Illinois AG backs limited break for Ameren coal plants

The Illinois Attorney General’s office told the Illinois Pollution Control Board that a lot more clarity and commitments are needed before Ameren is granted a break for its coal-fired capacity in Illinois from requirements of the state’s Multi-Pollutant Standard (MPS).

Ameren Energy Resources, a unit of Ameren Corp. (NYSE: AEE), on May 3 requested that the board grant a variance from provisions of the MPS for five years beginning Jan. 1, 2015, and ending Dec. 31, 2019, and relief from another section for four years, beginning Jan. 1, 2017, and ending Dec. 31, 2020.

“AER requests additional time to comply with the 2015 and 2017 SO2 emission rates because, among other things, declining power market prices have resulted in an insufficient cash flow necessary to finance and maintain the construction completion schedule of flue gas desulfurization (‘FGD’) equipment at the Newton Energy Center (‘Newton FGD Project’) in time to meet those rates,” AER wrote.

AER said it has instituted measures to conserve cash and has already ceased operation at two of its least economic facilities. In recent years it has spent nearly $1bn installing state-of-the-art FGD systems and ancillary pollution control equipment at its energy centers resulting in a drop in SO2 emissions of 79% since 1990 and 23% over the past four years. Under AER’s current MPS compliance plan, the completion of the Newton FGD project is the next step in complying with the 2015 and 2017 SO2 rates. AER said it expects to continue limited construction activities at Newton to the extent it can financially do so.

The proposed voluntary emissions rate that AER wants to comply with during the variance period will effectively commit it to the cessation of operations at the Hutsonville and Meredosia coal plants while maximizing FGD performance at the Duck Creek and Coffeen coal plants.

In an Aug. 10 post-hearing brief (the hearing was on Aug. 1), the AG’s office (known simply as the “People” in its filing) said it continues to believe that the board should require Ameren to submit a comprehensive analysis of the various compliance alternatives and to deny the petition if Ameren is unable or unwilling to do so. Detailed information on options to reduce SO2 pollution is needed to assist the board in evaluating conditions that could or should be attached to the variance that will help minimize deviations from the MPS, it added.

Additional information that Ameren has provided to the board since its initial application is still not sufficient to determine whether various pollution control strategies, either alone or in combination with one another, are available to reach compliance or to minimize the gap of non-compliance, the AG’s office said.

“Indeed, Ameren is still not quite clear on what exactly it would have to do if the variance request is unsuccessful,” the AG’s office said. “As pointed out in the People’s initial comments, the affidavits submitted to verify the claims in the petition do not match Ameren’s assertion that it would have to close two entire plants if it is unable to receive a variance. At the public hearing, Ameren witness Michael Menne testified only that ‘probably’ anywhere from one to three plants could ‘very likely’ need to shut down, and went on to mention other pollution reduction strategies contemplated by the company to meet pending federal mandates that it has apparently chosen not to offer here to help reduce the departure from the MPS. In order to get to the bottom of this, the Board should require that Ameren provide a comprehensive analysis on its alternative compliance options—including those discussed below— before granting any variance to the company. If Ameren cannot or will not provide the analysis, then the petition should be denied.”

Control of SO2 emissions through FGD can be accomplished through either wet or dry scrubber systems, the AG’s office said. Ameren is planning a wet FGD system at the coal-fired Newton plant. It had previously planned to utilize a dry scrubbing system—called dry sorbent injection (DSI)—at both its Joppa and Edwards coal plants.

Dynegy, an independent power producer, has recently installed or is in the process of installing dry FGD systems at four units located at its Baldwin and Havana facilities in Illinois, the AG’s office noted.

Attorney General wants reasons for not deploying DSI in near term

“Despite having announced previous plans to use DSI at the Edwards and Joppa plants to comply with the MPS, Ameren is now saying that it believes the use of sorbent has too much variability in the removal efficiency (supposedly anywhere from 10 to 90 percent) and would put too much strain on other equipment such as electrostatic precipitators,” the AG’s office said. “Yet, at the same time, Ameren is also apparently contemplating the future use of DSI anyway, either if it does not get the variance levels it wants or if it needs to achieve additional reductions to comply with the Cross-State Air Pollution Rule (‘CSAPR’). This raises the obvious question as to why Ameren has not considered or proposed some kind of partial use of sorbent application to reduce the size of MPS deviation now when it is already considering using the technology to meet pending federal standards.”

Ameren should be required to submit the details of its evaluation of DSI (including partial applications rather than what it would need for full MPS compliance) and any other dry scrubbing technologies for the board’s review, the AG’s office wrote. “The emergence of DSI and other dry scrubbing applications as cheaper, faster ways to reduce SO2 emissions means that Ameren must demonstrate that it has thoroughly analyzed the viability of using these approaches to comply with the MPS or to minimize deviation from it,” it added.

Ameren states that it investigated curtailment of plant operations as a compliance alternative and that the evaluation revealed that AER would need to lower capacity factors on such units as Edwards, Joppa and Newton to between 22% and 38%, the AG’s office said. “Ameren witness Michael Menne also addressed this topic at the public hearing, stating that the curtailment of plants to comply with the MPS would exacerbate the company’s financial problems as it would mean less revenue from those plants without a concomitant reduction in the fixed costs that are necessary to operate a plant at any level of output,” the office added.

Ameren should provide its evaluation and analysis on unit curtailments or deratings to the board, the AG’s office said. While it may indeed prove too much of a financial hardship to require Ameren to rely on curtailment as a single compliance strategy, there could be cost effective pollution reductions through partial curtailment that, when combined with other compliance tools, would bring the company closer to complying with the MPS, the AG’s office said.

