Coal-fired electricity is one of the reasons Kentucky’s utility rates are among the lowest in the nation. And as new pollution regulations take effect, coal is the reason Kentucky will be among the hardest hit states. Rate increases currently before the Public Service Commission are one sign of the changing tide.

In September, dozens of people showed up at a public meeting in Louisville to weigh in on proposed electricity rate increases. Most of them, like Rev. Milton Seymore, were against the higher rates.

“We don’t have no problem with the shareholders making money,” he said. “But at the same time, the shareholders cannot make their profit on the backs of the needy and the poor and the downtrodden.”

Although few would volunteer to pay more for electricity, Kentucky customers have long paid less than most Americans. In 2009, Kentuckians paid about 8 cents per kilowatt hour at home—the fifth lowest in the country.

“And that’s probably going to change,” says Andrew Melnykovych. Melnykovych is the spokesman for the Kentucky Public Service Commission, and he says Kentucky’s proximity to both the Appalachian and Illinois coalfields means that transportation costs are lower.

“The other thing that has helped keep rates down is the fact that a lot of the power plants that generate the power for Kentucky are fully depreciated,” he said. “I mean, they’ve been paid for and they’ve been paid for for a long time.”

But that’s changing, too. As the state’s coal-fired power plants age, companies are being forced to consider costly upgrades to remain in compliance with federal laws. Louisville Gas & Electric has announced plans to replace its Cane Run plant with natural gas—a move that it expects will result in a small rate increase for Kentucky Utilities customers who will be using most of the electricity.

The Kentucky Chamber of Commerce has long contended that the state’s cheap power is one factor that draws investment in Kentucky. Vice President Bryan Sunderland says it’s an advantage Kentucky has over its neighbors.

“Like anything there are a number of factors a business will consider depending on what they do,” he said. “Education is always a huge factor. Taxes, regulation and transportation. Our central location is a huge factor as well. Energy costs really is one of those competitive advantages where we see a big difference between us and some of our surrounding states.”

Kentucky does have the lowest rate in the region for industrial electricity. Industrial customers paid 4.9 cents per kilowatt hour in 2009. (The lowest rate in the country for industrial electricity is in Washington State, which relies heavily on hydroelectric power.)

But as prices rise, the challenge for Kentucky will be to attract businesses for other reasons. Jason Bailey of non-profit Mountain Association for Community and Economic Development says the commonwealth will have to learn to adapt.

“Some things are changing and we won’t ever go back to the time when electricity was as cheap as it was,” Bailey said. “So the question for Kentucky, we think, is ‘how are we going to grow jobs and grow an economy in a different setting?’ We can’t do that just by being cheap because there are cheaper places to do business regardless of our electricity prices in Kentucky.”

Bailey says as it is, most Kentuckians don’t get to take advantage of the low rates. Poor housing stock and a lack of insulation means the rates are only low on paper.

“People pay bills. They don’t pay electricity rates,” he said. “In fact, for utilities that serve around 37 percent of the population, the average monthly electricity bill for households is actually higher than the U.S. average. And for a smaller portion of utilities, the bills are at least 20 percent higher.”

The Public Service Commission will consider Louisville Gas and Electric and Kentucky Utilities’ proposed rate increase in a public hearing next week. The commissioners will make a decision on the case by mid-December.