As compared to coal units in New Jersey and Connecticut, the part owned coal plants in Pennsylvania turned in fairly strong capacity factors in 2012, with 63.8% from Keystone and 71.3% from Conemaugh, said Public Service Enterprise Group (NYSE: PEG) in a Feb. 26 annual Form 10-K report.
PSEG said its installed capacity utilizes a diverse mix of fuels: 45% gas, 28% nuclear, 18% coal, 8% oil and 1% pumped storage. This fuel diversity helps to mitigate risks associated with fuel price volatility and market demand cycles. The company’s total generating output in 2012 was about 53,000 GWh. The generation mix by fuel type has changed slightly in recent years due to the relatively favorable price of natural gas as compared to coal, making it more economical to run certain gas units than the coal units.
Coal is the primary fuel for the Keystone, Conemaugh and Bridgeport (located in Connecticut) stations. Hudson and Mercer in New Jersey operate on both coal and natural gas. In order to minimize emissions levels, the Bridgeport 3 unit uses a specific type of ultra-low-sulfur coal obtained from Indonesia from PT Adaro. “If the supply from Indonesia or equivalent coal from other sources was not available for this facility, its long-term operations would be adversely impacted since additional material capital expenditures would be required to modify our Bridgeport 3 station to enable it to operate using a broader mix of coal sources,” the Form 10-K noted.
PSEG listed various 2012 accomplishments, including:
- continued to achieve high nuclear capacity factors, which averaged 91.1% for the nuclear fleet in 2012;
- improved fossil plant summer output;
- realized high combined cycle gas turbine fleet capacity utilization factors; and
- optimized fleet-switching from coal to gas to improve dispatch economics.
The PSEG plants with coal capability and their capacities are:
- Hudson (620 MW), coal/gas, load following;
- Mercer (632 MW), coal/gas, load following;
- Keystone (1,711 MW total, and 391 MW PSEG share of that total), coal, baseload;
- Conemaugh (1,711 MW total, and 385 MW PSEG share), coal, baseload; and
- Bridgeport (383 MW), coal, load following.
It is the load following plants that suffer the most in terms of being backed down in favor of plants fired by cheap natural gas. In 2012, Keystone and Conemaugh represented 9% of the company’s generation, the Bridgeport coal unit was less than 1% and the New Jersey coal/gas units were 2%. Load following units typically operate between 20% and 80% of the time.
The slides that went with PSEG’s Feb. 21 earnings statement show that the coal/gas units in New Jersey had a capacity factor of 24.6% in 2011, falling to 10.9% in 2012. Keystone and Conemaugh had a combined capacity factor of 73.9% in 2011, falling to 67.5% in 2012. And Bridgeport had a 13.8% capacity factor in 2011 and only 2.9% in 2012.
Unusually, most emissions impacts are on gas plants, not so much coal
There are various air rules that impact PSEG’s coal plants, though Mercer, Hudson, Keystone and Conemaugh have gotten emissions retrofits in recent years that minimize those impacts.
In April 2009, the New Jersey Department of Environmental Protection (NJDEP) finalized revisions to NOx regulations that impose reduction requirements for New Jersey fossil electric units. For PSEG, this is mostly a gas-fired problem. The rule imposes NOx limits that require capital investment for controls or the retirement of up to 86 combustion turbines (about 1,750 MW) and four older New Jersey steam units (about 400 MW) by May 2015. Retirement notifications for the combustion turbines, except for Salem Unit 3, have been filed with PJM Interconnection. The Salem Unit 3 combustion turbine (38 MW) will be transitioning to an emergency generator. Evaluations are ongoing for the steam electric units.
