Wisconsin Electric Power and Wisconsin Gas on Dec. 10 filed a joint post-hearing brief with the Public Service Commission of Wisconsin backing their companion applications to convert the coal-fired Valley plant to natural gas and to build a new gas pipeline to supply the converted facility.
“After carefully examining the alternatives, Wisconsin Electric concluded that converting Valley from coal to natural gas will successfully – and at least cost -address all of the issues identified,” said the brief. “Conversion will ensure compliance with more stringent environmental requirements, including both the Mercury and Air Toxics Standard Rule (MATS) and a more stringent National Ambient Air Quality Standard (NAAQS) for SO2; it will reduce the amount of power that is uneconomically dispatched from Valley by roughly 80%; while raising rates somewhat for steam customers, conversion will lower rates for electric customers; and conversion will improve Valley’s environmental performance even beyond what is required for compliance with environmental regulations, including reducing emissions of lead by 99%, CO2 by 80%, and particulate matter by 92%.”
As a commission staff witness testified, the commission should approve the project, the companies argued. “The evidence demonstrates that conversion will not only accomplish the identified objectives, but it will do so at significantly less cost than any of the alternatives,” they added.
The evidence also demonstrates that maintaining generation at Valley is essential for electric system reliability, the applicants noted.
The project cost of converting Valley to natural gas is estimated at $69m without allowance for funds used during construction (AFUDC) and $79.8m with AFUDC.
Four other options rejected as too expensive
In addition to the proposed gas conversion project, Wisconsin Electric carefully analyzed the economics of four alternatives:
- Coal with DSI only alternative – Under this option, Valley would continue to operate using coal, but DSI (dry sorbent injection) equipment would be installed to ensure compliance with MATS. This alternative has very low capital costs, but compared to conversion it has higher O&M costs and higher uneconomic dispatch costs, and it results in a smaller reduction in air emissions. On a net present value of revenue requirement (PVRR) basis, “coal with DSI only” costs $60m more than converting Valley to gas. However, it leaves open the possibility of significant additional cost if, as expected, SO2 NAAQS requirements become more stringent over the next few years.
- Coal with DSI followed by full AQCS alternative – If coal with DSI only is not sufficient to comply with expected future air emission limits, in particular a more stringent SO2 NAAQS, additional AQCS (air quality control system) equipment will be needed at Valley. Assuming an AQCS system is added in 2018 at a capital cost of $350n, the cost of this alternative in PVRR is $540m more than the proposed gas conversion project.
- Retire Valley, enhance transmission system to ensure electric reliability, and build package boilers to produce steam alternative – Without Valley as a source of electric generation, significant transmission enhancements will be required to maintain electric system reliability. In addition, package boilers will need to be installed to supply steam to Wisconsin Electric’s 450 steam service customers in downtown Milwaukee. In PVRR, the cost of this option is $680m more than the proposed gas conversion project.
- Gas conversion with minimal electric output alternative – Under this option, uneconomic dispatch costs would be eliminated entirely by building facilities at Valley that would allow the plant to generate steam independently of electricity. In PVRR, this alternative costs $93m more than the gas conversion project. In addition, the minimal generation alternative would entail roughly $40m in cost for new transmission facilities.
Wisconsin Electric applied in April for commission approval to convert the Valley plant, located near downtown Milwaukee, from a coal-fired cogeneration facility to a gas-fired cogen. The utility is a unit of Wisconsin Energy (NYSE: WEC).
Valley has an electric capacity of about 280 MW and is the sole source of steam for the Downtown Milwaukee Steam System. It has two generating units of about 140 MW apiece. Steam for each unit is provided by two boilers (Generating Unit 1 is served by Boilers B21 and B22; Generating Unit 2 is served by Boilers B23 and B24). These four identical Riley dry bottom wall-fired boilers are currently fired by coal.
The gas conversion project consists of the removal, installation, and modification of the fuel-burning equipment at Valley to allow the plant to burn natural gas. It also includes removal, installation, and modification of the plant auxiliary systems to reliably supply steam to the WEPCO downtown Milwaukee steam system while significantly reducing minimum electrical output.
A public advocacy group, the Citizens Utility Board (CUB), said in its Dec. 10 brief: “For the reasons explained below, WEPCO’s application for conversion should be approved, with conditions, because the Downtown Milwaukee Steam (DMS) System customers need Valley to continue to supply them with steam. However, the Commission should reject WEPCO’s proposal to require its electric customers to pay 92 percent of the costs for conversion and to pay for uneconomic dispatch costs after the plant is converted, because electric customers are not the primary cost causers or beneficiaries of the conversion. Thus, CUB respectfully requests that the Commission: (1) approve WEPCO’s application to convert Valley on the condition that WEPCO’s electric ratepayers pay no more than 22 percent of the capital costs for conversion; and (2) eliminate the amount of uneconomic dispatch costs WEPCO’s electric ratepayers must pay if the Plant is converted.”