Kentucky Power said Dec. 19 that it has filed a new plan with the Kentucky Public Service Commission that, among other things, jettisons a plan to add an SO2 scrubber to the coal-fired Unit 2 of the Big Sandy power plant, with that 800-MW unit to instead be retired.
The utility, a subsidiary of American Electric Power (NYSE: AEP), had a case ongoing at the commission for approval of the scrubber, but in May called a halt to that case while it re-looked at the numbers. The new filing seeks approval to recover about $530m in costs associated with transferring 50% of the ownership of the coal-fired Mitchell plant in West Virginia, currently owned by AEP Ohio, another AEP subsidiary, to Kentucky Power. The generation obtained from Mitchell would substantially replace the generation of the 800-MW Unit 2 at Big Sandy, which will be retired from service in 2015.
The Mitchell plant is located near Moundsville, W.Va., and has a total generating output of 1,560 MW. Kentucky Power would get 50% of the output of Mitchell’s 770-MW Unit 1 and 790-MW Unit 2, for a total transfer of 780 MW. Both Mitchell units are equipped with advanced environmental controls, including scrubbers, and meet all current U.S. Environmental Protection Agency requirements. The other 50% ownership in both Mitchell units would be transferred to Appalachian Power, another AEP subsidiary, pending approval of APCo’s regulatory authorities, including the West Virginia Public Service Commission. APCo will operate and maintain the Mitchell plant.
The new Kentucky filing – along with savings from the termination of a power interconnection agreement coinciding at the time of the transfer – will result in an estimated 8% increase on customers’ bills. Under Kentucky Power’s previous filing, the company planned to install a scrubber system on Big Sandy’s Unit 2. That project would have resulted in a roughly 31% increase on monthly bills.
In addition to approval from the Kentucky commission, the transfer also requires the approval of the Federal Energy Regulatory Commission (FERC). If approved, customers will not see a rate increase associated with this filing until Jan. 1, 2014, at the earliest, pending additional approval of a future base rate case.
“At this time, and after much study and evaluation, we think this filing represents the best path forward for the company to meet both its environmental and customer obligations. While it does represent an increase in customer’s rates of about eight percent, it is substantially less than our previous filing and will save our customers millions of dollars while bringing us into environmental compliance,” said Greg Pauley, president and COO of Kentucky Power.
“When we withdrew our scrubber filing last summer, we stated that we felt new opportunities were emerging that would allow us to meet our obligations at a lower cost,” Pauley added. “The possibility of transferring these Mitchell Units was among those opportunities and doing so will allow us to reduce the impact on customers’ bills.”
Kentucky Power has yet to decide the future of Big Sandy’s 278-MW Unit 1, the smaller and older of the plant’s two units. A filing to cover the future capacity of that unit will be submitted to the Kentucky commission sometime in 2013. In the meantime, the company plans to issue a Request for Proposals (RFP) early next year to potentially replace the generation from this unit. The proposals will be evaluated along with the possibility of converting Unit 1 to natural gas. Unit 1 is scheduled to be retired as a coal-fired generator in 2015.
Federal consent decree a big factor in Big Sandy’s lack of future
The company needs to make that move due largely to a 2007 federal consent decree that AEP worked out with EPA that calls for the retirement, retrofit or fuel conversion of various coal units across its system on a fixed schedule. For Big Sandy Units 1 and 2, the decree called for the following schedule of NOx and SO2 controls:
- Big Sandy Unit 2: Install flue gas desulfurization (FGD) for SO2 emission reductions by Dec. 31, 2015;
- Big Sandy Unit 2: Continue to operate the existing selective catalytic reduction (SCR) system for NOx control;
- Big Sandy Unit 1: Install Low-NOx Burner technology and limit the sulfur content of its coal to no greater than 1.75 lb/mmBtu on an annual average basis by the effective date of the decree.
“In the coming months, we will determine a plan to address the remaining generating unit at Big Sandy Plant,” Pauley said. “We will perform our due diligence to determine an affordable plan that balances the needs of our customers, shareholders and the environment. When we reach that decision, we will announce it publicly. Until then, we appreciate our customers’ and employees’ continued patience as we evaluate and determine the best means to address the future of Big Sandy.”
Another component of the filing seeks approval to defer approximately $30m associated with study and engineering work involving this and other environmental filings concerning the Big Sandy plant.
The book value of the transferred assets will be fixed at the time of closing, said the Dec. 19 application filed with the commission. The book value, net of accumulated depreciation, of the transferred assets as of Dec. 31, 2011, was $678m.
Mitchell in pretty good shape for emissions controls
Jeffery LaFleur, APCo’s Vice President of Generating Assets, offered testimony to the Kentucky commission about Mitchell. Among other things, he wrote: “State-of-the-art fuel blending facilities were installed so that coal received by barge, rail, or conveyor can be blended to meet a target sulfur content. The Mitchell units accept a low and high sulfur coal blend of up to 4.5 lb SO2/MMBTU. The fuel blend typically contributes to lower fuel costs at the plant since higher sulfur coals tend to cost less than lower sulfur coals.”
Mitchell has scrubbers for SO2 and selective catalytic reduction for NOx control. Units 1 and 2 have also been equipped with low-NOx burners and a FGD Trona injection system, LaFleur noted. Upgrades to the electrostatic precipitator (ESP) are also planned at each unit. Additionally, an approximately 2-mile conveyor belt was constructed to transfer synthetic gypsum, a by-product of FGD system operation, from Mitchell to the CertainTeed Gypsum Wallboard Plant for use as wallboard feedstock. The delivery of the gypsum from Mitchell to the wallboard plant serves to reduce disposal costs since a landfill is not required for its disposal.
Scott Weaver, employed by American Electric Power Service Corp. (AEPSC) as Managing Director-Resource Planning and Operational Analysis, noted in his testimony that Unit 2 at Big Sandy, due to its supercritical pulverized coal design, would take too big a heat rate penalty if converted to natural gas. But Big Sandy Unit 1, smaller, older and of a subcritical design, wouldn’t be hurt by this.