IPL seeks Indiana approval for $511m in emissions spending

Indianapolis Power & Light (IPL) plans to invest $511m in new environmental controls at its Petersburg and Harding Street coal-fired power plants, the utility said Jan. 22 in a public statement.

The expenditure is part of IPL’s plans to comply with the U.S. Environmental Protection Agency’s Mercury and Air Toxic Standards (MATS). The new controls are expected to reduce mercury emissions by approximately 80%.

In addition to reducing emissions, the project will lead to new construction jobs for the next three years. The project will create an estimated 350 to 400 jobs during the peak construction period, the majority of which will be local.

As a part of this expenditure, IPL has executed a $420m contract with Indiana Environmental Partners for engineering, procurement and construction of the new controls. Indiana Environmental Partners is a joint venture between Chicago-based Sargent & Lundy and Kiewit Corp. of Omaha, Neb. Sargent & Lundy has provided comprehensive consulting, engineering, design, and analysis for electric power generation and power delivery projects worldwide. Kiewit is consistently ranked among the top five of the “Engineering News-Record” Top 400 Contractors and has a heavy focus on safety.

“This is an important step to further reduce air emissions from our plants and will allow us to meet new EPA standards while continuing to provide our customers with safe, reliable and affordable power,” said IPL CEO Ken Zagzebski. “IPL currently meets all EPA requirements, and in the past 10 years, we have invested more than $600 million in environmental controls that have reduced emissions dramatically.”

In addition to the new environmental controls, IPL said it continues to expand energy conservation programs for its customers. It also has increased renewable resources within its generation portfolio:

  • IPL ranks 8th in the U.S when it comes to available wind-generated energy.
  • IPL customers and renewable energy developers have more than 100 MW of solar projects under development, and, if all of these projects are completed, IPL likely would rank first in the Central Region for solar generation.

New emissions project is subject to Indiana commission approval

IPL has filed its plans for the new environmental controls with the Indiana Utility Regulatory Commission (IURC). If approved by the IURC, construction will begin at Petersburg later this year. Kevin Crawford, IPL’s Senior Vice President, Power Supply, was one of four utility officials that provided update testimony filed Jan. 7 at the IURC in this environmental cost recovery case, begun last year.

To remedy potential scheduling issues associated with the firm price engineering, procurement and construction contract, IPL told the commission it secured the Midwest ISO’s approval of the IPL 2013-2016 associated unit planned outage schedule, Crawford noted. On Dec. 6, 2012, IPL submitted its request to the Indiana Department of Environmental Management (IDEM) for a one-year extension of the 2015 Mercury and Air Toxics Standards (MATS) compliance deadline, which was approved.

Crawford also testified that recent engineering work has changed the cost estimate for these projects. Subsequent to the prefiling of IPL’s direct testimony and exhibits, the company identified the need for electrostatic precipitator (ESP) studies for Harding Street 7. With the exception of the boiler transient studies for Petersburg Units 2 and 3, the identified engineering issues have been thoroughly investigated and any scope/cost impacts included in the EPC Contract or Owner’s Cost, Crawford wrote.

IPL expects to receive a final report on the boiler transient studies for Petersburg Units 2 and 3 in March 2013. At this time, it continues to estimate the potential impact of this issue on the cost of the Compliance Project to range from $400,000 to approximately $10m.

The long lead time items are under contract and have been rolled into the EPC contract, including costs, Crawford noted.

The updated cost estimate totals $511m, about $95m lower than IPL’s initial cost estimate of $606m. The updated cost estimate reflects resolution of the known engineering items, impacts from market conditions derived from the competitive bidding process, and the outcome of negotiating risk/cost commercial terms with the EPC vendor finalists. This process resulted in IPL lowering the overall project cost estimate. The firm price EPC contract represents approximately 83% of the total cost of the Compliance Project.

Initial testimony outlined the planned emissions controls

IPL, a unit of AES Corp. (NYSE: AES), filed detailed testimony on these projects on Sept. 26, 2012, at the Indiana commission. The summer-rated capacity of the Petersburg units is 1,752 MW and it is 427 MW for Harding Street Unit 7.

Among those filing initial testimony was Crawford. He said these new emissions controls are needed to comply with various environmental regulations, including the MATS rule governing mercury, non-mercury metal hazardous air pollutants (HAPs) and acid gas HAPs. To comply, IPL wants to:

  • install and operate a Pulse Air Fabric Filter System (baghouse) on Units 2 and 3 at Petersburg;
  • upgrade the electrostatic precipitators on Unit 7 at Harding Street and Petersburg Units 1, 3 and 4;and
  • install other environmental controls and monitoring equipment including activated carbon injection (ACI), sorbent injection (SI), flue gas desulfurization (FGD) system upgrades and continuous emission monitoring (CEMS) equipment.

Another IPL official supplying Sept. 26 testimony was James Ayers, IPL’s Director of Corporate Planning and Analysis. He said IPL has four generating stations, three of which encompass eleven coal-fired units that fall under the Utility MATS regulations. This includes five larger scrubbed units (called the Big Five) – Petersburg Units 1-4 and Harding Street Unit 7. There are also six smaller unscrubbed units (the Small Six) – two at Harding Street and four at Eagle Valley. All of IPL’s coal-fired units must comply with the MATS rule, be converted to natural gas, or be retired.

The Small Six are the oldest, smallest, least efficient, and highest cost units in IPL’s fleet. The Big Five on the other hand are IPL’s largest, youngest, and most efficient units. Together, they comprise 2,179 MW of baseload generation. They have all been fully scrubbed for SO2, three have selective catalytic reduction (SCR) technology to control NOx and have been identified as the long term baseload core of IPL’s generating fleet. In addition, these controls also assist in the removal of MATS-regulated emissions – including acid gases (HCl), mercury (Hg) and particular matter (PM).

The four Petersburg units and Harding Street Unit 7 all average well over 70% capacity factors and are expected to remain high utilization generating assets. The dispatch costs of the Big Five units will increase due to these new controls, though. “However, with the identified MATS control plan, the Big Five Units will continue to burn lower cost high sulfur (and unconstrained Hg) coal in close proximity to the plant keeping dispatch costs lower,” Ayers added. “Thus dispatch costs will not be increased for any coal sourcing restrictions.”

Eagle Valley may be shut by MATS compliance deadline

The Small Six is comprised of four coal-fired units at Eagle Valley and two coal-fired units at Harding Street. These units range from 43 MW to 106 MW of summer-rated capacity. They range in age from 51 years to 63 years and are at or approaching the end of their respective planned operating lives. These units have no SO2 controls, limited NOx controls, and burn costly low-sulfur coal. In addition, lower gas prices have already made dispatch of these units in the Midwest ISO market less competitive, Ayers said.

S&L determined that IPL’s smaller unscrubbed coal-fired units would require additional controls to comply with Hg, PM, and HCl MATS rule standards. The shorter remaining life and reduced dispatch value do not support additional investment to maintain these assets as coal-fired units. These units are being evaluated separately and more broadly looking at all options on a remaining life cycle basis. The disposition of the small six units does not impact or alter the compliance plan for the Big Five.

“While no final decision has been made on these units, current analysis indicates that it is likely that the Eagle Valley plant will be fully retired ahead of MATS rule implementation,” Ayers said in the Sept. 26 filing, with no update on that point offered in the Jan. 7 filing. “Harding Street Units 5 and 6 may be retired or repowered as gas-fired peakers. IPL will seek any necessary approvals from the Commission before proceeding with a compliance or repowering plan for any of the Small Six.” The MATS compliance deadline is April 2015.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.