Courtesy of Kentucky Lantern
Speaking before the Kentucky Public Service Commission, Big Rivers Electric Corp. CEO Don Gulley recently praised the economic impact of the Nucor steel mill that began operating in late 2022 near the Meade County seat of Brandenburg.
The Nucor Corp. says it employs more than 400 people to make steel plates for heavy equipment and infrastructure, including foundations for off-shore wind towers. Local elected officials in Meade County along with Gov. Andy Beshear have also hailed the project.
“This was a massive effort to locate a large manufacturing company in Kentucky that would bring jobs, would bring secondary impact, would bring tax benefits and would be just generally good for the state,” Gulley said during a June 4 hearing.
Now, much to Big Rivers’ dismay, an aspect of that deal is under scrutiny by the state’s utility regulator.
Nuclear option
Big Rivers granted Nucor a significant discount on its large electricity bill in the form of millions of dollars of fuel costs that the steel mill didn’t have to pay. Those electricity costs, estimated by Gulley to be about $11 million a year, are instead being passed on to Big Rivers’ approximately 121,000 ratepayers through 2031, under a contract between the utility and the company. The vast majority of Big Rivers’ ratepayers are residences and businesses.
It’s unclear why a discount that’s been in place for several years has drawn the attention of the Public Service Commission (PSC) in recent months, but the scrutiny has spurred Big Rivers’ leaders and the three electricity distribution cooperatives that the utility supplies to warn the PSC against trying to change the contract.
Gulley used the term “nuclear option” to describe the possibility that the PSC would order Big Rivers to refund to ratepayers the millions of dollars in fuel costs they covered for the steel mill.
Gulley said such a decision could force the nonprofit utility to seek an emergency rate increase and impact the utility’s ability to meet its loan obligations.
He said an emergency rate case “would be highly detrimental” and could have a significant “negative impact” on the utility’s credit rating and future costs to take out loans.
It’s also not clear if ratepayers knew about the arrangement between Big Rivers and Nucor that had them covering a significant portion of the steel mill’s electricity costs. In a response to questions from the Lantern including if ratepayers were aware of the arrangement, a Big Rivers spokesperson said the utility couldn’t share much about the ongoing case.
“We are very supportive of the unique Nucor development, which has provided numerous benefits to Big Rivers and its Member-Owners, as well as to the region and state,” Gulley said in a statement provided through the spokesperson.
Questions over fuel costs
The contract between Big Rivers and the Nucor steel mill in Brandenburg became a point of contention in recent months as the commission reviewed Big Rivers’ fuel adjustment clause, a provision that allows utilities to automatically pass through to ratepayers the changing costs of fuel, typically coal or natural gas in Kentucky.
The PSC regularly reviews utilities’ use of the fuel adjustment clause to make sure only reasonable costs are being passed on to ratepayers. The PSC can order a refund to ratepayers if it determines a utility has overcharged for fuel.
Big Rivers’ contract with Nucor exempted the industrial operation from paying its share of the variable fuel costs through the fuel adjustment clause.Those fuel adjustment clause costs were collected from other ratepayers instead, raising their fuel costs and utility bills.
Gulley, along with leaders of electricity distribution cooperatives Jackson Purchase Energy Cooperative, Meade County Rural Electric Cooperative Corporation and Kenergy Corp., argued to regulators the higher fuel charges for other ratepayers were well worth it because of the economic benefits that the Nucor steel mill in Brandenburg had provided.
The utility in a filing says the PSC approved the contract including what the utility says are provisions that the commission is now questioning—with Nucor in 2020—even if the utility received no PSC guidance or directive specifically allowing it to exempt Nucor from paying for variable fuel costs.
The utility argued the provisions in the contract were “necessary” to land Nucor in Meade County.
“Undoubtedly, it has been a win,” Gulley said. “I’m not sure it was everything that was promised, but I also recognize that Nucor is an international company and operates on a global basis.”
This question of ratepayers covering the cost of a large industrial customer’s discount arises at a time when power-intensive data centers are looking to negotiate electricity deals with utilities.
“If utilities are going to be negotiating one-off special contracts with new large (electricity) loads, it certainly has the possibility of things like this being missed and socialized over to the bills of all the other ratepayers in Kentucky,” said Byron Gary, an attorney with the environmental legal group Kentucky Resources Council.
Gary, whose group intervenes in utility regulation cases before the PSC, wasn’t involved in the Big Rivers case focusing on Nucor’s contract but did review the filings in the case before the PSC.
But in an interview with the Lantern, Gary questioned whether the economic development arguments justify requiring other ratepayers to bear Nucor’s variable fuel costs, though he declined to offer an opinion on whether the arrangement was appropriate.
He also said the arrangement between Nucor and Big Rivers could potentially violate PSC precedent that requires companies subject to economic development electricity agreements to cover variable costs.
Nucor contract has helped stabilize Big Rivers’ finances
Big Rivers has asked the PSC, which traditionally speaks through its written orders, for a decision. The utility also has suggested options the PSC could take that would allow the utility to maintain its arrangement, including offering ratepayers a report on the costs of fuel costs for the Nucor steel mill.
During the June 4 hearing, Gulley said having Nucor as a customer has strengthened the utility’s recently shaky financial position. Big Rivers had to raise rates after aluminum smelters stopped purchasing power from the utility. Consumer advocates have previously raised concerns about significant increases in utility bills and electricity costs for Big Rivers’ ratepayers in the past 15 years.
“I have worked to change the focus at Big Rivers to serve our members and to be member focused. I’ve made great progress in the last 18 months,” said Gulley, who was hired as the utility’s president and CEO in 2023. “This is a pivotal moment for us, and we’ll chart the course for the next three to five years.”
Kentucky Lantern is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
