Madison Gas and Electric seeks coal-related cost recovery

A major chunk of projected higher costs for Madison Gas and Electric (MGE) in 2013 have to do with projects at the coal-fired Columbia and Elm Road power plants, said MGE’s Tamara Johnson in March 23 testimony filed at the Wisconsin Public Service Commission.

Johnson, Senior Director-Financial Reporting and Budgets for MGE, was testifying in a case where the company has applied to change its electric and natural gas rates. MGE is involved in two major generation projects that are affecting 2013 rates, Johnson said.

The two baseload units at Columbia require upgrades to comply with current federal environmental standards. MGE will be investing $140m in a scrubber project that will provide its customers with cleaner energy from this plant, Johnson noted.

At the Elm Road plant, Unit 1 became operational in February 2010 and Unit 2 became operational in January 2011. The project was the largest single construction project ever undertaken in the state of Wisconsin. The 100 MW of clean coal energy that these units produce on behalf of MGE will assure customers of an adequate supply of energy while allowing MGE and its customers to be better stewards of the environment, Johnson wrote.

In previous rate cases, an estimated start date for the lease payments was assumed for each of the Elm Road units. The actual start dates for Unit 1 and Unit 2 ended up later than the estimates and the excess lease payments collected resulted in a one-time benefit and were returned to customers in the 2012 limited reopener. Also, for 2013 the company has included increased O&M expense as well as an increase in lease payments associated with the final construction costs of the Elm Road project.

To save money, MGE has among things accelerated the steps necessary to retire 90 MW at the Blount plant and to lower labor expenses associated with operating the plant, Johnson noted.

“MGE’s present electric and natural gas rates are unreasonable and unjust because they yield revenues that are inadequate to meet operating expenses and to produce a return on equity sufficient to attract and maintain capital at reasonable rates,” said the MGE rate application filed March 23 along with the Johnson testimony. “The company therefore finds it necessary to apply for an increase in its electric and natural gas rates to take effect on January 1, 2013.”

MGE is a unit of MGE Energy (NASDAQ:MGEE). MGE Energy’s Feb. 24 annual Form 10-K report said that MGE Energy’s nonregulated energy operations currently include an undivided 8.33% ownership interest in two 615-MW coal units at Elm Road.

MGE and two other utilities jointly own Columbia, a coal-fired plant, which accounts for 29% (225 MW) of MGE’s net summer rated capacity. Power from this facility is shared in proportion to each owner’s ownership interest. MGE has a 22% ownership interest in Columbia. The other owners are Wisconsin Power and Light (a subsidiary of Alliant Energy (NYSE:LNT)), which operates Columbia, and Wisconsin Public Service. The Columbia units burn low-sulfur coal from the Powder River Basin in Wyoming and Montana.

MGE Power Elm Road and two other owners own undivided interests in the coal-fired Elm Road units in Oak Creek, Wisc., which accounts for 14% of MGE’s net summer rated capacity. Power from this facility is shared in proportion to each owner’s ownership interest. MGE Power Elm Road owns an 8.33% ownership interest in the Elm Road units and its interest in the Elm Road units is leased to MGE. Wisconsin Energy owns about 83% of the Elm Road units and is the operator of those units. The Elm Road units burn bituminous coal obtained from northern West Virginia and southwestern Pennsylvania.

“MGE also owns the Blount Generating Facility located in Madison, Wisconsin, which is fueled by gas and other alternative renewable sources,” according to the MGE 10-K. As planned, capacity was reduced at Blount from 190 MW to 100 MW as of December 31, 2011. The plant no longer burns coal and now operates on natural gas.

Planned new SO2 controls at Columbia are expected to be completed by mid 2014, the Form 10-K said. Once the new environmental control project is completed at Columbia, it is expected that the plant will emit below anticipated Cross-State Air Pollution Rule allocation levels.

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.