Consumers Energy plans to suspend operations of seven small coal units, at the latest in April 2016, and on Sept. 9 applied at the Michigan Public Service Commission for securitization of costs related to those shutdowns.
One of the Consumers Energy officials supplying testimony for that application is David Kehoe, Director of Staff, Electric Generation.
Consumers Energy suspended operation of the currently gas-fired Cobb Units 1-3 in January 2009 due to safety concerns, Kehoe noted. Original repair estimates exceeded $10m and the company suspended operation of the units with the intent of monitoring future market conditions. Since that time, market conditions have not warranted the investment needed to return these 65-year-old, small (183 MW combined operating capacity) and relatively less efficient units to service.
Cobb Units 4 and 5, Weadock Units 7 and 8, and Whiting Units 1-3 are currently operational. These units are subject to the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), but have been granted a one-year extension for compliance by the Michigan Department of Environmental Quality (MDEQ). The initial compliance date for the MATS rule is April 16, 2015, which has been extended for Cobb 4 and 5, Weadock 7 and 8, and Whiting 1-3 to April 15, 2016.
If not for the impact of the MATS rule, the company would expect these units to remain in operation until their current retirement date of 2025. “However, the impact of the MATS rule means that the Company could only keep the units in operation past April 15, 2016 if it installed the emissions controls necessary to achieve compliance with the MATS rule,” Kehoe wrote. “The Company has concluded that installing the controls necessary to achieve compliance and allow continued operation of these units past April 16, 2016 would be uneconomical, based on our current projections of future capacity prices. In summary, the cost of the modifications to comply with MATS will be more costly than the net market value of the energy and capacity those units are likely to produce between April 2016 and their planned retirement date of 2025.”
Consumers Energy estimates that on a net present value basis the modifications necessary to Cobb 4 and 5, Weadock 7 and 8, and Whiting 1-3 would be about $156m more costly than the net value of the same energy and capacity purchased from the competitive Midwest ISO market between 2016 and their planned retirement date.
When combined with the addition of lower cost generating units such as the new gas-fired Thetford plant that is the subject of an ongoing Consumers Energy case at the PSC, the modifications that would be necessary for those coal units are expected to be as much as $462m more costly than other alternatives.
“Because of the increased costs associated with compliance with the upcoming MATS rule and the uncertainty in the capacity market, Consumers Energy currently plans to suspend operations of Cobb 4&5, Weadock 7&8, and Whiting 1-3 no later than April 15, 2016,” Kehoe wrote.
The affected coal units are:
- BC Cobb Units 4 (156 MW installed) and 5 (156 MW);
- JC Weadock Units 7 (145 MW) and 8 (145 MW): and
- JR Whiting Units 1 (101 MW), 2 (99 MW) and 3 (124 MW).
MISO has approved these coal shutdowns
In 2012, Consumers Energy filed documents with MISO declaring its intent to suspend operation of these units on April 16, 2015. MISO approved the company’s plan to suspend operation of these units, provided a series of network upgrades were done, establishing these units as System Stability Resources. After MDEQ granted the company’s one-year extension for compliance with the MATS rule, the company filed documents with MISO declaring its intention to suspend operation of these units on April 15, 2016. MISO responded with approval without requiring any prerequisite network upgrades for these units from April 15, 2016, through April 15, 2019.
Cobb Units 1-3 were originally coal-fired units, but have been converted to natural gas, so they are not affected by MATS. However, operation of Cobb Units 1-3 is currently suspended because the unit’s rotors are unsafe to operate. The repair of these units is uneconomical given the company’s current projection of future capacity prices. Also, when these units were temporarily returned to service, they relied on the existing staff at the coal-fired Cobb Units 4 and 5 for operation. Operating these gas units without the presence of the Cobb 4 and 5 operating staff would make them even more uneconomical than they have already been determined to be, Kehoe noted.
Asked if it is possible Consumers might shut any of these units before April 2016, Kehoe responded: “Yes, it is. Assuming the investments in the air quality controls needed to operate past 2016 are not made, any investment prior to 2016 will need to be evaluated based on the current expectation that the units would retire in 2016. In this context, it is possible that the failure of a major piece of equipment or plant component would be more costly to repair than is warranted by the remaining value to the customer of continuing to operate the unit. The Company has restricted further capital investment in these units to only those items required to safely operate the units until April 15, 2016, but as that date approaches, the cost threshold for ceasing operation of the units becomes progressively smaller.”
Consumers will continue to invest some small amount of capital in these units until 2015. These expenditures would be limited to amounts that are required for safety, regulatory, and environmental compliance and/or to proceed with the discontinuation of operation at these sites. In addition, these capital dollars include very small expenditures on small tools and valves.
In the Sept. 9 application, Consumers Energy, a unit of CMS Energy (NYSE: CMS), is asking the commission under the Customer Choice and Electricity Reliability Act (CCERA) and the Michigan Administrative Procedures Act for a financing order: determining that certain specified assets of the company constitute “qualified costs” as that term is used in CCERA; approving the issuance of securitization bonds for the recovery of those qualified costs and other related costs; and granting other related approvals.
On Aug. 6, Consumers applied at the Michigan commission for advanced approval of accounting treatment for the remaining undepreciated book value of Cobb Units 1-5, Weadock Units 7-8 and Whiting Units 1-3, associated demolition costs, and other costs of removal in the event these units are retired earlier than previously planned. Consumers also wants assurance that the commission will, in future rate proceedings, afford the company ratemaking treatment consistent with that accounting.