Great Plains Energy‘s (NYSE: GXP) and Kansas City Power & Light’s (KCP&L) current estimate of capital spend, exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes, to comply with current final environmental regulations where the timing is certain is about $700m.
“The actual cost of compliance with any existing, proposed or future laws and regulations may be significantly different from the cost estimate provided,” Great Plains noted in its Aug. 8 Form 10-Q report.
KCP&L is a wholly owned subsidiary of Great Plains Energy, along with KCP&L Greater Missouri Operations Co. (GMO).
The current estimate of approximately $700m of capital expenditures reflects costs to install environmental equipment at KCP&L’s La Cygne Nos. 1 and 2 by June 2015 to comply with the Best Available Retrofit Technology (BART) rule and environmental upgrades at other coal-fired units through 2016 to comply with the Mercury and Air Toxics Standards (MATS).
In September 2011, KCP&L commenced construction of the La Cygne projects and at June 30, 2013, had incurred approximately $311m of cash capital expenditures, which is included in the approximate $700m estimate.
Great Plains Energy and KCP&L estimate that other capital projects at coal-fired units for compliance with the Clean Air Act and Clean Water Act based on proposed or final environmental regulations where the timing is uncertain could be $600m to $800m for Great Plains Energy, which includes about $350m to $450m for KCP&L. However, these other projects are less certain and the timeframe cannot be estimated and therefore are not included in the $700m estimated cost of compliance.
KCP&L has a consent agreement with the Kansas Department of Health and Environment (KDHE) incorporating limits for stack particulate matter emissions, as well as limits for NOx and SO2 emissions, at its La Cygne Station that will be below the presumptive limits under BART. KCP&L further agreed to use its best efforts to install emission control technologies to reduce those emissions from La Cygne prior to the required compliance date under BART, but in no event later than June 1, 2015.
In August 2011, the Kansas Corporation Commission (KCC) issued its order on KCP&L’s predetermination request that would apply to the recovery of costs for its 50% share of the environmental equipment required to comply with BART at La Cygne. In the order, KCC stated that KCP&L’s decision to retrofit La Cygne was reasonable, reliable, efficient and prudent and the $1.23bn cost estimate is reasonable. If the cost for the project is at or below the $1.23bn estimate, absent a showing of fraud or other intentional imprudence, KCC stated that it will not re-evaluate the prudency of the cost of the project. If the cost of the project exceeds the $1.23bn estimate and KCP&L seeks to recover amounts exceeding the estimate, KCP&L will bear the burden of proving that any additional costs were prudently incurred. KCP&L’s 50% share of the estimated cost is $615m. KCP&L began the project in September 2011.