The current estimates of Great Plains Energy (NYSE: GXP) and its Kansas City Power & Light subsidiary of capital expenditures (exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes) to comply with various U.S. Environmental Protection Agency air rules is about $1bn, which may change due to later developments, said Great Plains Energy in its Aug. 8 Form 10-Q report.
The EPA rules that need to be complied with include: the currently-effective Clean Air Interstate Rule (CAIR): the CAIR replacement called the Cross-State Air Pollution Rule (CSAPR); the best available retrofit technology (BART) rule; the SO2 National Ambient Air Quality Standard (NAAQS); the industrial boiler rule; and the Mercury and Air Toxics Standards (MATS) rule that would reduce emissions of toxic air pollutants. Another Great Plains Energy unit impacted by these rules is KCP&L Greater Missouri Operations Co. (GMO).
The approximate $1bn current estimate of capital expenditures reflects the following capital projects:
- KCP&L’s La Cygne No. 1 SO2 scrubber and baghouse to be installed by June 2015:
- KCP&L’s La Cygne No. 2 full air quality control system (AQCS) to be installed by June 2015;
- KCP&L’s Montrose No. 3 full AQCS to be installed by approximately 2020; and
- GMO’s Sibley No. 3 scrubber and baghouse to be installed by around 2017.
In September 2011, KCP&L commenced construction of the La Cygne project. Other capital projects at KCP&L’s Montrose Units 1-2, GMO’s Sibley Units 1-2 and Lake Road No. 4/6 are possible but are currently considered less likely. In connection with KCP&L’s and GMO’s Integrated Resource Plan (IRP) filings with the Missouri Public Service Commission in April, the economics around Montrose 2 and Lake Road 4/6 have improved. Pending further evaluation, these projects may move from less likely to more likely but it is not expected to materially impact the overall $1bn current estimate of capital expenditures, Great Plains noted. Any capacity and energy requirements resulting from a decision not to proceed with these less likely projects is currently expected to be met through renewable energy additions required under Missouri and Kansas renewable energy standards, demand side management, construction of combustion turbines and/or combined cycle units, and/or power purchase agreements.
Great Plains noted that the EPA’s MATS rule allows three years for compliance with authority for state permitting authorities to grant an additional year as needed for technology installation. The EPA indicated that it expects this option to be broadly available. The Missouri Department of Natural Resources (MDNR) has already granted an extension at KCP&L’s Montrose and at GMO’s Lake Road and Sibley plants. The Kansas Department of Health and Environment (KDHE) has granted an extension at KCP&L’s La Cygne plant.
Second SCR is possible at Jeffrey coal plant
In 2010, Westar Energy settled a New Source Review lawsuit filed by the U.S. Department of Justice on behalf of the EPA over the Jeffrey Energy Center. Jeffrey is 92% owned and is operated by Westar. GMO has an 8% interest in the plant. The settlement agreement required, among other things, the installation of selective catalytic reduction (SCR) at one of the three Jeffrey units by the end of 2014. Westar has estimated the cost of this SCR at about $240m. Depending on the NOx reductions attained by that SCR and attainable through the installation of other controls at the other two units, the settlement agreement may require the installation of a second SCR on one of the other two units by the end of 2016.
In March 2007, KCP&L, the Sierra Club and the Concerned Citizens of Platte County entered into a Collaboration Agreement designed to offset CO2 emissions. KCP&L agreed to increase its wind capacity by 400 MW by the end of 2012. KCP&L and GMO have added 379 MW of wind generation and have also added the equivalent CO2 offset of 21 MW of wind through solar, landfill gas and other projects. KCP&L has a consent agreement with the KDHE incorporating limits for stack particulate matter emissions, as well as limits for NOx and SO2 emissions, at La Cygne that, consistent with the Collaboration Agreement, will be below the presumptive limits under BART.
KCP&L further agreed to use its best efforts to install emission control technologies to reduce SO2, NOx and particulate emissions from La Cygne prior to the required compliance date under BART, but in no event later than June 1, 2015. In August 2011, the Kansas Corporation Commission (KCC) issued its order on KCP&L’s predetermination request that would apply to the recovery of costs for its 50% share of the environmental equipment required to comply with BART at La Cygne. In the order, KCC stated that KCP&L’s decision to retrofit La Cygne was reasonable and that the $1.23bn cost estimate is reasonable. If the cost for the project is at or below the $1.23bn estimate, absent a showing of fraud or other intentional imprudence, KCC stated that it will not re-evaluate the prudency of the project cost. If the cost exceeds the $1.23bn estimate and KCP&L seeks to recover those extra amounts, KCP&L will bear the burden of proving that any additional costs were prudently incurred. KCP&L’s 50% share of the estimated cost is $615m. KCP&L began the project in September 2011.
Plans filed in Missouri show possible coal unit shutdowns
KCP&L may retire the coal-fired Montrose Unit 1 in 2016 depending largely on future EPA emissions rules. KCP&L said in an integrated resource plan filed April 9 at the Missouri Public Service Commission that this possible shutdown would be prompted by various pending and planned EPA rules. The IRP presented a range of options and different coal retirement planning, with some scenarios, for example, including 510 MW of coal retirements in 2016. Other scenarios call for 334 MW of coal retirements in 2016.
The KCP&L plan, by the way, is based upon resource planning in tandem with GMO and provides benefit to Missouri retail customers by planning on a combined company basis.
KCP&L’s 2012 generating capacity breaks down as: 2,744 MW coal, 57% of capacity; 547 MW nuclear, 11% of capacity; 410 MW oil, 8% of capacity; 770 MW gas, 16% of capacity; and 380 MW wind, 8% of capacity.
GMO also filed its latest IRP with the commission on April 9. GMO’s 2012 generating capacity is: 1,015 MW coal, 43% of its total capacity; 75 MW nuclear, 3%; 61 MW oil, 2%; 1,062 MW gas, 45%; 159 MW wind, 7%; and 2 MW landfill gas, 0.1%.
“The retirement of 99 MW in 2017 represents Sibley Units 1 and 2,” said GMO about the preferred plan impacts on coal. The environmental drivers of this possible retirement are the same as those cited by KCP&L for Montrose Unit 1.