Midwest Generation LLC on Nov. 30 asked the Illinois Pollution Control Board for a variance from provisions of the Combined Pollutant Standard (CPS) for the two-year period beginning Jan. 1, 2015, and from another CPS section for a period of five months, delaying that requirement until May 31, 2015.
Additionally, to align with the two-year variance, Midwest Generation is also seeking a variance from the board’s Aug. 23 order related to Waukegan plant compliance, at page 20, where the board ordered Midwest Generation to comply with the system-wide emission rates for SO2. Or, in the alternative, Midwest Generation requests that the board adjust that portion of the Aug. 23 Waukegan order to be consistent with the relief requested on Nov. 30 or specifically find that the new variance supersedes only that provision of the Waukegan order that requires compliance with the system-wide SO2 emissions rate but not the provisions regarding the retrofit of the hot-side precipitator and the installation of the flue gas desulfurization equipment or the shutdown deadline as applicable to Waukegan Unit 7.
“This request for a variance is an option of last resort that is intended to enable the company to manage through exceptionally difficult economic circumstances and financial hardship that could not have been foreseen when the CPS was adopted in 2007,” said the company in the Nov. 30 filing. “Midwest Generation does not seek changes to the CPS program for reducing SO2 emissions in 2013 or 2014 or in 2017 or thereafter but, rather, proposes a ‘pause’ in the pace of the decline of SO2 emission rates in the middle of the program (2015-2016), accompanied by enforceable commitments to ensure that total SO2 tons of emissions are less than projected under the CPS during the period from 2013 through 2016. This request follows Midwest Generation’s significant efforts to date to comply with the CPS, including major investments for pollution controls that now enable full compliance with CPS mercury and nitrogen oxide (‘NOx’) emission reduction requirements. Installation of such controls at Midwest Generation’s Crawford Station in late 2011, only to cease operation of that station by the end of August 2012, provides clear evidence of the unforeseen economic circumstances now facing the company.”
Also, Midwest Gen pointed out that it has installed activated carbon injection (ACI) systems for mercury control at all of its operating coal units. The company has installed selective non-catalytic reduction (SNCR) systems to control NOx emissions in order to comply with new NOx limits that took effect Jan. 1, 2012.
To control SO2 emissions, Midwest Gen uses ultra-low sulfur coal and has begun installation of dry sorbent injection systems utilizing Trona. Midwest Gen has also begun related necessary upgrades of its electrostatic precipitators (ESPs) to control emissions of particulate matter (PM) associated with the Trona injection systems.
Midwest Gen said it has incurred more than $170m in capital costs for this CPS compliance work to date. That is in addition to more than $160m in capital costs that Midwest Gen spent on environmental improvement and control projects prior to the CPS. Midwest Gen is also expending tens of millions of dollars per year on operating costs related to CPS compliance, including for the purchase of urea for the SNCR systems to control NOx emissions and sorbent for use in the ACI systems to control mercury emissions, as well as for increased ash disposal costs caused by the use of these commodities.
Midwest Gen says it will spend a lot of money in the meantime
“Even with approval of this requested variance, Midwest Generation currently plans to spend approximately $230 million on SO2 emission controls and related PM controls in 2013 and 2014, including for Trona system installations at Powerton Unit 6 and Waukegan Unit 7,” the company noted. “However, to comply with the 2015 and 2016 CPS SO2 system-wide rates and the CPS requirement to install flue gas desulfurization (‘FGD’) equipment on Waukegan Unit 8 by the end of 2014, Midwest Generation would be required to spend an estimated additional $210 million in 2013 and 2014.”
The company added: “Midwest Generation’s ability to fund $210 million in additional controls costs in that timeframe has been impacted by a tsunami of adverse developments, the impact of which could not have been reasonably foreseen at the time that the CPS was adopted in 2007 or even when Midwest Generation filed the Waukegan variance petition in April 2012. In light of significantly changed regulatory, market, and financial circumstances since the CPS was adopted, Midwest Generation seeks more time to complete the additional pollution work in 2013 and 2014 that would be required to satisfy the CPS 2015 and 2016 system-wide SO2 emission rates and the Waukegan Unit 8 FGD equipment installation requirements while also maintaining adequate cash flow while it works through a financial restructuring.”
