Wisconsin Public Service mulls the futures of five coal units

There are four coal-fired units that Wisconsin Public Service Corp. needs to retire, refuel or repower by June 2015, and the inclination right now is to not repower any of them, said the utility in an annual power supply cost recovery (PSCR) filing.

That PSCR filing was made on Sept. 26 at the Michigan Public Service Commission. The utility serves a small area in Michigan, thus the need for this report.

Testifying for the utility was John Guntlisbergen, Manager of Electric Fuel Cost Recovery in the Regulatory Affairs Department of Integrys Energy Group. Wisconsin Public Service Corp. (WPS Corp) is a wholly-owned subsidiary of Integrys.

There are two federal clean-air consent decrees worked out earlier in 2013 that WPS Corp is working under; one for its own units and the other for co-owned units with Wisconsin Power and Light.

“The consent decrees require WPS Corp to retire, refuel, or repower Pulliam units 5 and 6 and Weston units 1 and 2 by June 1, 2015 and the jointly owned Edgewater unit 4 by Dec. 31, 2018,” Guntlisbergen wrote. “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. The consent decrees also require the installation of the following emission control technology: (1) ReACT on Weston 3 by December 2016, (2) dry flue gas desulfurization at the jointly owned Columbia units 1 and 2 by December 31, 2014 and (3) selective catalytic reduction at the jointly owned Columbia unit 2 by December 31, 2018.”

The impact of the consent decrees on the annual fuel and purchased power cost for 2015 and beyond is difficult to predict due to the potential retirement of less efficient and “environmentally challenged” coal-fired generation within the Midcontinent ISO market, the impacts of which on market prices for power, natural gas-fired generation and natural gas are uncertain, he added.

The consent decree for the solely owned units places tonnage limits on SO2 and NOx emissions on Pulliam, defined as Pulliam units 5-8 and on the “WPS System,” defined as Pulliam units 5-8 and Weston units 1-4. The consent decree limits include all emissions, regardless of joint ownership, and thus include Weston Unit 4 emissions attributed to Dairyland Power. The consent decree for the jointly owned units places tonnage limits on SO2 and NOx emissions on Edgewater unit 4 and Columbia units 1-2. The consent decrees also impose limits on particulate emission rates for these generating units.

Based on current forecasted natural gas and power prices, there is no expected impact to the operation of the WPS Corp solely and jointly owned generating units and the resulting annual fuel and purchased power costs for 2013 and 2014 from the consent decree, Guntlisbergen noted. If natural gas prices and/or MISO power market prices were to rise significantly, the emission limitations may limit the operation of these generating units, requiring a dependence on higher cost sources of power, he added.

Low coal use may trigger rail penalties, but no coal contract penalties

If WPS Corp’s use of coal falls below the minimum amounts required to be purchased and transported under its coal and rail contracts, it is subject to contractual obligation costs, he said. WPS Corp does have the potential to incur coal and rail transportation contract obligation costs in 2014. Due to the extremely low prices for natural gas and the associated impact to market prices, WPS Corp expects MISO to dispatch its coal-fired generation in 2014 less than in the past and therefore expects to use less coal than it previously forecasted at the time it entered into the rail contracts.

WPS Corp has included an estimate of $3.3m of fuel expense related to rail contract obligation costs in its 2014 PSCR Plan. WPS Corp does not expect to incur coal contract obligation costs in 2014 at this time, and therefore has not included any of these costs, Guntlisbergen said. However, WPS Corp requests cost recovery through the PSCR mechanism for any coal and rail contract obligation costs.

To get the rail cost estimate, WPS Corp did an hourly economic dispatch of its coal- and gas-fired generation, and purchased power sources to attempt to model the MISO market impact on WPS Corp’s dispatch. Considering the contract obligation is a fixed cost, WPS Corp lowered the coal-fired dispatch price to reflect the contract obligation. This sends the correct economic signal of the true dispatch cost of WPS Corp’s coal units which allows MISO to dispatch all units in its system on a least cost basis providing the lowest cost energy alternative to its customers.

Based on the resulting dispatch, even with the lower dispatch price, the level of coal-fired generation did not meet the minimum coal transport requirements, indicating that paying the rail contract obligation costs and purchasing or generating from lower cost sources is the lower cost option for the WPS Corp customers. The dispatch model indicated that the amount of coal purchased did meet the minimum coal contract obligation.

The following describes and quantifies the major reasons for the differences between the year-to-date actual through July 2013 and forecasted year-to-date through July 2014 power supply costs:

  • Weston – The MWhs for Weston are projected to decrease in 2014 compared to 2013 mainly due to a three-week planned maintenance outage at Weston 4 scheduled in the 2014 plan.
  • Edgewater – The $/MWh cost for Edgewater are projected to decrease in 2014 compared to 2013 mainly due to lower average coal costs of $0.71/MWh due to increased spot market tons forecasted in the 2014 plan, lower heat rate resulting in a lower cost per MWh of $1.55, and increased oil costs of $0.31/MWh.
  • Columbia – The $/MWh cost for Columbia are projected to increase in 2014 compared to 2013 mainly due to increased emission control costs of $1.31/MWh resulting from the installation of flue gas desulfurization systems in the 2014 plan and reduced average contract coal costs resulting in a decrease of $0.36/MWh.

WPS Corp has generating facilities with a current capacity of about 2,662.5 MW. It owns and operates eight coal-fired units with a total capacity of 1,178.8 MW and jointly owns three coal-fired units with a WPS Corp assigned capacity of 429 MW that are operated by Wisconsin Power and Light. WPS Corp also has a 550 MW combined cycle plant (inclusive of 50 MW of duct fired peaking), 454.1 MW of simple cycle gas-fired combustion turbines, 40 MW of hydro generation and about 10.6 MW (108 MW nameplate capacity) of wind generation.

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.