Integrys Energy Group is adding gas-fired capacity under its Wisconsin Public Service utility subsidiary, while it is moving to sell other, non-regulated generating capacity, said Integrys in its Nov. 6 Form 10-Q quarterly filing with the SEC.
In September, Wisconsin Public Service (WPS) entered into an agreement to acquire all of the equity interests in Fox Energy Co. LLC. The purchase includes the Fox Energy Center, a 593-MW combined-cycle facility in Wisconsin, along with associated contracts. WPS currently supplies natural gas for the facility and purchases 500 MW of capacity and the associated energy output under a tolling arrangement. WPS will pay $390m to purchase Fox Energy Co. LLC, subject to post-closing adjustments primarily related to working capital. In addition, WPS will pay $50m to terminate the existing tolling arrangement immediately prior to the acquisition of the facility. The transaction is expected to close on or around April 1, 2013.
“Fox Energy Center is a dual-fuel facility, equipped to use fuel oil, but expected to run primarily on natural gas,” the Form 10-Q noted. “This plant will give WPS a more balanced mix of electric generation, including coal, natural gas, hydroelectric, wind, and other renewable sources.”
In September, Sunbury Holdings LLC, a subsidiary of Integrys Energy Services, entered into a definitive agreement to sell all of the membership interests of WPS Westwood Generation LLC, owner of a waste coal generation plant in Pennsylvania. The transaction is expected to close in November.
The Federal Energy Regulatory Commission on Oct. 25 approved the sale by Sunbury Holding of a 30-MW, coal-fired plant in Pennsylvania. On Sept. 26, WPS Westwood Generation and Sunbury Holdings had filed an application for commission authorization for the sale by Sunbury of all of its interests in Westwood to Olympus Westwood Holdings LLC, a newly-formed indirect subsidiary of Olympus Power LLC.
In October, WPS Empire State Inc., a subsidiary of Integrys Energy Services, entered into a definitive agreement to sell all of the membership interests of WPS Beaver Falls Generation LLC and WPS Syracuse Generation LLC, both of which own natural gas-fired plants in the state of New York, to Lakeside Energy LLC. The closing of this sale is contingent upon obtaining certain customary contractual consents and necessary regulatory approvals. This deal is expected to close by the end of the first quarter of 2013, the Nov. 6 Form 10-Q said.
The plants involved in this deal are:
- WPS Beaver Falls owns and operates an approximately 95-MW combined-cycle facility located in Beaver Falls, N.Y.
- WPS Syracuse owns and operates an approximately 109-MW combined-cycle facility located in Solvay, N.Y.
WPS nears deal with EPA on New Source Review complaints
Integrys in the Form 10-Q also reported some progress with a couple of a number of legal cases over the coal-fired generation of WPS.
In November 2009, the U.S. Environmental Protection Agency issued a Notice of Violation (NOV) to WPS alleging violations of the Clean Air Act’s New Source Review requirements relating to certain projects completed at the Weston and Pulliam coal plants from 1994 to 2009. In May 2010, WPS received from the Sierra Club a Notice of Intent (NOI) to file a civil lawsuit based on allegations that WPS violated the CAA at Weston and Pulliam. WPS entered into a Standstill Agreement with the Sierra Club by which the parties agreed to negotiate as part of the EPA NOV process, rather than litigate. The Standstill Agreement ended on Oct. 6, but further action by the Sierra Club is unknown at this time, Integrys noted.
“WPS believes it has reached a tentative agreement with the EPA on general terms to settle these air permitting violation claims and is negotiating a consent decree based upon those general terms, which are subject to change during the negotiations,” the company said about the NSR case for Weston and Pulliam. “Based upon the status of the current negotiations and a review of existing EPA consent decrees, WPS anticipates that the final consent decree could include the installation of emission control technology, changed operating conditions (including fuels other than coal and retirement of units), limitations on emissions, beneficial supplemental environmental projects, and a civil fine. Once the final terms are agreed to, the U.S. District Court must approve the consent decree after a public comment process.”
In December 2009, the EPA issued an NOV to Wisconsin Power and Light (WP&L), the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including WPS. The NOV alleges violations of the New Source Review requirements related to certain past projects. In September 2010, the Sierra Club filed a lawsuit against WP&L, which included allegations that modifications made at the Columbia plant did not comply with the CAA. The case has been dismissed without prejudice as the parties continue to participate in settlement negotiations. Also in September 2010, the Sierra Club filed a lawsuit against WP&L, which included allegations that modifications made at Edgewater did not comply with the CAA. The case was stayed until July 15, and a request was made by WP&L to further extend the stay and all deadlines. An update was filed with the court on Aug. 31, regarding the settlement negotiations with the Sierra Club, the EPA, and the joint owners of the Edgewater plant.
“WPS, WP&L, and Madison Gas and Electric (Joint Owners), along with the EPA and the Sierra Club (collectively, the Parties) are exploring settlement options,” the Form 10-Q said about this second NSR case. “The Joint Owners believe that the Parties have reached a tentative agreement on general terms to settle these air permitting violation claims and are negotiating a consent decree based upon those general terms, which are subject to change during the negotiations. Based upon the status of the current negotiations and a review of existing EPA consent decrees, WPS anticipates that the final consent decree could include the installation of emission control technology, changed operating conditions (including fuels other than coal and retirement of units), limitations on emissions, beneficial supplemental environmental projects, and a civil fine. Once the Parties agree to the final terms, the U.S. District Court must approve the consent decree after a public comment process.”
WPS should be able to easily comply with Wisconsin mercury rule
The state of Wisconsin’s mercury rule requires a 40% reduction from the 2002-2004 baseline mercury emissions in Phase I, beginning Jan. 1, 2010, through the end of 2014. In Phase II, which begins in 2015, electric generating units above 150 MW will be required to reduce mercury emissions by 90% from the 2002-2004 baseline. Reductions can be phased in and the 90% target delayed until 2021 if additional SO2 and NOx reductions are implemented.
By 2015 under the state rule, electric generating units above 25 MW but less than 150 MW must reduce their mercury emissions to a level defined by the Best Available Control Technology rule. As of Sept. 30, 2012, WPS estimates capital costs of approximately $2m, which includes estimates for both wholly-owned and jointly-owned plants, to achieve the required Phase I and Phase II reductions. The capital costs are expected to be recovered in future rates.
In December 2011, the EPA issued the final Mercury and Air Toxics Standards that will regulate emissions of mercury and other hazardous air pollutants beginning in 2015. “We are currently evaluating options for achieving the emission limits specified in this rule, but we do not anticipate the cost of compliance to be significant,” said Integrys. “We expect to recover future compliance costs in future rates.”
In July 2011, the EPA issued a final Clean Air Interstate Rule (CAIR) replacement rule known as the Cross-State Air Pollution Rule (CSAPR), which numerous parties, including WPS, challenged in a federal court. The new rule was to become effective Jan. 1, 2012; however, on Dec. 30, 2011, the D.C. Circuit issued a decision that stayed the rule pending resolution of the challenges and directed the EPA to implement CAIR during the stay period. On Aug. 21, the D.C. Circuit issued a ruling vacating and remanding CSAPR and simultaneously reinstating CAIR pending the issuance of a replacement rule by the EPA. On Oct. 5, the EPA and several other parties filed petitions for rehearing of the D.C. Circuit’s decision. Responses to those petitions are due Nov. 16.