As part of a 2010 settlement of a lawsuit filed by the Department of Justice on behalf of the U.S. Environmental Protection Agency, Westar Energy (NYSE: WR) is installing selective catalytic reduction (SCR) equipment on one of three Jeffrey Energy Center coal units by the end of 2014.
That SCR is estimated to cost approximately $230m. “We are installing less expensive NOx reduction equipment on the other two units to satisfy other terms of the settlement,” said Westar Energy in its Feb. 26 annual Form 10-K report. “We plan to complete these projects in 2014 and recover the costs to install these systems through our [Environmental Cost Recovery Rider], but such recovery remains subject to the approval of our regulators.”
The Form 10-K didn’t describe the non-SCR NOX projects at the other two Jeffrey units. But it was permitting last year at the Kansas Department of Health and Environment new NOx controls on the Jeffrey Energy Center Units 1 and 2. Burner and combustion system modifications include further tuning of existing equipment for Unit 1. Plus there would be upgrades to the existing low NOX burners (LNB) and separated overfire air (SOFA), adjustments to existing SOFA, additional SOFA for deeper staging, low NOX system tuning and installation of associated equipment for Unit 2.
In 2012, the EPA’s Mercury and Air Toxics Standards (MATS) for power plants became effective, requiring significant reductions in mercury, acid gases and other emissions. “We expect to be compliant with the new standards by April 2016 as approved by [the Kansas Department of Health and Environment],” Westar noted in the Form 10-K. “We continue to evaluate the new standards and believe that our related investment will be approximately $17.0 million.”
The Westar Energy coal-fired plants are:
Jeffrey Energy Center (JEC): The three coal-fired units at JEC have an aggregate capacity of 2,155 MW, of which Westar owns or consolidates through a variable interest entity (VIE) a combined 92% share, or 1,983 MW. It has a long-term coal supply contract with Alpha Natural Resources to supply coal from surface mines located in the Powder River Basin (PRB) in Wyoming. The contract contains a schedule of minimum annual MMBtu quantities. All of the coal used at JEC is purchased under this contract, which expires Dec. 31, 2020. The contract provides for price escalation based on certain costs of production. The price for quantities purchased in excess of the scheduled annual minimum is subject to renegotiation every five years to provide an adjusted price for the ensuing five years that reflects the market prices at the time of renegotiation. The most recent price adjustment was effective Jan. 1, 2013. The BNSF Railway and Union Pacific Railroad transport coal to JEC under a long-term rail transportation contract. The contract term continues through Dec. 31, 2020, at which time Westar plans to enter into a new contract. The contract price is subject to price escalation based on certain costs incurred by the railroads. The average delivered cost of coal consumed at JEC during 2013 was approximately $1.77 per MMBtu, or $29.22 per ton.
La Cygne Generating Station: The two coal-fired units at La Cygne have an aggregate generating capacity of 1,418 MW, of which Westar owns or consolidates, through a VIE a 50% share, or 709 MW. La Cygne uses primarily PRB coal but one of the two units also burns a small portion of locally-mined coal. The operator of La Cygne, Kansas City Power & Light (KCPL), arranges coal purchases and transportation services for La Cygne. About 70%, 40% and 20% of La Cygne’s PRB coal requirements are under contract for 2014, 2015 and 2016, respectively. About 80% of those commitments under contract for 2014 are fixed price and all of those commitments under contract are fixed price for 2015 and 2016. As the PRB coal contracts expire, Westar anticipates that KCPL will negotiate new supply contracts or purchase coal on the spot market. All of the La Cygne PRB coal is transported under KCPL’s rail transportation agreements with BNSF through 2018 and the Kansas City Southern Railroad through 2020. During 2013, Westar’s share of average delivered cost of coal consumed at La Cygne was about $2.06/MMBtu, or $35.81 per ton.
Lawrence and Tecumseh Energy Centers: The Lawrence and Tecumseh Energy Centers have an aggregate generating capacity of 732 MW. Westar purchases PRB coal for these energy centers under a contract with Arch Coal, which it expects to provide 100% of the coal requirements through 2014. BNSF transports coal for these energy centers under a contract that expires in December 2020, at which time Westar plans to enter into a new contract. During 2013, the average delivered cost of coal consumed in the Lawrence units was about $1.78/MMBtu, or $31.43 per ton. The average delivered cost of coal consumed in the Tecumseh units was about $1.74/MMBtu, or $30.96 per ton.