Wisconsin Electric Power Co. said it started considering the possibilities of a blend of Pittsburgh No. 8 seam coal and Powder River Basin coal for the two new units at its Elm Road Generating Station (ERGS) as far back as 2004, when those units were designed.
Within a biennial review of the company’s costs and rates, WEPCO on May 16 filed answers to various questions. WEPCO is a unit of Wisconsin Energy Corp. (NYSE: WEC). ERGS is a two-unit facility with a total of 1,056 MW (dependable) of capacity.
One question said: “By letter dated September 7, 2004, Bechtel requested that We Power issue a Proposal Request (CPR) for certain contract changes that We Power was interested in, one of which related to coal blending (response to data request JJW-013012 Part 1). Please explain when the idea of coal blending for ERGS was first discussed within Wisconsin Energy Corporation or any of its subsidiaries or affiliates. Please provide copies of the internal documents of Wisconsin Energy Corporation or any of its subsidiaries or affiliates that support that explanation.”
The response said the first documented record on coal blending, an email, was in July 2004. In a July 2004 spreadsheet, a graph was produced which identified what blends of coal would meet a proposed U.S. Environmental Protection Agency rule limit and the existing air permit limit.
Copies of some of this correspondence were attached to the response. That correspondence shows that the “design” coal for the Elm Road units was Pittsburgh No. 8 coal. This coal comes from mines in Northern Appalachia (Ohio, Pennsylvania and northern West Virginia), with CONSOL Energy (NYSE: CNX) a major supplier of that type of bituminous coal.
Said one July 2004 email: “Steve’s approach has been to look first at a blend rather than a complete switch to PRB. He’s taking incremental steps i.e. gradually increasing the % of PRB to see how mercury emissions change versus the current permit and potential new regulations. I appreciate that blending and fuel switching have their own issues.”
Another email from that month said: “There are several issues that we will need to discuss including the ability to remove Mercury from PRB fired units, changes in the Hg emission limits from [bituminous] fired units, impact on unit efficiency that occurs firing [sub-bituminous] units and therefore increase CO2 emissions, gypsum production and limestone consumption – if the numbers are too small there are no practical takers for this product, increased number of trains to the site and the like.”
Pittsburgh #8 price hikes pushed PRB review
Said another July 2004 email: “There have been considerable changes in the coal markets since we made our Pittsburgh #8 coal selection (three or four years ago) that need to be updated including pricing, quality, supplier ownership, etc. (Example is our original fair market price was $28/ton…… spot today is $58/ton). The environmental impacts of the coal choice needs to include (1) salability of the type of ash produced (PRB has been up to now easier to sell), (2) amount of and difficulty of disposing/selling of the synthetic gypsum need to be on the list to form a complete ‘environmental’ cost which includes many other factors like NOX, mercury, etc. (air permit limits). I met with CONSOL today (the primary supplier of Pittsburgh #8) and indicated we need to know what has changed in their business plans including availability, pricing, contractual obligations for trace elements limits, etc. … I will work on an update of the original items used in selecting the Pittsburgh #8 as the bituminous coal and update our coal forecast including PRB, Colorado and anything else that you/others would suggest.”
Another May 16 response filing said that due to the U.S. Environmental Protection Agency’s different emission standards under the then-proposed (and subsequently vacated) Clean Air Mercury Rule for bituminous and sub-bituminous units, advancements in mercury emission control and increased volatility in the price of eastern bituminous coal in 2004-2006, Wisconsin Electric requested that We Power make modifications to the project to accommodate burning a mix of fuel types, including changes to various system and equipment which impacted the physical dimensions of building, foundation and infrastructure. The enhancements were done in the 2006 timeframe during construction because to do so after the project was constructed would have been substantially more expensive. The modifications were done through We Power’s contractor, Bechtel.
This May 16 response refers to the OCXP, which is a reference to the fact that the Oak Creek Expansion Project (OCXP) was built at the existing Oak Creek coal plant and is now officially known as Elm Road.
“Wisconsin Electric continued to evaluate the design enhancements and their value to its ratepayers after the Company began operation of the OCXP facilities—including the changing price of sub-bituminous and bituminous coal—that also indicated that significant savings could be achieved through fuel mixing,” the response said. “The Company undertook additional analysis which suggested that additional fuel blending be tested. In March 2012, the Company filed an Air Pollution Control Construction Permit Application with the [Wisconsin Department of Natural Resources], the purpose of which is to allow for the physical and operational changes needed to provide fuel flexibility. The issuance of this permit by the DNR will allow the company to achieve cost savings estimated between $25-$50 million per year. In addition, Wisconsin Electric is committing to significant reduction in emissions rates for all major pollutants.”
WEPCO gives basics of plan to PSC in March filing
Tom Metcalfe, the WEPCO Vice President in charge of Oak Creek and the OCXP, was among a number of WEPCO officials that had their supporting testimony filed March 23 at the PSC in the opening stages of this case. He said in that testimony that 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. 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.
Metcalfe also mentioned the March application at the DNR for an air permit that would allow for physical and operational changes needed to provide fuel flexibility for OCXP. 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.
Parent Wisconsin Energy addressed the matter this way in its May 3 Form 10-Q filing: “The Oak Creek expansion units were designed and permitted to use bituminous coal from the Eastern United States rather than sub-bituminous coal. Market forces have resulted in a significant price differential between bituminous and sub-bituminous coals. We have applied for a new air permit from the WDNR to modify the Oak Creek expansion units for potential future use of sub-bituminous coal. Upon receiving an air permit, we intend to begin testing sub-bituminous coal in various combinations with bituminous coal to identify any equipment limitations that should be considered prior to filing with the PSCW for a Certificate of Authority to make the fuel flexibility modifications permanent.”
U.S. Energy Information Administration data shows Elm Road in January getting coal from three operations, all of them in the Pittsburgh #8 seam. They are the Blacksville No. 2 longwall mine and Bailey complex of CONSOL Energy, and the Emerald longwall mine of Alpha Natural Resources (NYSE: ANR). Bailey, by the way, is referred to here as a “complex” because the coal from both the Bailey and Enlow Fork longwall mines of CONSOL is fed into the common Bailey prep plant. Notable is that the neighboring, older Oak Creek plant already burns PRB coal.