St. Joseph Energy Center LLC, which is developing a 1,345-MW gas-fired power project, is asking the Indiana Utility Regulatory Commission to take a pass on regulating the power plant under Indiana law.
On Sept. 7, the company asked the commission to enter an order declining to exercise jurisdiction, under Indiana code, over the construction, ownership and operation of a 1,345-MW combined-cycle gas turbine (CCGT) power plant located in St. Joseph County, Ind. It requested that the commission decline to exercise any jurisdiction to: require it to obtain a certificate of public convenience and necessity to construct the project: and regulate construction, ownership and operation of, and other activities in connection with the project.
St. Joseph Energy Center noted it is a subsidiary of an investment fund managed by EIF Management LLC. EIF was founded in 1987 as an investment manager dedicated exclusively to the independent power and electric utility industry. Funds managed by EIF currently own and operate 26 power plants totaling nearly 3,600 MW.
The planned project consists of two CCGT “power blocks,” each of which will consist of two gas turbines, two heat recovery steam generators and a steam turbine. The project will exclusively serve the wholesale power market, and the company said it does not intend to recover the costs of the project from Indiana ratepayers through rate base, rate of return or comparable methods typically associated with retail public utility rates. The company added that it will not engage in electric transmission other than that which is incidental to the ownership and operation of the project.
SJEC made a follow-up filing on Sept. 10 with the commission that included testimony from Willard Ladd, a Principal at Development Partners Group LLC. Development Partners was formed in 2008. To provide the necessary investment capital required to develop, construct and run these power plants, Development Partners partnered with Energy Investors Funds, Ladd noted. Energy Investors Funds is a family of funds managed by EIF Management. Development Partners is currently developing over 2,700 MW of natural gas fired power plants across the U.S. including over 2,000 MW of combined cycle gas turbine power plants in Indiana.
Project aimed at big hole in Indiana created by coal plant retirements
In early 2010, Development Partners concluded that there was a clear need for new power plants emerging in Indiana, Ladd testified. Economic and population growth in the state as well as the expected retirement of a large portion of Indiana’s coal-fired power plants due to U.S. Environmental Protection Agency regulations are creating the need. Both the Purdue University State Utility Forecasting Group’s (SUFG) “Indiana Electricity Projections: The 2011 Forecast” and Integrated Resource Plans (IRP) submitted to the commission by Indiana utilities in November 2011 have confirmed this, Ladd said.
The SUFG’s base case in the November 2011 report forecasted a new power resource need of 2,600 MW by 2020. In January 2012, the SUFG increased this forecast to a new resource need of 2,960 MW by 2020, when taking into account U.S. EPA regulations.
In addition to the SUFG reports, Northern Indiana Public Service (NIPSCO), Duke Energy Indiana, Indianapolis Power & Light (IPL), Indiana Michigan Power (I&M), Southern Indiana Gas and Electric, Hoosier Energy and Wabash Valley Power Association submitted IRPs in November 2011 that forecasted a need for new power plants in Indiana. Together, these utilities documented a combined need of over 1,700 MW (assuming a 30% capacity credit for wind power plants) before 2020, Ladd wrote.
Gas market changes underpin SJEC project
The dynamics of the natural gas market in the U.S. have fundamentally changed due to the dramatic increase in the United States’ natural gas reserves and supply, Ladd pointed out. This increase in supply is widely projected to temper natural gas prices for the foreseeable future and is driving wholesale electricity prices to levels where it is uneconomic to dispatch coal-fired power plants.
“This dynamic forces Indiana utilities to purchase electricity from the wholesale market while still paying for the fixed costs of their coal fired fleets,” Ladd said. “The Project can provide needed diversity to Indiana’s power plant fleet, providing an avenue for Indiana’s ratepayers to benefit from this new natural gas price dynamic and economic upside to dispatching in the MISO or PJM wholesale markets. In addition to fundamentally altering the price horizon for natural gas, the significant increase in supply has also opened up new contracting opportunities. As part of our bid in the NIPSCO RFP, Development Partners was able to offer a fixed natural gas price contract to 2032 with the major natural gas marketing arm of a Fortune 100 company to accompany a tolling agreement with the Project. These types of long-term fixed price contracts were previously either unavailable or prohibitively expensive in the natural gas industry.”
Since the start of the re-development of this project, Development Partners has been in discussions with Indiana’s investor-owned utilities, electric cooperatives and municipalities. Development Partners will continue to pursue an arrangement to sell power, either through a tolling agreement or a power purchase agreement, Ladd said. Development Partners does not believe SJEC will be able to attract the necessary investment capital required to construct the project without a long-term contract.
