The Pew Charitable Trusts

Mid-America is fast becoming ground zero for the biggest power plant construction boom since the 1970s. But much of the electricity generated by these new facilities will be exported to other parts of the country, leaving states without any real economic benefits from the plants' construction and with the financial burden of having to monitor their impact on local communities.

Recognizing its own dilemma, Kentucky became the first state in the country on June 19 to impose a moratorium on new power plant construction. But Gov. Paul Patton's executive order won't stop the building of 24 plants that are already under construction or have applied for permits to build in the state.

Of most concern to Kentucky officials are 22 so-called merchant plants, or non-utility-owned facilities without specific customer bases, that are going up in order to sell their electricity on the open market.

Because of utility deregulation, these plants -- fired increasingly by natural gas -- are proliferating at a rapid rate, leaving states without any means, other than environmental regulations, to monitor their operations. To cut down on costs and to make it easier to export the power they produce, they are usually sited within one to three miles of points where natural gas pipelines and electric transmission trunk lines cross paths, says Dr. Arnold Leitner, an energy analyst with Boulder, Colo.-based RDI Consulting.Because of reduced costs, the plants can be thrown up in a snap, once the appropriate permits have been obtained. It's not uncommon, for example, to complete construction on a new plant within 6-to-9 months of final approval, depending on the size and number of generators involved.

"Kentucky...is a convenient location because we have a lot of gas lines and transmission lines that intersect here," says Tom Fitzgerald, director of the Kentucky Resources Council. "Anytime you have the two, all you have to do is take an old jet engine, turn it over on its side and -- presto -- you've got yourself a power plant."

Indiana, Ohio and Illinois are being inundated as well with merchant plants looking for a ready-made nest near gas and transmission lines. Indiana has 22 plants in the works now, says Janet McCabe, an assistant commissioner with the Indiana Department of Environmental Management. Most will export their power elsewhere. Indiana officials, McCabe said, are concerned about the cumulative impact all of these plants will have on the state.

Aside from having to comply with construction codes and environmental emission and discharge standards, merchant plants do not have to answer to state authorities. That lack of government control, meant to promote competition within the electric utility industry, was the driving force behind deregulation efforts that took effect in 1996. Since then, however, states such as Kentucky have been struggling with whether to enact laws and regulations to help oversee the operation of these new, privately-owned generating facilities.

Of special concern, is the impact these plants will have on state- or regionally-controlled power grid systems, which aren't designed to carry the increasingly heavy loads being placed on them as a result of deregulation.

"This phenomenon (of merchant plant building) has occurred so recently that the legislatures haven't been able to act quickly enough to deal with it," says Fitzgerald of the Kentucky Resource Council. "The states are ill-equipped to handle this onslaught of new plants."

In his executive order declaring a moratorium, Gov. Patton expressed concern about not only the cumulative impact of new plant emissions on the environment, but also their impact on the grid system.

"It is important that we ensure a continued, reliable source of energy for our citizens. But it is also necessary that we study the potential effects that additional air emissions from new plants could bring to the state, as well as their effect upon the electric supply grid," Patton said. "We must strike a balance between our energy needs, our ability to generate energy for others and our commitment for a clean, safe environment."To help the state decide how to handle the building boom, Patton commissioned an energy policy advisory board made up of representatives from the government, electric and gas industries, and consumer and environmental advocacy groups. The board is to issue a report on its findings, along with recommendations, by Dec. 7.

"The overall mission of the board is to develop and propose an energy policy and agenda for the state that addresses a lot of these issues," said Mark York, a spokesman for the Kentucky Natural Resources and Environmental Protection Cabinet.

York said it's too early to say what recommendations might emerge from the board. But he added that a new energy policy could include legislation designed to strengthen state oversight of merchant plants.

Playing host to plants that send their power elsewhere is proving hard for some states to accept, observes energy analyst Matthew Brown of the Conference of State Legislatures.

"There are (states) worrying about becoming the dumping ground for plants that send their electrons to other states," says Brown, who views the Kentucky moratorium as a significant action by a state trying to test how much control over electric power issues it still has in the aftermath of deregulation.

"The interesting thing is that deregulation has caused a fundamental shift in who's in charge," adds Brown. "And states are looking to control what they can control, whether its siting and building, or transmission...I think what you're seeing is states trying to find out where their leverage is."

As of today, there is only one state in the country -Florida - that still maintains nearly full control over plants built within its borders. That's because the legislature passed several laws that prohibit plants from being built that do not have a dedicated in-state customer base. The prohibition has so far prevented companies that want to sell power on the wholesale market from constructing facilities in Florida.Leitner, of RDI Consulting, predicts that more and more states will enact regulations designed to control privately-owned facilities. He said Kentucky, for example, may end up negotiating a deal with new plants that ensures the state's own energy needs will be taken care of first before the plants market their power elsewhere.

"This is just one example of what states may end up doing," Leitner says. "I mean it's reasonable to expect that some states are not going to want to be the ones who export the power and hold all the pollutants from these facilities. It's a new world out there and I think the states are just now waking up to it."