Recently, revenues have declined while costs have jumped, the company noted. Electricity prices have declined due to weak demand and unprecedented natural gas production from shale gas reserves. On the other hand, the cost of coal as delivered to Midwest Gen’s coal units, the most significant element of its production costs, rose earlier this year under a new rail contract for the transportation of low-sulfur coal to those units. Reflecting these adverse developments, Midwest Generation said it has suffered a significant net loss of $63m for the first three quarters of 2012.
These recent adverse revenue and cost developments are exacerbated by the need to compete against power generators in other states while Midwest Gen incurs substantial costs to comply with stringent Illinois-specific rules such as the CPS. “This competitive disadvantage is even more pronounced given the remand or vacatur and resulting delays in implementation of various rules adopted by U.S . Environmental Protection Agency (‘US EPA’) since the CPS was adopted in 2007,” the company said. “For instance, all of Midwest Generation’s units have been controlled for mercury emissions since 2009. By comparison, the control requirements for the current federal regulations for mercury emissions found in the Mercury and Air Toxics Standards (‘MATS’) do not take effect until 2015. USEPA’s Cross State Air Pollution Rule (‘CSAPR’), addressing SO2 and NOx emissions, was remanded by the court in EME Homer City Generation, L.P. v. E.P.A., 11-1302, 2012 WL 3570721 (D.C. Cir. August 21, 2012). Illinois’ CPS rule required reductions in emissions of NOx effective in January 2012 that are generally as demanding as CSAPR, and Midwest Generation’s competitors benefit from the delay in CSAPR’s implementation. The deferral of federal requirements has delayed the day when many competitors will need to incur comparable costs. The CSAPR remand and additional uncertainty about future federal limits on emissions of SO2 coincide with the need for Midwest Generation to make additional investments to comply with the SO2 system emission rates of the CPS.”
Midwest Gen and immediate parent face Chapter 11 prospects
In addition, Midwest Gen and its indirect parent, the Edison Mission Energy (EME) unit of Edison International (NYSE: EIX), are facing significant credit and cash flow challenges. “EME is currently attempting to negotiate a financial restructuring with various creditors,” the filing said. “Any funding for pollution controls from EME is in serious doubt, and EME’s parent company, Edison International, has stated on numerous occasions that it will not fund additional pollution control costs for Midwest Generation given current market conditions. Given these various challenges, Midwest Generation and EME have publicly disclosed that they are working on a financial restructuring with creditors and may need to file for Chapter 11 bankruptcy, a form of bankruptcy that contemplates continuation of the business enterprise through and after the bankruptcy process.”
Midwest Gen said it has not been able to identify a viable current source of funding for the approximately $210m in additional control installation costs that would be required for it to comply with the CPS 2015 and 2016 SO2 system-wide rate requirements and Waukegan Unit 8 FGD installation requirements due by the end of 2014. “To improve its ability to secure requisite financing, Midwest Generation needs time to work through the financial restructuring process, including any Chapter 11 proceedings,” the company added. “This places a premium on liquidity conservation in 2013 and 2014 to allow for a successful financial restructuring.”
Consistent with this two-year delay relief, Midwest Gen also seeks a variance of five months, until May 31, 2015, from the requirement to install FGD equipment at or to permanently shut down Waukegan Unit 8 by Dec. 31, 2014. Midwest Gen commits to not operate Waukegan Unit 8 after Dec. 31, 2014, until the FGD equipment is installed and operational.
As part of this request, Midwest Generation proposes additional compliance plan elements that would ensure a net environmental benefit if this variance is granted. Specifically, Midwest Gen will commit not to operate the Crawford coal-fired units in 2013 and 2014. It will comply with regulatory CPS SO2 emission rates in 2013 and 2014, and it will maintain mass emission levels at 57,000 tons in 2013 and 54,000 tons in 2014, which are mass emissions levels lower than anticipated based on average historic system-wide 2008-2011 heat input and CPS emission rates.
Also, Midwest Gen will manage operation of its fleet to ensure mass SO2 emission levels of no greater than 39,000 tons in 2015, stepping down to 37,000 tons in 2016. Midwest Generation will thereafter comply with the CPS system-wide S02 emission rates, starting with the CPS rate of 0.15 lb/mmBtu in 2017.
