The Los Angeles Department of Water and Power (LADWP) released a draft integrated resource plan that outlined how it plans to get off of coal-fired power by exiting its investment in the Navajo power plant in Arizona by 2015 and working with other participants in the Intermountain coal plant to convert the facility to natural gas.
LADWP will take comments on the draft plan, released on Oct. 5, until Oct. 25. The final 2012 IRP, incorporating public input, is scheduled to be completed by the end of November.
“Currently, 42 percent of the energy delivered to LADWP customers is generated from two coal-fired generating stations: the Intermountain Power Project (IPP), located in Utah, and the Navajo Generating Station (NGS), located in Arizona,” said the draft plan. “The NGS’s land lease expires in December 2019 and IPP’s contract is in effect until June 2027. Although these stations provide dependable, low cost base load generation to Los Angeles, they emit about twice as much CO2 as energy generated with natural gas. Accordingly, this 2012 IRP focuses on early coal replacement options as a means to lower LADWP’s CO2 emission levels.”
LADWP’s CO2 emissions reduction strategy must comply with state and federal regulations. At this time, key legislation and regulations either promulgated or proposed include:
- SB 1368, the California Greenhouse Gas Emissions Performance Standard Act, enacted in 2006, prohibits LADWP and other California utilities from entering into long-term financial commitments for baseload generation unless it complies with the CO2 emissions performance standard. The CO2 emissions level must be equal, or below the 1,100 lbs per MWh that can be achieved by gas-fired combined cycle units. This standard also applies to existing power plants for any long-term investments or contractual extensions, effectively prohibiting LADWP from taking coal-fired generation beyond the current contractual expiration dates for NGS (2019) and IPP (2027).
- Assembly Bill (AB) 32, the California Global Warming Solutions Act of 2006, which calls for reducing the state’s CO2 emissions to 1990 levels by 2020. The regulations for implementing a greenhouse gas emissions Cap and Trade program under AB 32 were finalized and adopted in October 2011 by the California Air Resources Board. Enforcement and compliance with the trading program will begin Jan. 1, 2013.
NGS and IPP must be compliant with the mandates established in SB 1368 by 2019 and 2027, respectively. IRP modeling determined that these units will be replaced with a combination of renewable energy, demand response, energy efficiency, short term market purchases, and conventional gas-fired generation, the draft IRP said.
For NGS, while power imports can legally continue until 2019, LADWP is recommending divestiture of its NGS stake four years earlier, in 2015. The draft IRP said that there are many strategic advantages to early divestiture, including: better sales price than waiting until the 2019 deadline; avoiding the risk of pending federal regulations that could potentially encumber the plant with expensive mitigation requirements; and better availability and pricing for replacement generation.
Intermountain participants work on coal-to-gas conversion
As for IPP, LADWP recommended modeling and planning to be compliant with SB 1368 by 2027. However, LADWP, the Intermountain Power Agency (IPA), and the other 36 plant participants are considering the conversion of IPP from coal to natural gas. “A new contractual arrangement is in process, which will establish a firm conversion date that will be no later than, and possibly sooner, than 2027,” the draft IRP added. “Until a firm conversion date is established and for analysis purposes, Case 4 was developed for this IRP which has IPP coal replacement in 2023. Once a firm date is determined, it will be incorporated into the IRP base case model runs. Strategically, it is important for LADWP to remain a participant at IPP after its conversion to natural gas, so that the project’s transmission lines can continue to import renewable energy from the Utah region.
IPP consists of two generating units with a combined capacity of 1,800 MW. LADWP is the operating agent. LADWP is also the largest single purchaser and has a power purchase agreement for 44.6% (803 MW) of IPP’s total output. LADWP has purchase obligations for up to 22.2% (399 MW) of additional output. These extra obligations are dependent on the power usage of the Utah and Nevada project participants. The power sales contract for IPP expires in 2027. The owner of IPP is IPA, a separate entity and a political subdivision of the state of Utah.
“For some time, the 36 participants and IPA have been considering the future disposition of the IPP facility,” said the draft IRP. “In addition to satisfying SB 1368 requirements, pending and potential federal legislative and regulatory actions regarding CO2, NOX, fly ash, etc., have introduced uncertainty to the future operating economics for the facility. Considering these uncertainties, as well as other changes across the coal industry and factors unique to the IPP organizational structure, the IPP parties have investigated alternatives to the continued use of coal as a fuel source. The feasibility of converting the IPP site from coal to natural gas has been studied, and efforts to convert have been initiated. The method and timing of a conversion requires concurrence from all participants and IPA, and establishing a new contractual structure.”
Some of the IPP conversion considerations that concern LADWP are:
- LADWP and the other IPP participants are contractually obligated to continued debt payments through 2023. An early exit from IPP prior to the end of the debt payment schedule will incur a financial penalty, not only for LADWP but for all of the 36 project participants.
- The existing power purchase contract extends to June 15, 2027. These are take or pay contracts which LADWP could not walk away from without incurring monetary/legal penalties. Any penalties incurred by LADWP would be incurred by the LADWP ratepayers.
- By remaining with the project, LADWP can continue to use the project’s transmission assets to deliver renewable energy from the Utah region. In addition to the transmission, LADWP can also continue to use the site, the staffing and the other related infrastructure that has been developed over the years at IPP.
In response to these and other considerations, a new power purchase contract is being drafted to construct a natural gas replacement facility located at the IPP site. The in-service date for the new facility will likely be sometime between the debt payment completion schedule at the end of 2023 and the end date for the existing power contracts in June 2027, LADWP said. For modeling purposes, until the contract is finalized, a date of Dec. 31, 2023, will be used as an assumed early conversion date.
IPP participants work through needed conversion steps
The following steps have been identified to establish the new contractual structure and are in progress:
- Amend the Utah Interlocal Cooperation Act and Electric Power Facilities Act – completed by the Utah legislature in March 2012.
- Amend the IPP Organization Agreement between the 23 Utah municipal members.
- Adopt the Second Amendatory Power Sales Contract between all 36 power purchasers.
- Adopt Renewal Power Sales Contracts.
- Adopt Renewal Excess Power Sales Agreements.
Assuming the contractual agreement of the participants is completed by the end of calendar year 2012, next year’s IRP will incorporate the new conversion date into its base case model runs, the department said.
Conversion of IPP to gas would, on its face, be devastating to the Utah coal industry, which largely relies on that plant, plus PacifiCorp‘s Hunter and Huntington power plants, for in-state coal demand. PacifiCorp plans to shut its small Carbon coal plant in Utah in April 2015 to comply with new U.S. Environmental Protection Agency air mandates. But, a handful of existing Utah coal mines are likely to exhaust their minable coal reserves by the 2024-2027 period, and there are few new coal reserves in the state available that would support replacement mines, so impacts of an IPP conversion in that period may actually be relatively minimal.
NGS is a coal-fired station located near Page, Ariz. It consists of three units with a combined capacity of 2,250 MW. Salt River Project is the operating agent. As one of six owners, LADWP has a 21.2% ownership share in the station’s generation.