts of the proposed electricity generating facility and associated service and transmission facilities and structures, including:

- impacts on farmland and the production of food, fuel and fiber;

- attainment and maintenance of air quality standards;

- surface and groundwater quality and water supply, and protection of the hydrologic balance;

- an evaluation of the public health, safety and

environmental impacts of the proposal, including

changes in property values, community perception,

effects on the pattern and types of development of

surrounding and nearby properties, effects on the

the cost and availability of public services and facilities,

and the ability to host the proposed facility while still protecting fully the health, safety and welfare of the host community.

- The relationship of the proposal to local planning and existing development. Where the community has adopted zoning and planning, no certificate could be applied for absent final determination by the local community that the proposal was consistent with local land-use plans and applicable zoning. Where the community has not adopted planning and zoning, a local public hearing would be required to be held in addition to the hearing before the PSC for purposes of providing information and soliciting public comment would be required, and an ordinance evidencing local government support for the project would be required. The law would underscore that these facilities are not exempt utilities within the meaning of KRS Chapter 100.

- an evaluation of alternatives, including other locations, and other technologies and investments (including demand-side investments), that would satisfy the project purposes.

* The siting application process would require the applicant to address these criteria, and to demonstrate that it possesses the necessary allowances for oxides of sulfur and nitrogen, and for other criteria pollutants as might limit the emissions from the plant, in order to support operation of the facility at the rated capacity. Absent such a demonstration, the application shall not be accepted for processing.

* The applicant would be required to demonstrate, and the PSC to find, that the operation of the facility will not adversely affect the existing electricity transmission system or interfere with the capacity of regulated utilities to serve native load requirements.

* The siting application process would also require the applicant to demonstrate the financial, technical and management capability to construct and operate the proposed facility.

* The use of general obligation or industrial revenue bonds to support financing of private merchant plants would be clearly precluded.

* Issuance of a certificate of compatibility would be contingent on a successful demonstration by the applicant and a finding by the Commission, with concurrence by the Natural Resources and Environmental Protection Cabinet, that all identified adverse impacts of the proposed facility, (including environmental, economic, social and system impacts), will be fully offset and mitigated.

* The certificate of compatibility would provide that (as has been provided for permits under other regulatory programs in the state) if a continuous program of facility construction has not begun in earnest within six months after permit issuance, the certificate will lapse.

These are the general principles that I believe would provide an appropriate framework in which to assure that the costs associated with these activities are properly accounted for and internalized by the project proponents, and that siting decisions fully mitigate adverse effects on communities.

Again I apologize for my inability to attend, and I look forward to discussing these principles with you in our remaining meetings.

3



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