FERC vacates approvals for new gas pipeline to Duke’s Gallagher coal plant

The Federal Energy Regulatory Commission, due to a decision by Duke Energy Indiana to shut two coal-fired units at the Gallagher plant instead of switch them to natural gas, issued a July 23 order vacating its approval related to the new natural gas pipeline that would have served the plant.

On Jan. 12, Duke Energy Indiana filed a motion requesting that the commission vacate certificate authorizations that granted it authority to, among other things, construct approximately 19.45 miles of 20-inch diameter pipeline extending from an interconnection with Texas Gas Transmission LLC’s mainline facilities in Jefferson County, Ky., across the Ohio River to Duke’s Gallagher station in Floyd County Ind. In its application to the commission seeking the certificates, Duke had stated that converting two of its units at Gallagher from coal-fired to natural gas-fired units appeared to be the best way to comply with a federal court consent decree concerning alleged violations of the Clean Air Act.

“Subsequently, Duke decided to retire the Gallagher Station units rather than convert them to gas-fired units, and instead to purchase an interest in an existing gas-fired generating plant in Vermillion County, Indiana to comply with the consent decree,” FERC noted in the July 23 order.

Duke Energy Indiana owns 12 generating stations and 60 generating units, with a total capacity of over 7,215 MW, the company said in June 28 testimony filed at the Indiana Utility Regulatory Commission. The company remains heavily reliant on coal: 70% of its generating capability is coal-fired, with 26% natural gas-fired, 3% oil-fired, and less than 1% hydro-powered. About 97% of the energy generated by its units in 2011 was produced from its coal units. As a result, the company is Indiana’s largest purchaser of coal – about 12.5 million tons annually, most from Indiana mines. This portfolio will become less dependent on coal over time, with the projections for 2016 being that coal will make up only 58% of generating capability and 88% of generation.

Duke Energy Indiana’s current plan includes the retirement of Wabash River Units 2-5 in April 2015, the oldest and smallest coal-fired units on its system, because the retrofit of these units will not be economical. The company is also assessing the long-term options for Wabash River 6 and Gibson 5, including reviewing the potential for retrofitting Wabash River Unit 6 to run on natural gas by April 2015 and a replacement scrubber or retirement for Gibson Unit 5.

Final two coal units at Gallagher projected to run little in the near term

The remaining two coal units at Gallagher will be supplied by spot purchases, if any, throughout the rest of 2012 because higher per-unit fuel costs, low forward power prices and the retirement of two units at the end of January mean the remaining Gallagher units will operate infrequently. Elliott Batson Jr., Vice President, Regulated Fuels at Duke Energy Business Services LLC, a service company subsidiary of Duke Energy (NYSE: DUK), and a non-utility affiliate of Duke Energy Indiana, described the coal situation in April 30 fuel adjustment clause testimony filed at the Indiana Utility Regulatory Commission.

The vast majority of spot coal purchased during the twelve-month review period was for Gallagher. The delivered spot price for Gallagher is higher than Duke Energy Indiana’s long-term contract coal due to the fact that Gallagher is subject to New Source Review (NSR) compliance requirements and must burn coals with a much lower sulfur content and a higher price tag, Batson noted.

John Swez, who works at Duke Energy Business Services as Director, Regulated Portfolio Optimization, described in his own April 30 testimony the impacts of closing the two Gallagher coal units due to a New Source Review settlement worked out some time ago with the U.S. Environmental Protection Agency.

“Under the Consent Decree reached in the NSR lawsuit, the Company was required to make a final decision by January 1, 2012, concerning whether Gallagher units 1 and 3 would be converted to gas or retired,” he wrote. “As a result of the Company receiving approval for the purchase of a portion of the Vermillion Plant, the decision was made to retire the units. Accordingly, Gallagher units 1 and 3 were retired on January 31, 2012. Gallagher Unit 1 and Unit 3 fuel oil and coal systems have been partially demolished and are permanently blanked off at the coal bunkers and fuel oil pumps. Coal feed tubes, feeders, mill discharge piping, and torches have been removed. In addition, the fuel oil supply has been closed off at the pumps.”

Gallagher Units 1 and 3 were both rated for 140 MW each for a total capacity of 280 MW. The total summer rated capacity of the Vermillion II LLC gas-fired units is 568 MW (71 MW/unit) of which the company acquired 62.5%, or 355 MW of additional summer capacity. The additional capacity from acquiring Vermillion II LLC is slightly larger than the lost capacity from retirement of Gallagher Units 1 and 3.

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.