The current estimate Great Plains Energy (NYSE: GXP) and subsidiary Kansas City Power & Light of capital expenditures (exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes) to comply with various air rules is about $1bn.
The rules involved include the Clean Air Interstate Rule (CAIR), the replacement to CAIR or the court-invalidated 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). The actual cost of compliance with any existing, proposed or future rules may be significantly different from the cost estimate provided, Great Plains Energy noted in its Nov. 8 Form 10-Q statement.
The approximate $1bn current estimate of capital expenditures reflects the following capital projects:
- KCP&L’s La Cygne No. 1 scrubber and baghouse, to be installed by June 2015;
- KCP&L’s La Cygne No. 2 full air quality control system (AQCS) installed by June 2015;
- KCP&L’s Montrose No. 3 full AQCS installed by approximately 2020; and
- KCP&L Greater Missouri Operations Co.’s (GMO) Sibley No. 3 scrubber and baghouse installed by about 2017.
In September 2011, KCP&L began construction of the La Cygne project. Other capital projects at KCP&L’s Montrose Nos. 1 and 2 and GMO’s Sibley Nos. 1 and 2 and Lake Road No. 4/6 are possible but are currently considered less likely, the company noted.
Things looking up for Montrose and Lake Road units
In connection with KCP&L’s and GMO’s integrated resource plans filed with the Missouri Public Service Commission in April, the economics around Montrose No. 2 and Lake Road No. 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 $1 billion current estimate of capital expenditures,” the Form 10-Q 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 programs, construction of combustion turbines and/or combined cycle units, and/or power purchase agreements.”
KCP&L said in an April 9 filing with the PSC that it may retire a coal-fired Montrose unit in 2016 depending on factors like future U.S. Environmental Protection Agency emissions rules. “The retirement of 170 MW in 2016 represents Montrose Unit 1,” said the plan about the preferred option. “The environmental drivers that contributed to the Montrose Unit 1 retirement included Mercury and Air Toxics Standards Rule, Ozone National Ambient Air Quality Standards (NAAQS), PM NAAQS, Clean Water Act Section 316(a) and (b), Effluent Guidelines, and Coal Combustion Residuals Rule. These rules are currently not in effect and will be monitored by KCP&L prior to the projected retirement year 2016 to determine if the current decision to retire Montrose Unit 1 continues to be prudent.”
GMO said in its own April 9 plan filing: “The retirement of 99 MW in 2017 represents Sibley Units 1 and 2. The environmental drivers that contributed to the Sibley Unit 1 and 2 retirements included Mercury and Air Toxics Standards Rule, Ozone National Ambient Air Quality Standards (NAAQS), PM NAAQS, Clean Water Act Section 316(a) and (b), Effluent Guidelines, and Coal Combustion Residuals Rule.”
The Nov. 8 Form 10-Q said the $1bn current estimate of capital spend does not reflect the non-capital costs the companies incur on an ongoing basis to comply with environmental laws, which may increase in the future due to current or future environmental laws. The companies expect to seek recovery of the costs associated with environmental requirements through rate increases. But, there can be no assurance that such rate increases would be granted, the company said.
Great Plains units already have one-year MATS extensions
The 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 granted an extension at KCP&L’s Montrose Station and at GMO’s Lake Road and Sibley Stations. The Kansas Department of Health and Environment (KDHE) has granted an extension at KCP&L’s La Cygne Station, the Form 10-Q noted.
In 2010, Westar Energy (NYSE: WR) settled a lawsuit filed by the U.S. Justice Department on behalf of the EPA. The lawsuit said that certain projects at the Jeffrey Energy Center (JEC) violated certain requirements of the New Source Review program. Jeffrey is 92% owned by Westar and operated exclusively by Westar. GMO has an 8% interest in Jeffrey. The settlement required, among other things, the installation of a selective catalytic reduction (SCR) system 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 may require the installation of a second SCR on one of the other two units by the end of 2016, the Form 10-Q reported.
Westar said in its Nov. 8 Form 10-Q report about the Jeffrey second SCR possibility: “The settlement…requires us to inform the EPA no later than December 31, 2012, whether we plan to install additional SCR equipment on another JEC unit in order to meet the plant-wide emissions limits agreed to in the settlement or whether we can meet the agreed upon emissions limits using other controls on the other two JEC coal units. We believe we can meet the terms of the settlement by installing less expensive NOx reduction equipment rather than additional SCR equipment.”
In March 2007, KCP&L, the Sierra Club and the Concerned Citizens of Platte County entered into a Collaboration Agreement under which KCP&L agreed to pursue initiatives designed to offset CO2 emissions. KCP&L agreed to pursue increasing its wind generation 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 that were not required under the Collaboration Agreement.