Indianapolis already spending heavily on MATS compliance

The capital expenditures for Indianapolis Power & Light (IPL) totaled $161.7m and $82.4m for the nine months ended Sept. 30, 2013 and 2012, with the increase due primarily due to spending to comply with Mercury and Air Toxics Standards (MATS).

IPL is a subsidiary of IPALCO Enterprises, which in turn is controlled by AES Corp. (NYSE: AES). IPALCO described developments for IPL in a Nov. 7 quarterly Form 10-Q report filed at the Securities and Exchange Commission. 

IPL’s capital expenditure program, including development and permitting costs, in the 2013-2015 period is currently estimated to cost about $427m (excluding environmental compliance and replacement generation costs). It includes about $256m for additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers, street lighting facilities and Smart Energy Projects. The capital expenditure program also includes about $149m for power plant related projects and $22m for other miscellaneous equipment.

In addition to those amounts, IPL plans to spend an additional $511m through 2016, excluding demolition costs which are not expected to be material, to comply with MATS. Of this amount, $456m is projected to be spent in the 2013-2015 period. IPL will also incur costs for compliance with other environmental rules. These rules are in the early stages, either proposed rulings or pre-proposed rulings. Therefore, the amounts are difficult to predict. IPL is closely monitoring the status of these rules. If approved by the Indiana Utility Regulatory Commission (IURC), IPL also plans to expend significant capital on replacement generation costs. 

IPL management has developed a plan to comply with MATS. Most of the utility’s coal-fired capacity has SO2 scrubbers or comparable control technologies. However, there are other improvements to such control technologies that are needed to achieve compliance. Compliance with MATS is required by April 16, 2015; however, the compliance period for certain units, or groups of units, may be extended by state authorities (for up to one additional year) or through an administrative order from the EPA (for another year, to April 2017), the Form 10-Q noted.

In December 2012, the Indiana Department of Environmental Management (IDEM) granted a one-year extension covering all coal-fired units at Harding Street and Eagle Valley, in addition to Unit 3 and Unit 4 at the Petersburg coal plant. In February 2013, IDEM granted a three-month extension on Petersburg Unit 2.

Indianapolis to put $511m into five surviving coal units

On Aug. 14, 2013, the IURC approved IPL’s MATS plan, which includes investing up to $511m for the installation of new pollution control equipment on IPL’s five largest baseload coal units. These units are located at IPL’s Petersburg and Harding Street stations. As part of that order, the IURC stipulated that if the Harding Street unit is retired before IPL has fully depreciated the new controls (which have a 20-year depreciable life), IPL should not continue to collect depreciation expense on the clean energy projects included in the IURC MATS order for that unit. Utility management is currently evaluating the impact of this recent MATS order.

In the second quarter of 2013, IPL retired in place five oil-fired peaking units with an average life of about 61 years (around 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 ISO in recent years due to their relatively higher production cost. Also, 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. 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 approval to build a 550- to 725-MW combined cycle gas turbine (CCGT) at its Eagle Valley Station and to refuel Harding Street 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 the Harding Street Units 5 and 6 are not refueled, they will likely need to be retired because it is currently not economic to install controls on them to comply with MATS. IPL expects to receive an order on this matter from the IURC in the second quarter of 2014.

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.