The U.S. Environmental Protection Agency’s Mercury Air and Toxics Standards (MATS), also known as the MACT (Maximum Achievable Control Technology) rule, are scheduled to go into effect on April 16, 2015, and establish allowable emission levels for mercury as well as other hazardous air pollutants. The impact to PSEG’s fossil fleet in New Jersey and Connecticut and the jointly-owned Keystone and Conemaugh plants in Pennsylvania is currently being determined. “We believe the back-end technology environmental controls installed at our Hudson and Mercer coal facilities should meet the MACT’s requirements,” said the Form 10-K. “Some additional controls could be necessary at our Connecticut facility, pending engineering evaluation. In December 2011, a decision was reached to upgrade the previously planned two flue gas desulfurization scrubbers and install Selective Catalytic Reduction (SCR) systems at our jointly-owned coal fired generating facility at Conemaugh in Pennsylvania. This installation is expected to be completed in the fourth quarter of 2014. Our share of this investment is approximately $147 million.”
Keystone has installed flue gas desulfurization control for SO2, selective catalytic reduction (SCR) equipment for NOx and mercury control to meet current environmental requirements. Conemaugh has FGD control, while SCR and mercury control are scheduled to be installed and operational in the first quarter of 2015.
PSEG subsidiary owns coal-fired plants in flux in Pennsylvania, Illinois
There are also issues that PSEG has to cope with related to coal-fired plants that a non-regulated affiliate (Energy Holdings) passively owns, but leases out to other parties and does not operate.
Energy Holdings leases the Shawville coal plant in Pennsylvania to GenOn REMA LLC, a subsidiary of GenOn Energy, which was acquired by NRG Energy in December 2012. GenOn’s plan for the coal-fired units at Shawville is to place them in a “long-term protective layup” by April 2015 while continuing to pay the required rent and maintaining the facility under the lease terms or terminating the lease for obsolescence, in which case the lessee would be required, among other things, to pay the contractual termination value structured to recover Energy Holdings’ indirect subsidiaries’ lease investment, PSEG noted.
Although all lease payments from the GenOn REMA leases are current, no assurances can be given that future payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel and electricity, overall financial condition of lease counterparties and the quality and condition of assets under lease, the Form 10-K added.
With respect to Edison Mission Energy‘s (EME) Midwest Generation (MWG) leases on the Powerton and Joliet coal units in Illinois, the lessee, MWG, substantially completed investments in mercury removal (activated carbon injection) and NOx controls (low NOx burners and selective non-catalytic reduction), and plans to invest in SO2 controls (dry sorbent injection). EME does not anticipate a material change in this current approach in order to comply with existing federal and Illinois environmental rules, PSEG noted.
On Nov. 30, 2012, MWG filed a variance request with the Illinois Pollution Control Board seeking two extra years to meet upcoming air emission compliance deadlines under Illinois law. EME and MWG remain in litigation with the U.S. Environmental Protection Agency and the state of Illinois regarding certain air emissions. On March 16, 2011, a federal district court dismissed new source review claims in reference to Powerton and Joliet, but certain opacity claims remain pending against MWG. The EPA and the state of Illinois have appealed the dismissal of the new source review claims. In November 2011, the federal district court stayed proceedings in connection with the opacity claims until the appeal by the EPA and the state of Illinois is resolved.
On Dec. 17, 2012, EME and MWG filed for Chapter 11 bankruptcy. Immediately prior to that filing, EME, MWG, Nesbitt Asset Recovery LLC (which is an indirect, wholly owned subsidiary of Energy Holdings), and Associates Capital Investments LLP, as well as certain affiliated owner lessors and owner participants, entered into a forbearance agreement with holders of a majority of the lease debt that financed the original sale-leaseback transaction. The forbearance agreement, which was approved by the bankruptcy court and limited the ability of the lease indenture trustee to accelerate or exercise other remedies with respect to that nonrecourse debt, expired on Feb. 15.
A new forbearance agreement is being negotiated by the parties. MWG has not determined whether to assume or reject those leases. MWG did not make its scheduled rent payments (which related to the prior six-month period) totaling about $48m on the Powerton and Joliet leases due on Jan. 2, 2013, most of which is a pre-petition bankruptcy claim. Rental for the utilization of the facilities by MWG during pendency of the bankruptcy will likely be treated as an administrative expense in bankruptcy, the Form 10-K noted. In mid-February, under the terms of the forbearance agreement, a rental payment of about $5m was received covering the period from the date of the petition filing through Jan. 2, 2013.