Black Hills wants new gas capacity to replace Clark coal units

Black Hills Corp. (NYSE: BKH) said July 31 that electric utility subsidiary Black Hills Energy–Colorado Electric has filed a new electric resource plan with the Colorado Public Utilities Commission to address energy needs for its 94,000 customers in southern Colorado during the next six years.

The plan identifies replacement capacity and resource acquisition based on market conditions and environmental regulations. The Colorado PUC is expected to make a decision in the first or second quarter of 2013.

“Our plan is focused on providing a reliable and secure supply of electricity based on generation resources that are in compliance with environmental regulations and leverage the current low natural gas market,” said Christopher Burke, vice president of Colorado utility operations–Black Hills Energy. “The plan also satisfies the 2017 compliance timeline of the Colorado Clean Air-Clean Jobs Act and ensures that we are on track to be in compliance with Colorado’s Renewable Energy Standard.”

Considering the Colorado PUC denial of the company’s 2011 filing requesting approval to construct an 88-MW natural-gas-fired turbine, BHE has proposed building a 40 MW simple-cycle, natural-gas-fired turbine. The facility would begin operation in 2016 to replace the 42 MW of electricity produced by the W.N. Clark coal-fired power plant in Canon City, which must be retired to comply with the Colorado Clean Air-Clean Jobs Act (CACJA).

In addition, BHE-COE proposes a solicitation to determine additional renewable energy sources that may include wind or a waste-to-energy facility. The company has also proposed setting aside 120 kilowatts in 2014 for a community solar gardens program. These recommended renewable resources would be on top of the company’s first Colorado wind project. Currently in construction, the 29-MW wind project is scheduled to start operations at the end of 2012.

“Since our previous ERP filing in 2008, our electric resource needs have changed, and our new plan reflects a more conservative approach that accounts for changing economic conditions and uncertain future environmental legislation,” Burke said.

The next ERP, which the company will file in 2015, will focus on helping it continue to meet the Colorado renewable energy requirements.

The modeling for this ERP was used to select the replacement capacity for the Clark coal units. The model had a range of resources it could select including seasonal firm capacity purchases (reflecting current excess capacity in the region), wind, solar, and two under 42 MW natural gas-fired resources (an LM6000 and Wartsila reciprocating engines), said the ERP. The model selected the LM6000 as the least cost resource to be operational in 2016 with seasonal firm capacity purchases providing needed capacity prior to that time.

Studies incomplete on fate of Pueblo Units 5 and 6

Black Hills is not proposing in this ERP to retire the aging steam units at Pueblo 5 and 6 (built in 1941 and 1949, respectively as coal units that have both since had boilers converted to natural gas fuel). Black Hills hired CH2M HILL to conduct a high-level condition assessment and provide a cost estimate of a life extension of the units. CH2M HILL estimated that the life extension would cost $54m. In fact, even to do a more detailed study would cost an estimated $730,000. This information concerning Pueblo 5 and 6 was not available in time to be incorporated into the modeling for this resource plan. Based upon the CH2M HILL reports and the company’s own assessment of Pueblo 5 and 6, the company said it does not believe that paying for a more detailed life extension assessment is prudent.

Both Pueblo 5 and 6 have a start time of about 12 hours, which is roughly the same start time as a coal-fired unit. Both units have a relatively slow ramp rate of 1.5 MW to 3.0 MW per minute. The company most recently operated these two units in July and August 2011. Once started, the units must be run continuously because of their slow ramp times and the difficulty in starting them.

Sensitivity scenarios were run which show that the timing of retirement of Pueblo 5 and 6 does not affect the seasonal firm capacity purchases or selection and timing of the LM6000 identified by the modeling for the six-year resource acquisition period of this ERP. The company is not able at this time to propose a specific retirement date and replacement plan for these two units, but will address retirement and replacement in a subsequent proceeding.

The company’s generation resources consist of two coal-fired steam units, two natural gas steam units, two natural gas combustion turbines, and three diesel plants. The W.N. Clark units (also called Cañon City 1 and 2) are located in Cañon City; the Rocky Ford diesels are in Rocky Ford; and Pueblo 5 and 6, Pueblo diesels, Airport diesels, and Pueblo Airport Generation Station (PAGS) are located in Pueblo.

The company purchases 200 MW of firm power from Black Hills Colorado IPP LLC from two natural gas-fired combined cycle units at PAGS that began commercial operation on Jan. 1 This contract expires at the end of 2031. Firm power is also purchased through what is referred to as the MPS Swap. The company currently has two agreements in place for the purchase of economy energy. Each contract allows for purchases up to 50 MW. One contract has a one-year term expiring at the end of 2012 while the other contract is for two years expiring at the end of 2013.

The company also has a swap agreement in place with the Western Area Power Administration (Western) between the western and eastern transmission grids to facilitate the delivery of capacity and energy. Western has generation resources on the western grid. In addition, Western has wholesale customers connected to the eastern grid that are accessible from what used to be called Missouri Public Service (MPS). MPS entered into a contract with the company whereby MPS supplies capacity and energy to the company which is scheduled to Western on the eastern grid. In exchange, Western supplies an equivalent amount of capacity and energy to the company in the western grid. The Western contract utilizing a swap with MPS expires on September 30, 2024 and provides 5 MW of firm capacity and energy to the company. Kansas City Power & Light (KCP&L) now operates the company formerly known as MPS as part of KCP&L Greater Missouri Operations (GMO).

Black Hills/Colorado Electric Utility Co. LP d/b/a Black Hills Energy, serves 94,000 electric customers in 21 southeastern Colorado communities. Black Hills Energy is a subsidiary of Black Hills Corp.

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.