The newly-acquired Ironwood gas plant in central Pennsylvania should fit in nicely with a gas-fired portfolio in the region that has lately been backing down coal-fired generation, said PPL Corp. (NYSE: PPL) Chairman, President and CEO Bill Spence during a May 4 earnings call.
“In our Competitive Supply business, we completed the acquisition of a 700-MW, gas-fired power plant in central Pennsylvania,” Spence said. “The purchase of the AES Ironwood plant represented an excellent opportunity for us to expand our gas fleet at an attractive valuation, and in our own backyard. All of our competitive power plants had high availability during the quarter and our gas-fired units saw increased run times as a result of low natural gas prices and a displacement of higher-cost coal units. Our combined cycle gas units are already seeing close to maximum run times. For example, our Lower Mount Bethel [plant] was operating at a 92% capacity factor in the first quarter. Ironwood had very strong numbers as well but that unit underwent a plant outage during a portion of the quarter.”
A modest change in coal prices in the first quarter reflects the lower coal burns this year, shifting some of the deliveries to next year, Spence noted. PPL continues to believe that current forward power prices do not appropriately reflect the cost to comply with the U.S. Environmental Protection Agency’s new Mercury and Air Toxics Standards (MATS) and Cross-State Air Pollution Rule (CSAPR) or all anticipated coal plant closures, he added. “We also believe we can see even further heat rate expansion as gas and power prices continue to decouple in the forward years,” Spence said.
Spence noted that PPL’s Louisville Gas and Electric and Kentucky Utilities subsidiaries have just gotten an approval from the Kentucky Public Service Commission to both acquire and build gas-fired generation in Kentucky. This new capacity would replace coal-fired generation that is targeted for retirement.
Asked about capacity factors for coal units, Spence said: “I think for the summer months we’re going to see the coal units return to their traditional baseload operation. I think, in the fall, of course it’s all going to be dependent upon natural gas prices, as well as coal prices. Hopefully, if you see normal weather, you’d see more run time that we saw in the first quarter. But with the current natural gas price to coal price relationship, I would expect that the capacity factors in the fall are going to be less than what we’ve historically seen. But probably not as bad as the first quarter.”
In answer to another question about possibly higher operations and maintenance (O&M) expenses at coal plants that run less, Spence said: “There is an O&M benefit when you’re off-line and there’s also a margin benefit when we are highly hedged, as we are. We’re essentially able to buy power cheaper than we can produce it at those coal facilities. So there’s a dual effect there, if you will, that did help us in the first quarter, and could help us in the fall as well, if we see similar conditions. As far as an exact number on the O&M, I don’t know that it would be that material, that I could say that would be measured in pennies, probably not nickels and dimes.”
Spence said that like a lot of power generators, PPL has built up quite a bit of coal inventory. But there is storage space left at its stations so it’s not a pressing issue at the moment, and many of PPL’s coal units are back online at this point. “We worked very closely with our coal suppliers to really manage the inventories during this time,” he said. “And then I think, as you know, in the West at Colstrip [in Montana], it’s a minemouth plant so we don’t have the same issues out there, in terms of inventory, as we do in the East.”