The net effect of these proposed commitments is early and cumulative decreases of SO2 emissions so that SO2 emissions from 2013-2016 will be 3,181 tons less than expectations under the CPS if this variance is granted. Although not included in the 3,181 tons, any environmental impact from SO2 emissions that might otherwise occur by granting this variance compared to reasonable expectations under the CPS is also mitigated by the emission reductions realized by Midwest Generation’s early shutdown of the Fisk coal plant at the end of August 2012, four months prior to the date required in the Waukegan approval order.
Importantly for overall environmental benefit, Midwest Gen’s facilities have also achieved major reductions in SO2 emissions in 2012 that would not have been anticipated but for its decision to transition to a lower sulfur coal in preparation for compliance with the CPS in 2013. Indeed, Midwest Generation’s coal-fired fleet-wide SO2 emission rate in 2011 was below the CPS 2013 emission rate. These commitments would also have the effect of decreasing emissions of other pollutants, including NOx, CO2, PM, and mercury. These substantial reductions go beyond the reductions Midwest Generation has already achieved. Midwest Gen has already fully achieved the CPS emissions limitation for NOx. It has achieved the CPS requirements that are in effect up to 2015 for mercury control at all operating coal units through the installation of ACI systems. Seven of its nine operating coal units (all but the two units with hot-side ESPs, i.e., Waukegan Unit 7 and Will County Unit 3) already comply with the 2015 mercury emission rate limits in the CPS and with the mercury emission rate limits of the federal MATS.
Crawford can operate right now, but probably won’t
As of 2013, Midwest Gen will or legally could generate electricity from coal-fired units at five stations in Illinois, all subject to the CPS, namely Crawford in Cook County, Joliet in Will County, Powerton in Tazewell County, Waukegan in Lake County, and Will County in the county by the same name.
- Crawford – The two coal-fired units at Crawford, with 532 MW of capacity, went online between 1958 and 1961. The two coal-fired boilers at Crawford were designed to fire at various modes that include the combination of coal and natural gas as principal fuels and natural gas as auxiliary fuel during startup and for flame stabilization. In the Waukegan order, the board ordered Midwest Gen to shut down the coal-fired units at Crawford by Dec. 31, 2014. Midwest Gen actually ceased operation of those coal units by the end of August 2012, over two years early. However, Midwest Gen maintains the permits issued to Crawford and could legally generate electricity from these coal-fired units through the end of 2014.
- Joliet – These coal-fired facilities went online between 1959 and 1966. Midwest Gen operates five coal-fired boilers at Joliet that have the capability to fire at various modes that include the combination of coal or natural gas as their principal fuels. In addition, the boilers fire natural gas as auxiliary fuel during startup and for flame stabilization. Joliet 6 has a capacity of 290 MW, and Units 7-8, across the Des Plaines River from Unit 6, have a combined 1,036 MW.
- Powerton – These 1,538-MW facilities went online between 1973 and 1976. Midwest Gen operates four coal-fired boilers and an auxiliary boiler at Powerton that have the capability to fire at various modes that include the combination of coal and/or natural gas as their principal fuels. In addition, the boilers fire natural gas as auxiliary fuel during startup and for flame stabilization.
- Waukegan – The 689-MW facilities at Waukegan went online between 1958 and 1962. Midwest Gen operates two electric generating units at Waukegan with the capability to fire coal, or a mixture of gas and coal, as their primary fuel. In addition, the boilers fire natural gas as auxiliary fuel during startup and for flame stabilization. In addition to the boilers, Midwest Generation operates four oil-fired turbines at Waukegan, used during peak demand periods. Pursuant to the CPS, Midwest Generation permanently retired Waukegan Unit 6 by Dec. 31, 2007.
- Will County – These 761-MW facilities went online between 1957 and 1963. Midwest Gen operates two coal-fired boilers at Will County that have the capability to fire at various modes that include the combination of coal, petroleum coke, and/or fuel oil as their principal fuels. In addition, the boilers fire fuel oil as auxiliary fuel during startup and for flame stabilization. Midwest Gen permanently retired Will County Units 1 and 2 under the CPS in December 2010.
- Midwest Gen also operated the coal-fired Fisk Unit 19. However, the board ordered it to shut down Fisk Unit 19 by the end of 2012 in the Waukegan order. Midwest Gen continues to operate the gas-fired combustion turbines at Fisk. Fisk is not affected by this requested variance.