Great Plains Energy‘s and subsidiary Kansas City Power & Light’s (KCP&L) current estimate of capital expenditures (exclusive of AFUDC and property taxes) to comply with current final environmental regulations where the timing is certain is about $700m.
The actual cost of compliance with any existing, proposed or future laws and regulations may be significantly different from the cost estimate provided, Great Plains noted in its Nov. 7 Form 10-Q filing with the SEC.
The current estimate of about $700m in capital expenditures reflects costs to install emissions controls at KCP&L’s coal-fired La Cygne Units 1 and 2 by June 2015 to comply with the Best Available Retrofit Technology (BART) rule and environmental upgrades at other coal-fired units through 2016 to comply with the Mercury and Air Toxics Standards (MATS).
In September 2011, KCP&L commenced construction of the La Cygne projects and as of Sept. 30 had incurred about $344m of cash capital expenditures, which is included in the $700m estimate. KCP&L is joint owner of this 1,450-MW coal-fired plant. The emissions projects are:
- La Cygne Unit 1 – 368 MW (KCP&L’s 50% share of unit) – Wet scrubber, baghouse, activated carbon injection.
La Cygne Unit 2 – 343 MW (KCP&L’s 50% share of unit) – Selective catalytic reduction system, wet scrubber, baghouse, activated carbon injection, over-fired air, low NOx burners.
Great Plains Energy and KCP&L estimate that other capital projects at coal-fired units for compliance with the Clean Air Act and Clean Water Act based on proposed or final environmental regulations where the timing is uncertain could be $600m to $800m for Great Plains Energy, which includes $350m to $450m for KCP&L.
The EPA BART rule directs state air quality agencies to identify whether visibility-reducing emissions from sources subject to BART are below limits set by the state or whether retrofit measures are needed to reduce emissions. Both Missouri and Kansas have approved BART plans. BART applies to specific facilities including:
- KCP&L’s La Cygne Units 1 and 2 in Kansas;
- KCP&L’s Iatan Unit 1 (705 MW), in which KCP&L Greater Missouri Operations (GMO) has an 18% interest, and KCP&L’s Montrose Unit 3 (176 MW) in Missouri;
- GMO’s Sibley Unit No. 3 and Lake Road Unit 6 (oil) in Missouri; and
- Westar Energy‘s Jeffrey Units 1 and 2 in Kansas (three-unit plant, 1,857 MW in total), in which GMO has an 8% interest.
KCP&L has a consent agreement with the Kansas Department of Health and Environment (KDHE) incorporating limits for stack particulate matter emissions, as well as limits for NOx and SO2 emissions, at La Cygne that will be below the presumptive limits under BART. KCP&L also agreed to use its best efforts to install emission control technologies to reduce those emissions from La Cygne prior to the required compliance date under BART, but in no event later than June 1, 2015.
In August 2011, the Kansas Corporation Commission (KCC) issued an order on KCP&L’s predetermination request that would apply to cost recovery for its 50% share of the emissions equipment to comply with BART at La Cygne. In the order, KCC stated that KCP&L’s decision to retrofit La Cygne was reasonable, reliable, efficient and prudent and the $1.23bn cost estimate is reasonable. KCP&L’s 50% share of the estimated cost is $615m. KCP&L began the project in September 2011.
Looking at the company’s compliance moves by EPA rule:
Industrial Boiler Rule – In December 2012, the EPA issued a final rule that would reduce emissions of hazardous air pollutants from new and existing industrial boilers. The final rule establishes numeric emission limits for mercury, particulate matter, hydrogen chloride and carbon monoxide. The final rule establishes emission limits for KCP&L’s and GMO’s existing units that produce steam other than for the generation of electricity. The final rule does not apply to the electricity generating boilers, but would apply to most of GMO’s Lake Road (119 MW) boilers, which also serve steam customers, and to auxiliary boilers at other generating facilities. The rule allows three to four years for compliance.
New Source Review – The New Source Review program requires companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions. In 2010, Westar settled a lawsuit filed by the U.S. Department of Justice and agreed to install a selective catalytic reduction (SCR) system at one of the three coal-fired Jeffrey Energy Center units by the end of 2014. Jeffrey is 92% owned by Westar and operated exclusively by Westar. GMO has an 8% interest in Jeffrey. Westar has estimated the cost of this SCR at about $240m. Depending on the NOx reductions attained by that SCR and attainable through the installation of other controls at the other two units, the settlement may require the installation of a second SCR on one of the other two units. Westar told EPA that it believes that the terms of the settlement can be met through the installation of less expensive NOx reduction equipment rather than a second SCR system and plans to complete this project in 2014.
Clean Water Act – KCP&L holds a permit from the Missouri Department of Natural Resources covering water discharge from its Hawthorn Station (coal and gas capacity at the site). The permit authorizes KCP&L to, among other things, withdraw water from the Missouri River for cooling purposes and return the heated water to the Missouri River. KCP&L has applied for a permit renewal and the EPA has filed an interim objection letter about the allowable amount of heat that can be contained in the returned water. Until this matter is resolved, KCP&L is operating under its current permit. Great Plains said that KCP&L cannot predict the outcome of this matter; however, while less significant outcomes are possible, this matter may require it to reduce generation at Hawthorn, install cooling towers, or both. The outcome could also affect the terms of water permit renewals at KCP&L’s Iatan Station and at GMO’s Sibley (coal, 458 MW) and Lake Road (coal, 119 MW) Stations.