The Kentucky Public Service Commission on July 16 laid out a case schedule on its review of a June 13 application from Duke Energy Kentucky for a certificate of public convenience and necessity for a planned acquisition of a 31% interest in the coal-fired East Bend Unit 2.
The Federal Energy Regulatory Commission approved this deal on July 16. That 31% share is currently owned by Dayton Power and Light (DP&L). Duke Energy Kentucky, which already owns 69% of the unit, is also seeking authorization from the Kentucky PSC for assumption of certain liabilities associated with the proposed East Bend acquisition.
State law provides that the state commission shall have 60 days to adjudicate an application for authority to issue evidences of indebtedness unless it is necessary for good cause to continue the application. “As the Commission does not expect to complete the investigation of Duke Kentucky’s application within 60 days, the Commission finds that good cause exists to continue the financing request beyond the 60-day period specified in KRS 278.300(2),” said the July 16 scheduling order. “The Commission further finds that a procedural schedule should be established for the processing of this matter.”
The case schedule includes a July 24 deadline for intervention requests, and an Oct. 13 deadline for the utility to rebut any intervenor contentions. The public hearing date hasn’t been picked yet.
East Bend, with one operating unit, is a 600-MW (net installed capacity) baseload, coal-fired station located in Rabbit Hash, Boone County, Ky. It was commissioned in 1981 and is designed to burn low-to-high sulfur eastern bituminous coal. It is equipped with a lime-based flue gas desulfurization system (FGD) along with a selective catalytic reduction (SCR) system, which is designed to reduce NOx emissions by 85%. East Bend has a 1.2 lbs/mmBTU SO2 emission limit. East Bend’s output is directly connected to a 345-kV transmission system operated by Duke Energy Ohio.
East Bend is jointly owned by Duke Energy Kentucky (69% or approximately 414 MW of net installed capacity) and DP&L (31% or approximately 186 MW of net installed capacity). Duke Energy Kentucky is the plant operator.
Duke says this buy will make Miami Fort coal unit more expendable
In its June 13 application for the Kentucky PSC, Duke Energy Kentucky noted: “Duke Energy Kentucky has previously indicated to this Commission that the Company was evaluating the feasibility and cost of compliance with new federal environmental compliance regulations, particularly the United States Environmental Protection Agency (EPA) Utility Maximum Achievable Control Technology (MACT) standard that has now been finalized as the Mercury and Air Toxics Standards (MATS) rule, of the Company’s current portfolio of generating assets. East Bend is well positioned to meet this new regulation.”
In Duke Energy Kentucky’s 2011 Integrated Resource Plan (IRP), it indicated that complying with these new federal environmental compliance regulations, particularly MATS, may necessitate the early retirement of the coal-fired Miami Fort Unit 6 (MF6). MATS compliance for MF6 would require significant capital expenditures for scrubbing technologies, such as sorbent injection, because the unit does not have FGD. MATS compliance would also add additional and incremental operations and maintenance expense (O&M) at the unit.
The retrofit would require fuel switching to a different fuel basin that will substantially increase delivered coal costs, necessitate dry ash handling conversions and landfill expansions, and cause operational impacts and additional costs to other units at the Miami Fort station. Lastly, the compliance plan considered would have required a system averaging with the other units at the Miami Fort station and made MF6 dependent upon the continued operation of Units 7 and 8 to meet MATS thresholds.
With Duke Energy Ohio transferring its ownership of all generating stations to a non-regulated affiliate as ordered by the Public Utilities Commission of Ohio (PUCO), and Duke Energy (NYSE: DUK) seeking the sale of its non-regulated generation fleet in the region to a third party, it is unknown whether Duke Energy Kentucky could depend upon Miami Fort Units 7 and 8 for site averaging in the future or at what cost.
“It is anticipated that Units 7 and 8 will be owned by an unaffiliated third party and this third party may be unwilling to assist Duke Energy Kentucky without compensation,” the application said. “In such a circumstance, MF6 would likely need to stand on its own. Further, if a MATS compliance path were selected for MF6, the Company’s evaluation in this regard would only permit the MF6 station to run no longer than 2020, when it would need to be retired and replaced due to both age and the onset of other environmental regulations. In other words, retrofitting MF6 does not provide a meaningful long-term capacity solution and is not as cost effective as the East Bend Purchase in the long-term.”
If Duke Energy Kentucky is able to procure a lower cost alternative to MF6 MATS compliance, the potential MF6 retirement may occur at any time prior to June 1, 2015. If MF6 is retired, the company will have to replace the lost MWs because it does not have existing excess base/intermediate generation capacity to such an extent that it could simply cover any deficiency with those remaining generating resources and satisfy its obligations and meet customer load obligations.
2013 RFP showed the East Bend deal as the best option
To assist the company in evaluating how and when to replace such lost MWs, on or about June 3, 2013, Duke Energy Kentucky issued a long-term Request for Proposal (RFP) for supply-side capacity resource options that included, but were not limited to, the acquisition of generating capacity necessary to satisfy the company’s load obligations in Kentucky and the self-supply capacity requirements of PJM Interconnection.
Duke Energy Kentucky received responses from bidders that included nearly 30 resource options. From this list, Duke Energy Kentucky narrowed the proposals down to a “short list” of seven possible capacity solutions using a base case predicated upon the estimated cost of compliance for continued operation of MF6 into 2020, at which point the unit would be retired and replaced with a new combined cycle facility of comparable size. Of this short list, it was determined that the option of purchasing the 31% interest of East Bend from DP&L was the reasonable least cost and best option for Duke Energy Kentucky and its customers.
MF6 is a 163 MW (net installed capacity) coal-fired, baseload/intermediate load plant located in Hamilton County, Ohio. MF6 was commissioned in 1960 and is one of three coal-fired units currently operating at the Miami Fort Station. Duke Energy Kentucky is the sole owner of MF6, while Duke Energy Commercial Asset Management and DP&L co-own the remaining two coal-fired units at Miami Fort, known as Units 7 and 8. MF6 is designed to burn low-to-medium sulfur eastern bituminous coal. It is equipped with second generation low-NOx burners. MF6 has a 5.0 lbs/mmBTU SO2 emission limit.