Indianapolis Power & Light (IPL) plans to spend $511m through 2016, excluding demolition costs which are not expected to be material, to comply with the Mercury and Air Toxics Standards (MATS) rule.
Of this amount, $456m is projected to be spent in the three-year period from 2013 to 2015. In addition, IPL will incur costs for compliance with other environmental rules. Such amounts are more difficult to predict, but are currently expected to be less than the expected costs to comply with MATS, said IPL parent IPALCO Enterprises in an Aug. 8 Form 10-Q report. IPALCO is a unit of AES Corp. (NYSE: AES).
IPL management has developed a plan to comply with MATS. Most of IPL’s coal-fired capacity has acid gas scrubbers or comparable control technologies; however, there are other improvements to such control technologies that are necessary to achieve compliance. Compliance with MATS is required by April 16, 2015; however, the compliance period for certain units, or group of units, may be extended by state permitting authorities (for up to one additional year) or through an administrative order from the U.S. Environmental Protection Agency (for a second additional year).
In December 2012, the Indiana Department of Environmental Management (IDEM) granted a one-year extension covering all coal-fired units at the Harding Street and Eagle Valley plants, in addition to Unit 3 and Unit 4 at the Petersburg plant. In February 2013, IDEM granted a three-month extension on Petersburg Unit 2.
In August 2012, the utility filed a MATS plan petition and a request with the Indiana Utility Regulatory Commission (IURC) for a Certificate of Public Convenience and Necessity (CPCN) for new emission controls to comply with the MATS rule. These filings detail the controls to added to each of five baseload units, including four at Petersburg and one at Harding Street. A hearing with the IURC was held on this matter in April 2013, and IPL expects to receive an order from the IURC within the next month.
In the second quarter of 2013, IPL retired in place five oil-fired peaking units with an average life of about 61 years (about 168 MW of net capacity in total). Although these units represented about 5% of IPL’s generating capacity, they were seldom dispatched by the Midcontinent Independent System Operator (MISO) in recent years due to their relatively higher production cost and in some instances repairs were needed.
In addition to the units recently retired, IPL has several other units that it expects to retire or refuel in the next few years, primarily due to MATS. These units are primarily coal-fired and represent 472 MW of net capacity in total. To replace this generation, in April 2013, IPL filed a petition and case-in-chief with the IURC seeking a CPCN to build a 550 MW to 725 MW combined cycle gas turbine (CCGT) at its Eagle Valley site in Indiana and to refuel Harding Street Station Units 5 and 6 from coal to natural gas (106 MW net capacity each). The total estimated cost of these projects is $667m.
If approved, the CCGT is expected to be placed into service in April 2017 and the refueling project is expected to be complete by April 2016. If Harding Street Units 5 and 6 are not refueled, they will likely need to be retired because it is currently not economical to install controls on those units to comply with MATS.