It appears that Ameren is committing to run the Duck Creek and Coffeen scrubbers at a 98%-99% SO2 removal rate. This commitment should be incorporated as a condition to any variance that may be granted, the AG’s office said.

AG’s office says Ameren should commit to using low-sulfur coal

Ameren has stated its intent to procure low-sulfur coal as an operational step to meet its proposed emission rate under the variance. In fact, 99% of Ameren’s coal supply for its Illinois plants already comes from the low-sulfur Powder River Basin (PRB), said the AG’s office. “But the sulfur content in coal from the PRB can vary from mine to mine with the lowest content sometimes being referred to as ‘ultra low-sulfur’ or ‘super-compliant’ coal. Indeed, Ameren’s counterpart subsidiary in Missouri, the regulated utility Ameren Missouri, has recently entered into a five-year contract for ultra low-sulfur coal as its strategy to achieve compliance with the pending Cross-State Air Pollution Rule.”

Given Ameren’s intent to rely on low-sulfur coal to meet its proposed emission rate, the board should ensure that Ameren maximizes this step to reduce emissions as much as possible, the AG’s office said. “To do this, the Board should require Ameren to certify on an ongoing basis that it has procured the lowest sulfur coal to the greatest extent possible and that it has fully exhausted this strategy to reduce emissions,” it added. “Indeed, it appears there may be additional room to leverage fuel procurement, as Ameren is already contemplating further improvements it could make on the fuel side to comply with potential federal regulations that are apparently not part of its current variance request.”

The board should consider conditions to a variance if the board decides to grant one. The AG’s office said these should or could include:

  • Setting of a revised SO2 emission rate based on additional measures Ameren might take to limit excess pollution;
  • The Hutsonville and Meredosia coal-fired stations remain non-operational;
  • Require the use of DSI or other dry scrubbing applications as a partial if not full compliance measure;
  • Require the partial curtailment or derating of certain units to assist with compliance;
  • Require Ameren to operate the Duck Creek and Coffeen scrubbers at 98%-99% SO2 removal efficiencies;
  • If Ameren continues to procure low-sulfur coal as an operational step to meet emission rates, require Ameren to procure the lowest sulfur coal available and to submit regular verified certifications; and
  • Any other conditions as determined by the board that would minimize deviation from the MPS, and balance the hardship to Ameren and the harm to the environment that the variance would allow.

AG says two-year variance, not four, a better option right now

The reason Ameren is seeking relief now from 2015 and 2017 standards is that it would have to resume normal construction of the Newton scrubbers in early 2013 (which Ameren says it cannot due to lack of financing) or begin the process of mothballing units around the same time (which it does not want to do) in order to be ready for the 2015 standard, the AG’s office noted. “The People respectfully suggest that a two-year variance would provide the company with the relief it needs now but provide the added benefit of allowing the Board and the Illinois Environmental Protection Agency an opportunity for reassessment if, two years from now, Ameren still believes it needs more time under a variance,” it added.

There are a number of factors that could lead to an increase in power prices and an improvement in Ameren’s financial position and therefore its compliance strategy, the AG’s office said:

Rise in natural gas prices – There is currently a glut of natural gas because of over-production and the very warm 2011-2012 winter that resulted in lesser amounts of gas being used for heating. This has led to extremely low prices for gas in 2012. However, many analysts expect prices to rise once the gas market has a chance to rebalance. Demand is continuing to go up as utilities switch from coal to gas, and producers have started to scale back supply. Once the balance between supply and demand shift, it is possible that gas will price out between $4/mmBtu and $6/mmBtu or perhaps even higher in the next couple of years. This would ease the downward pressure that cheap gas is currently exerting on power prices, the AG’s office noted.

Compliance with CSAPR and MATS – The Cross-State Air Pollution Rule (CSAPR) or some version of it is likely to be in place and require compliance from coal-fired power plants, perhaps in 2014. In addition, the federal Mercury and Air Toxics Standards (MATS), assuming they survive pending legal challenges, has compliance dates beginning in 2015. The effective dates of these rules may mean that coal plant owners will choose to retire additional older, smaller, inefficient coal plants to avoid the cost of making investments in them. This will remove some of the cheapest units from the market and reduce the current oversupply of generation capacity, two factors that will likely contribute to an uptick in power prices, the AG’s office said.

Weather patterns, price of coal, renewable energy policy – Various other factors can also influence energy prices, such as whether there are particularly warm summers or cold summers or whether the seasons are milder and require less load for air conditioning and heating. Just like the price of natural gas, the price of coal can vary depending on demand both domestically and overseas and the contracts that utilities are able to negotiate with railroads and coal suppliers. Decisions that are made about things such as the federal Production Tax Credit can influence how quickly renewable energy like wind is entering the market and exerting pressure on incumbent generators and power prices.

“Depending on how all of these factors trend and interact with each other—for good or for worse in terms of power prices—Ameren’s financial position could improve and re-acceleration of the Newton scrubber project could become feasible in the company’s eyes or perhaps justify the investment in additional controls at Edwards or Joppa,” said the AG’s office. “On the other hand, Ameren’s position could erode further and it could be forced to mothball additional units with or without a variance from the MPS. The point is that no one can know for sure how all of these dynamics will play out. A two-year variance would provide Ameren with the relief it needs now (i.e., a delay from having to make a compliance route decision in 2013). It would simultaneously preserve the opportunity for the Board to reevaluate the situation assuming more clarity emerges on the price of gas, the status of the federal rules, etc., while also allowing for Ameren to make its case for an extension of the variance if it feels it is necessary when the time comes.”

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.