PPL Corp. (NYSE: PPL) still plans to idle its coal-fired Corette power plant in Montana in April 2015 for clear-air reasons, and a recent analysis shows that it has a much lower likelihood of ever being restarted, said PPL in its Feb. 24 annual Form 10-K report.
PPL Energy Supply has been monitoring the Corette plant for potential impairment since a 2012 announcement of the April 2015 idling, and until the fourth quarter of 2013, no impairment was indicated as various price scenarios allowed for recovery of the asset. During the fourth quarter, in connection with the completion of its annual business planning process, management updated its fundamental view for long-term power and gas prices.
Based upon this fundamental view, management has altered its expectations regarding the probability that the Corette plant will operate subsequent to initially placing it in long-term reserve status. It is now less likely that the plant will restart after operations are suspended no later than April 2015. As a result, based on an undiscounted cash flow analysis, the carrying amount for Corette was no longer recoverable. PPL and PPL Energy Supply have recorded an impairment charge of $65m, or $39m after-tax for the Corette plant and related excess emission allowances.
The 148-MW Corette plant needs to be idled to comply with the federal Mercury and Air Toxics Standards (MATS), which have an initial compliance deadline in April 2015.
PPL’s unregulated coal plants are:
- Montour, 1,518 MW, Pennsylvania;
- Brunner Island, 1,439 MW, Pennsylvania;
- Conemaugh, 1,742 MW (283 MW PPL share), Pennsylvania;
- Keystone, 1,718 MW (212 MW PPL share), Pennsylvania;
- Colstrip Units 1 and 2, 614 MW (307 MW PPL share), Montana;
- Colstrip Unit 3, 740 MW (222 MW PPL share), Montana; and
- Corette, 148 MW, Montana.
Also to comply with MATS, PPL Energy Supply is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved particulate matter reductions.
The EPA signed its final Federal Implementation Plan (FIP) of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for PPL Energy Supply’s Colstrip Units 1 and 2 based on the installation of new controls (no limits or additional controls were specified for PPL Energy Supply’s Colstrip Units 3 and 4), and tighter emission limits for PPL Energy Supply’s Corette plant (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 and 2, if required, could be significant. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit.
PPL Energy Supply expects to meet these tighter FIP permit limits at Corette without any significant changes to operations, although the MATS requirements have led to the planned suspension of operations at Corette beginning in April 2015. Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of selective non-catalytic reduction (SNCR) and other technology, to meet more stringent NOx and SO2 limits.
Two big Pennsylvania coal plants didn’t get impaired during Q4 2013 review
The current depressed levels of energy and capacity prices in the PJM Interconnection region, as well as management’s forward view of these prices using its fundamental pricing models recently updated in conjunction with the annual business planning process, continue to put pressure on the recoverability of PPL Energy Supply’s investment in its Pennsylvania coal-fired assets, the Form 10-K noted. In the fourth quarter of 2013, management tested the Brunner Island and Montour plants for impairment and concluded neither plant was impaired as of Dec. 31, 2013.
The recoverability test that PPL used is very sensitive to forward energy and capacity price assumptions, as well as forecasted operation and maintenance and capital spending. Therefore, a further decline in forecasted long-term energy or capacity prices or changes in environmental laws requiring additional capital or operation and maintenance expenditures, could negatively impact PPL Energy Supply’s operations of these facilities and potentially result in future impairment charges for some or all of the carrying value of these two coal plants. The carrying value of the Pennsylvania coal assets tested was $2.7bn as of Dec. 31, 2013 ($1.4bn for Brunner Island and $1.3bn for Montour).
As of the end of 2012, PPL Montana had a 50% leasehold interest in Colstrip Units 1 and 2 and a 30% leasehold interest in Colstrip Unit 3 under operating leases. In December 2013, PPL Montana terminated the operating lease arrangement and acquired these interests. At Dec. 31, 2013, the book value of the acquired assets was not significant.
Company describes 2013 coal procurement
During 2013, PPL Generation purchased 5.7 million tons of coal required for its wholly owned Pennsylvania plants, which are Montour and Brunner Island. PPL Generation, by and through its agent PPL EnergyPlus, has agreements in place that will provide more than 17 million tons of PPL Generation’s projected coal needs for the Pennsylvania power plants from 2014 through 2018 and augments its coal supply agreements with spot market purchases, as needed.
A PPL Generation subsidiary owns a 12.34% interest in the Keystone coal plant and a 16.25% interest in the Conemaugh coal plant in Pennsylvania. PPL Generation owns a 12.34% interest in Keystone Fuels LLC and a 16.25% interest in Conemaugh Fuels LLC. The Keystone plant contracts with Keystone Fuels for its coal requirements, which provided 4.2 million tons of coal to the Keystone plant in 2013. The Conemaugh plant requirements are purchased under contract from Conemaugh Fuels, which provided 4.3 million tons of coal to the Conemaugh plant in 2013.
All wholly owned PPL Generation coal plants within Pennsylvania are equipped with scrubbers, which use limestone in their operations. Acting as agent for PPL Generation, PPL EnergyPlus has entered into limestone contracts with suppliers that will provide for those plants’ requirements through 2014.
PPL Montana owns a 30% interest in Colstrip Unit 3 and NorthWestern Energy owns a 30% interest in Colstrip Unit 4. PPL Montana and NorthWestern have a sharing agreement that governs each party’s responsibilities and rights relating to the operation of Colstrip Units 3 and 4. Under the terms of that agreement, each party is responsible for 15% of the total non-coal operating and construction costs of Colstrip Units 3 and 4, regardless of whether a particular cost is specific to Colstrip Unit 3 or 4 and is entitled to take up to 15% of the available generation from Units 3 and 4. Each party is responsible for its own coal costs. PPL Montana, with the other Colstrip owners, is party to contracts to purchase 100% of its coal requirements with defined coal quality specs. PPL Montana, with the other Colstrip Units 1 and 2 owner, has a long-term purchase and supply agreement with the current supplier for Units 1 and 2, which provides these units 100% of their coal requirements through December 2014, and at least 85% of such requirements from January 2015 through December 2019. PPL Montana, with the other Colstrip Units 3 and 4 owners, has a long-term coal supply contract for Units 3 and 4, which provides these units 100% of their coal requirements through December 2019.
Westmoreland Coal is the minemouth coal supplier to the Colstrip plant.
The Colstrip units were originally built with scrubbers and PPL Montana has entered into a long-term contract to purchase the limestone requirements for these units. The contract extends through December 2030.
Coal supply contracts are in place to purchase low-sulfur coal with defined quality specs for PPL Montana’s Corette plant. The contracts covered 100% of the plant’s coal requirements in 2013 and similar contracts are in place to supply 100% of the expected coal requirements through 2014.