Wisconsin Electric Power (WEPCO) is diversifying the coal supply for the new Oak Creek units, resulting in eventual cost savings, said Tom Metcalfe, the WEPCO Vice President in charge of Oak Creek and the related Oak Creek Expansion Project (OCXP).
Metcalfe was among a number of WEPCO officials that had their supporting testimony filed March 23 at the Wisconsin Public Service Commission in a joint application of WEPCO and Wisconsin Gas LLC, both d/b/a We Energies, to conduct a biennial review of costs and rates, with a test year of 2013.
In 2006, WEPCO requested that We Power undertake specific enhancements to the then-planned Oak Creek project due to emerging mercury emission control technologies and increased volatility in the price of eastern bituminous coal in the 2004-2006 period, Metcalfe explained. The enhancements included changes to various systems and equipment and impacted the physical dimensions of buildings, foundations, and infrastructure. The cost for the enhancements was $24.3m.
In March of this year, WEPCO filed an Air Pollution Control Construction Permit Application with the state Department of Natural Resources that would allow for physical and operation changes needed to provide fuel flexibility for OCXP, also known as the Elm Road plant. After the DNR issues a revised air permit to the facility authorizing combustion of sub-bituminous coal, the ability to burn a mix of fuel types will result in significant fuel cost savings estimated to be $25m-$50m per year, Metcalfe noted. Along with these savings, the utility is committing to significantly reduced emission rates for all of the major pollutants. In fact, it is proposing revised best available control technology and lowest achievable emission rate limits at OCXP, which represent the most stringent emission limits for CO, NOx, PM, PM10, PM2.5 and SO2 when compared to similar coal-fueled units in the United States, Metcalfe said.
Coal-related costs show mixed up and down movement
Mary Wolter, the Manager-Fuel Cost Planning for WEPCO, also testified March 23. She said the company is requesting a monitored fuel cost recovery rate of $33.22/MWh. This represents an increase of $0.80/MWh (2.5%) from the $32.42/MWh rate approved by the commission in a prior order.
Wolter was asked what are the primary causes for the current projection that monitored fuel costs in 2013 ($989.6m) will increase $30.2m from the costs authorized for 2012 ($959.4m). The largest drivers include:
- an increase in coal prices as of Oct. 24, 2011 (+$25.7m) and a subsequent update of coal prices as of Jan. 16 (-$11.2m);
- reduced rail transportation costs (-$14.8m);
- updated natural gas and oil prices (+$12.4m);
- changing outage schedules (+$8.8m);
- and removal of incremental Real Time Market Pricing (RTMP) tariff sales from monitored fuel (-$6.9m).
Changes in coal inventory costs result in an increase in monitored fuel costs of approximately $14.5m. This was calculated in two steps: one step updated coal prices as of Oct. 24, 2011 (an increase of $25.7m) and another updated coal prices again as of Jan. 16 (a decrease of $11.2m). Offsetting the net commodity price increase of $14.5m was a reduction of $14.8m in rail transportation charges.
The company was able to reduce its rail transportation costs to the Oak Creek plant by reverting to the railroad’s common carrier rates at the expiration of the existing rail transportation agreements, Wolter wrote. The cost reduction of $14.8m is based upon the published common carrier rates and estimated rate escalation.
Leverett outlines rate needs
Allen Leverett, the President and CEO of We Generation, the electric generation group within Wisconsin Energy (NYSE:WEC), also testified. Wisconsin Energy is the parent company of WEPCO and Wisconsin Gas. Leverett is also an Executive Vice President of Wisconsin Energy.
“At current rates, Wisconsin Electric’s electric operations will have a significant revenue deficiency in Test Year 2013 and in 2014,” wrote Leverett. “On a Wisconsin jurisdictional basis, there is a need for an increase of approximately $173 million, or 6.2%, in electric rates due to non-fuel costs in Test Year 2013 and an additional increase of approximately $37 million or 1.3% in 2014.”
WEPCO also proposes to take advantage of a recent change in federal tax law that will enable it to deliver tax benefits arising from its Rothschild biomass project to customers over the next two years, rather than over the economic life of that investment. If the commission adopts WEPCO’s proposal regarding these tax benefits, the customer bill impact of the proposed increase in total electric rates due to non-fuel costs will be limited to 3.6% in Test Year 2013 and 3.6% in 2014.
Leverett also described the previously authorized investments in reliability, environmental and renewable projects undertaken by WEPCO that now make up the bulk of the 6.2% electric rate increase requested for 2013. Those projects include:
- the Oak Creek Air Quality Control System project, which the commission approved in 2008 at a capital cost of $894.4m, including allowance for funds used during construction (AFUDC), and improves the environmental performance of the affected units and ensures compliance with federal and state law;
- the completion of the Oak Creek Expansion Project, which the commission approved in 2003 at a capital cost of $2.191bn and ensures a reliable supply of energy for customers; and
- the completion of the Glacier Hills Wind Farm, which the commission approved in 2010 at a capital cost of $379.3m, including AFUDC, which is a key part of the company’s compliance with the state’s renewable portfolio standard.
The 2014 rate increase is driven almost entirely by the construction of the Rothschild biomass project the commission authorized last year. The 50-MW Rothschild project, with a total capital cost of $292.3m, including AFUDC, is responsible for $34.1m of incremental Wisconsin jurisdictional revenue requirement in 2014. In addition, the company proposes to construct a 5-MW solar project. If approved by the commission, the solar project will be coming into service in 2014, with an incremental Wisconsin jurisdictional revenue requirement of $3.3m.
WEPCO eyes Valley coal-to-gas conversion
Wisconsin Energy’s Feb. 28 annual Form 10-K report indicated that the addition of sub-bituminous coal at the Oak Creek Expansion Project would back out Northern Appalachia coal. “Approximately 100% of our 2012 coal requirements are expected to be delivered by Wisconsin Electric-owned or leased unit trains,” said the Form 10-K. “The unit trains will transport coal for the Oak Creek and Pleasant Prairie Power Plants from Wyoming mines, and transport coal for the Oak Creek expansion units from Pennsylvania and West Virginia. Coal from a Montana mine is also transported via rail to Lake Michigan transfer docks and delivered by lake vessel to the Milwaukee harbor for Milwaukee-based power plants. Montana and Wyoming coal for the Presque Isle Power Plant is transported via rail to Superior, Wisconsin, placed in dock storage and reloaded into lake vessels for plant delivery.”
During 2012, 100% of the company’s projected coal requirements of 9.7 million tons are under contracts which are not tied to 2012 market pricing fluctuations, the Form 10-K said. At the end of 2011, its coal-fired generation consisted of six operating plants with a dependable capability of around 3,880 MW.
“Environmental legislation and regulation and the related compliance costs could affect future unit retirement and replacement decisions, and could result in some of our coal-fired generating units being retired or converted to an alternative type of fuel,” the Form 10-K added. “In order to comply with new environmental requirements we are currently exploring different alternatives with regard to the Presque Isle Power Plant in the Upper Peninsula of Michigan and the [Valley plant] in Milwaukee, Wisconsin. We have committed to convert the [Valley plant] from coal to natural gas if we are able to determine that such conversion will have a direct economic benefit to our customers and we receive approval from the PSCW.”
The Form 10-K shows the company with these coal plants: longstanding South Oak Creek facility, four units, 1,055 MW; new Oak Creek expansion (Elm Road), two units, 1,056 MW; Presque Isle, five units, 346 MW; Pleasant Prairie, two units, 1,188 MW; Valley, two units, 227 MW; and Milwaukee County, three units, 8 MW.