Big Rivers gets rate approval that includes Coleman plant shutdown

The Kentucky Public Service Commission on Oct. 29 approved a rate case for Big Rivers Electric that includes ratemaking related to the planned idling, possibly for several years, of the coal-fired, 443-MW Coleman power plant.

On Jan. 15, Big Rivers Electric sought PSC approval to increase its wholesale electric rates for service to its three member-owner distribution cooperatives, Jackson Purchase Energy Cooperative, Kenergy Corp. and Meade County Rural Electric Cooperative. This is related to the massive loss of load that the cooperative will see with the shutdown and/or loss as customers of aluminum smelting operations in its western Kentucky service territory.

In August 2012, Century Aluminum provided Big Rivers its one-year termination notice. Since 2009, Century has represented roughly 40% of Big Rivers’ native load sales and has accounted for approximately 35% of Big Rivers’ annual revenue. With the Century termination, the demand on Big Rivers’ system would decline by about 482 MW, which is roughly 10% greater than the combined capability of the three generating units which make up Big Rivers’ Coleman Generating Station.

Given that it is located near the Century smelter and that its generating costs are among the highest on the Big Rivers system, Big Rivers initially determined that it would idle Coleman as a means of reducing its operating costs in response to the Century termination. Before it could make a final decision on idling Coleman, Big Rivers, as a member of the Midcontinent Independent System Operator (MISO), was required to seek a decision from MISO on whether Coleman could be idled, or whether its operation would be required to ensure the reliability of the regional transmission system that is under MISO’s functional control. While awaiting MISO’s decision, Big Rivers filed the rate application which is the subject of this proceeding.

Based on its understanding when it filed its application of prior MISO decisions requiring specific generating facilities to be considered “must-run” and designated as System Support Resource (SSR), Big Rivers filed its application to reflect the idling of the 417-MW Wilson Station rather than the Coleman Station.

Based on information it received from MISO concerning the impact of a generating station is being designated an SSR, in June 24 rebuttal testimony, Big Rivers filed additional information in this case to reflect the continued operation of Wilson and the “effective” idling of Coleman instead. Days later, Big Rivers filed a second application for an adjustment of base rates which, among other things, reflected its plan to idle the Wilson Station effective Feb. 1, 2014, concurrent with the termination of its service to the Alcan smelter located in Sebree, Ky.

Big Rivers has to idle one plant, and the final choice was Coleman

In response to the Century termination notice, Big Rivers developed a mitigation plan in which it established parameters and specific actions it planned to undertake to mitigate the financial impacts of no longer supplying the power required to serve the Century load, the PSC added in its Oct. 29 order. One specific action included in that plan was to idle, or shut down, generating facilities. Closing the Century smelter would dictate that Big Rivers idle Coleman, as that station is located in close proximity to the smelter.

After extensive review of the positions and arguments of parties to this case, the commission found Oct. 29 that Century’s decision to terminate its contract for the purchase of power supplied by Big Rivers results in Big Rivers’ having a significant reserve margin which is much higher than “optimal.”

However, this excess capacity is not the result of improper planning or unneeded construction by Big Rivers, the commission said. Big Rivers constructed an additional transmission line to increase its power export capability in the event that one, or both, of the smelters did terminate their respective power agreement. In addition, Big Rivers planned to sell any excess capacity on the market to make up for lost sales due to the closing of one or both smelters. Despite all of these efforts, Big Rivers now has excess capacity and it is proposing to idle Coleman for a number of years until reopening the facility is justified by new or increased system load or higher market prices for power, the commission said.

The commission pointed out that, absent sufficient revenue to pay the interest on its debt, Big Rivers will be in default on its financial obligations and this could lead to bankruptcy.

“Having considered all of these factors, the Commission finds it both reasonable and necessary to exclude some costs of the Coleman Station from Big Rivers’ rates,” the Oct. 29 order said. “It would simply not be fair to require ratepayers to pay all of costs of the excess capacity. Therefore, we will exclude the depreciation expense associated with the Coleman Station from rates at this time, as discussed more fully later in this Order.”

The commission added: “Further, we find it reasonable to afford Big Rivers the time to pursue its mitigation strategies, including operational changes to reduce costs, seeking to acquire replacement load, increasing off-system sales, and attempting to sell or lease its generating facilities. The decision we make today is not an easy one, and some of our rate-making adjustments may be viewed as atypical. But we firmly believe that today’s decision fairly balances the interests of all stakeholders. Ratepayers will not be required to pay for depreciation on the Coleman Station that is currently excess capacity, and Big Rivers’ will to be able to avoid a default on its debts, continue to provide safe and reliable electric service to the 112,000 customers served by its member-owners, be able to implement its mitigation plan, and possibly attract new load.”

Big Rivers owns and operates 1,444 MW of generating capacity in four coal-fired stations: Robert A. Reid (130 MW), Kenneth C. Coleman (443 MW), Robert D. Green (454 MW) and D.B. Wilson (417 MW).

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.