Almost all of Indiana’s load-serving entities have expressed some level of interest. “However, Development Partners is not currently negotiating a purchase agreement with any of these entities,” Ladd wrote. “Most recently Development Partners participated in NIPSCO’s 2011 Request for Proposals for Base and/or Intermediate Power however NIPSCO did not choose the Project as an alternative to retrofitting the Michigan City Unit 12 resource.” NIPSCO plans to add new emissions controls on the coal-fired Michigan City Unit 12 instead of shutting it.
“Additionally, Development Partners intends to submit the Project in IPL’s Request for Proposals for Capacity and Energy Beginning 2017 which was issued on June 28, 2012 and is due September 10, 2012,” Ladd said. “Development Partners also intends to respond to any future solicitation for resources from Duke or I&M. Duke’s President, Douglas F. Esamann, offered testimony in Cause No. 44217 explaining that Duke is currently evaluating options for the replacement of its [coal-fired] Wabash River Unit 6 and Gibson 5 power plants which have a combined capacity of over 600 MW. Development Partners did not respond to Duke’s request for proposals issued on February 2012 because it was only soliciting capacity and energy proposals from June 2014 to May 2017. I&M, the owner of the Olive substation which is just north of the Project site and the Project’s PJM interconnection point, has proposed or analyzed retrofitting both its Rockport and Tanners Creek coal fired power plants. The PJM power block portion of the Project could be a cost-effective alternative to these types of projects. Development Partners will continue to offer SJEC as an alternative to coal plant retrofits or Indiana utility self-builds as solicitations are issued.”
Development Partners is willing to offer Indiana utilities a “Build-Prove-Transfer” or “BPT” structure. This includes a long-term power purchase agreement with a utility combined with a fixed price purchase option exercisable at a mutually agreed upon time after the project has achieved reliable operations. In a BPT structure, Development Partners assumes all development, construction, start-up and prove out risk through a power purchase agreement which will contain performance and timing guarantees backed-up with financial security. At a mutually agreeable time (which would be after year 3 of operations, for example) the utility will have the option to purchase the project for a pre-determined fixed price. “This structure shields ratepayers from potential development, construction, start-up and prove out cost overruns while allowing Indiana utilities to grow rate base and continue to improve Indiana’s energy infrastructure,” Ladd said.
SJEC can take advantage of old Allegheny Energy site investment
The SJEC project is located on the same site as the partially constructed St. Joseph County Generating Facility. In the early 2000s, Allegheny Energy Supply developed and partially constructed the St. Joseph County Generating Facility under the project name Acadia Bay Energy Co. LLC. Allegheny began development of the project in early 2000, secured all required permits for construction and operation in early 2002 and commenced site preparation in May 2002.
At the time, the Allegheny design of the project was a 540-MW 2X1 combined cycle configuration. By November 2002, overall site construction of the combined cycle portion of the facility was over 17% complete. At that time Allegheny issued a suspension notice to Black & Veatch Construction (the EPC contractor) to stop construction and attempted to sell the project. Allegheny was ultimately unsuccessful and proceeded to remove and sell the gas turbines, steam turbine, boilers and switch yard equipment which had been delivered to the site.
In 2010, Development Partners secured the site and its existing infrastructure and restarted development of the project as the St. Joseph Energy Center. In 2002, at the time Allegheny suspended construction, over $110m was spent on the site. The project site is graded and the site perimeter fencing, site drainage and a retention basin are in place. There is an existing building that was originally designed as a control room and could also be used as an office, water treatment facility or warehouse. Existing foundations are in good condition and include a complete steam turbine foundation, gas turbine foundations designed for Siemens 501FD units, HRSG foundations, transformer foundations, and cooling tower foundations. Based on detailed engineering work so far, Development Partners projects the existing site infrastructure will provide cost savings compared to a new power plant built on a greenfield site.
Company also pursues air permitting for new plant
The Indiana Department of Environmental Management is currently taking public comment on draft air permits for the SJEC project, with the air permit document showing a slightly different capacity of 1,350 MW. IDEM plans an Oct. 4 public meeting and hearing in New Carlisle on the draft permits as the final stage in the public comment process.
SJEC submitted a Prevention of Significant Deterioration and Title V Operating Permit application to IDEM in October 2011.
The facility will include four natural gas-fired combined cycle combustion turbines, each equipped with dry low NOx burners, natural gas fired duct burners, and a heat recovery steam generator. NOx emissions are to be controlled by four selective catalytic reduction systems, and carbon monoxide and volatile organic compounds emissions are to be controlled by oxidation catalyst systems. The nominal heat input for each CCCT is 2,300 MMBtu/hr (higher heating value (HHV)). The combined nominal power output is 1,350 MW.