Integrys units work on coal emissions issues, sale of power plants

For Integrys Energy Group (NYSE: TEG), major developments lately have included a consent decree reached by its Wisconsin Public Service subsidiary to resolve coal-fired air emissions issues, and an ongoing effort to reposition its Integrys Energy Services non-regulated affiliate by selling off power plants.

The Chicago-based company said in its March 1 annual Form 10-K report that a January consent decree that Wisconsin Public Service (WPSC) worked out with the U.S. Environmental Protection Agency settled issues in a 2009 notice of violation it had gotten from EPA related to New Source Review-covered projects undertaken in the 1994-2009 period at its Weston and Pulliam coal plants.

The consent decree includes:

  • the installation of emission control technology, including ReAct or an approved alternative, on Weston 3;
  • changed operating conditions (including refueling, repowering, and/or retirement of units);
  • limitations on plant emissions;
  • beneficial environmental projects totaling $6m (various options, including capital projects, are available); and
  • a civil penalty of $1.2m.

A federal court must review public comments filed by the Sierra Club and Clean Wisconsin before approving the consent decree and the final decree may be different than currently anticipated, Integrys noted. The decree contains a requirement to refuel, repower, and/or retire certain Weston and Pulliam units. As of Dec. 31, 2012, no decision had been made on how to address this requirement. Therefore, retirement of the Weston and Pulliam units mentioned in the consent decree was not considered probable.

In a massive March 4 filing that WPSC made with the Wisconsin Public Service Commission with various attached decree-related documents, the utility said: “The consent decree requires WPSC to retire, refuel, or repower Pulliam 5&6 and Weston 1&2 by June 1, 2015. At this time the Company does not believe repowering any of these units will be cost effective. The decision between retire and refuel depends on capital cost, fuel supply cost and availability, and the broader MISO capacity market. A preliminary engineering study and capital cost estimate for refueling is under way. A decision will likely be made by Q4 2013.”

The WPSC coal units, and there share of capacity controlled by WPSC, are:

  • Columbia 1-2, 357 MW (represents 31.8% share);
  • Edgewater 4, 101 MW (represents 31.8% share);
  • Pulliam (four units), 325 MW;
  • Weston 1-3, 459 MW; and
  • Weston 4, 375 MW (represents 70% share).

Coal is the primary fuel source for WPS’s electric facilities. WPS’s regulated fuel portfolio strategy is to maintain a 35- to 45-day supply of coal at each plant site. Currently the coal supply is higher than the portfolio strategy due to lower coal burns as a result of decreased natural gas prices and economic conditions, the Form 10-K noted. The majority of the coal is purchased from Powder River Basin mines in Wyoming.

Historically, WPS has purchased coal directly from the producer for its wholly owned plants. WPS also purchases the coal for the jointly owned Weston Unit 4, and Dairyland Power Cooperative reimburses WPS for its share of the coal costs. Wisconsin Power and Light purchases coal for the jointly owned Edgewater and Columbia plants and is reimbursed by WPS for its share of the coal costs. At Dec. 31, 2012, WPS had coal transportation contracts in place for 100% of its 2013 coal transportation requirements.

In September 2012, WPS entered into an agreement to purchase the Fox Energy Center, a 593-MW combined-cycle facility located in Wisconsin. The transaction is expected to close by the end of March. WPS currently supplies natural gas for the facility and purchases 500 MW of capacity and the associated energy output under a tolling deal. 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. Fox Energy Center is a dual-fuel facility, equipped to use fuel oil, but expected to run primarily on gas. “This plant will give WPS a more balanced mix of electric generation, including coal, natural gas, hydroelectric, wind, and other renewable sources,” Integrys pointed out.

Non-regulated affiliate selling off power plants

Integrys Energy Services had been re-positioning itself to focus on certain key markets, and as part of that process:

  • Integrys Energy Services is currently pursuing the sale of Combined Locks Energy Center, a natural gas-fired cogen in Wisconsin, as part of its long-term energy asset strategy of investing in distributed renewable projects. The sale of Combined Locks is expected to be completed within a year. During 2010, Integrys Energy Services recorded a pre-tax impairment loss of $20.1m ($12.1m after tax) related to Combined Locks. The impairment charge resulted from lower estimated future cash flows and was primarily driven by forward energy and capacity prices. Combined Lock is a 45.5 MW (summer rated) facility. Combined Locks has an additional 5 MW of capacity available through the lease of a steam turbine.
  • In November 2012, Sunbury Holdings LLC, a subsidiary of Integrys Energy Services, sold all of the membership interests of WPS Westwood Generation LLC, a 30-MW waste coal-fired plant in Pennsylvania. The cash proceeds related to the sale were $2.6m. Integrys Energy Services also received a $4m note receivable from the buyer with a 7.5-year term. Integrys Energy Services recorded a pre-tax impairment loss of $8.4m ($5m after tax) related to Westwood during the third quarter of 2012 when the assets and liabilities were classified as held for sale.
  • In October 2012, 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 gas-fired generation plants in the state of New York. The proceeds from the sale are estimated to be $1.8m, subject to certain post-closing adjustments primarily related to working capital. The sale deal also includes a potential annual payment to Integrys Energy Services for a four-year period following the sale based on a certain level of earnings achieved by the buyer (an earn-out). Integrys Energy Services recorded a pre-tax impairment loss of $1.1m ($0.7m after tax) related to Beaver Falls and Syracuse during 2012 when the assets and liabilities were initially classified as held for sale. Other gains or losses may be recognized related to adjustments to selling costs at closing, as well as changes in the fair value of financial instruments included in the sale. The deal is expected to close by the end of the first quarter of 2013. Beaver Falls has 78.5 MW (summer rated) of capacity and can fire both gas and oil, while Syracuse has 84.1 MW (summer rated) and can also burn gas and oil.
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.