Consumers cancels coal project, plans to mothball seven coal units

In December 2011, Consumers Energy formally canceled its plans to build an 830-MW coal-fueled plant at its Karn/Weadock complex in Michigan, and has additional plans to idle seven old coal units in 2015, Consumers parent CMS Energy (NYSE:CMS) reported in its Feb. 23 annual Form 10-K report.

The decision to cancel the new coal units reflects present and anticipated market conditions, new environmental standards, and Consumers’ expectations of the generation sources that will provide the best energy value to customers, the Form 10-K noted Consumers updated its capital investment plan in May 2010, when it deferred development of the now-canceled coal plant. Consumers plans to make other investments in place of the coal-fueled plant, including installing additional environmental controls on some of its existing coal-fired units and improving reliability.

Also in December 2011, Consumers announced plans to mothball seven of its smaller coal-fueled units effective January 2015. Consumers will continue to evaluate its options for the plants, which include: installing more environmental equipment on the units to reduce emissions further in order to meet new environmental standards and continue to operate the units; converting the units to natural gas instead of coal; decommissioning the units; and any combination of the first three options.

The units to be mothballed are two at B.C. Cobb, two at J.C. Weadock and three at J.R. Whiting, with those units having a total summer generating capacity of 923 MW.

Consumers estimates that it will incur expenditures of $1.5bn from 2012 through 2018 to continue to comply with the Clean Air Act, Clean Water Act, and numerous state and federal environmental regulations.

As for air compliance, in July 2011 the U.S. Environmental Protection Agency released the Cross-State Air Pollution Rule, which requires Michigan and 27 other states to improve air quality by reducing power plant emissions that allegedly contribute to ground level ozone and fine particle pollution in other downwind states. This rule had mandated emission reductions beginning in 2012, which CMS Energy and Consumers were prepared to meet through fuel blend changes. In December 2011, due to litigation surrounding CSAPR, the U.S. Court of Appeals for the D.C. Circuit issued a stay of the rule pending oral arguments in April on numerous appeals of the rule.

In December 2011, the EPA finalized its Utility Maximum Achievable Control Technology emission standards for electric generating units, based on Section 112 of the Clean Air Act. Under the final rule, all of Consumers’ coal-fueled units will require additional controls for hazardous air pollutants, the Form 10-K noted, without going into details. Generally, existing units must meet the standards within three to four years of issuance of the final rule.

The Michigan Department of Environmental Quality (MDEQ) renewed and issued the Renewable Operating Permit for the coal-fired B.C. Cobb plant in August 2011. In October 2011, the Sierra Club and the Natural Resources Defense Council filed a petition with the EPA to object to the MDEQ’s issuance of the permit, alleging that the facility is not in compliance with certain provisions of the Clean Air Act, including New Source Review and Title V. Consumers responded to these allegations in December 2011. “The EPA could either deny the petition outright or grant the petition and remand the matter to the MDEQ for further action,” the Form 10-K added. “Consumers believes these claims are baseless, but is unable to predict the outcome of this petition.”

In 2007, Consumers received a notice of violation (NOV) and finding of violation (FOV) from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. Consumers has denied the allegations. In addition, in 2008, Consumers received an NOV for three of its coal-fueled facilities alleging, among other things, violations of New Source Review/Prevention of Significant Deterioration regulations relating to ten projects from 1986 to 1998 allegedly subject to review under the NSR.

“Consumers is engaged in discussions with the EPA on all of these matters,” the Form 10-K said. “Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Projects, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. The potential costs relating to these matters could be material and the extent of cost recovery cannot be reasonably estimated.”

In 2011, Consumers’ four coal-fired plants burned 9 million tons of coal and produced a combined total of 15,468 GWh of electricity, which represented 42% of the energy provided by Consumers to meet customer demand. As of the end of 2011, Consumers had contracts to purchase coal through 2014 that total $261m in commitments. All of Consumers’ coal supply contracts have fixed prices. As of the end of 2011, Consumers had 86% of its 2012 expected coal requirements under contract, as well as a 41-day supply of coal on hand.

The Consumers coal facilities and their summer ratings are: J.H. Campbell 1-2, 615 MW; J.H. Campbell 3, 770 MW (Consumers share of capacity); B.C. Cobb 4-5, 310 MW; D.E. Karn, 515 MW; J.C. Weadock, 290 MW; and J.R. Whiting, 323 MW.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.