Duke approved to buy remaining 31% of East Bend 2 coal unit

The Kentucky Public Service Commission on Dec. 4 approved a purchase by Duke Energy Kentucky of the part of the coal-fired East Bend Unit 2 that it did not already own.

On June 13, the Duke Energy Kentucky subsidiary of Duke Energy (NYSE: DUK) applied for a Certificate of Public Convenience and Necessity in connection with the acquisition of the remaining 31% interest (about 186 MW of net installed capacity) in East Bend Unit 2 from Dayton Power & Light at a purchase price of $12.4m. Duke Energy Kentucky currently owns the other 69% interest (approximately 414 MW of net installed capacity) in East Bend Unit 2. Duke Energy Kentucky also requested authorization to assume certain liabilities in connection with the acquisition.

Duke Energy Kentucky further sought authority to accumulate and defer for review and recovery in its next base rate case the additional incremental operation and maintenance (“O&M”) costs associated with its proposed purchase of the remaining 31% interest in East Bend Unit 2; any retirement costs associated with normal retirement of the coal-fired Miami Fort Unit Unit 6 (“MF6”) as a result of the federal Mercury and Air Toxics Standards (“MATS”); carrying costs based on Duke Energy Kentucky’s cost of debt; and any other incremental costs related to assumed liabilities or otherwise necessary to complete the purchase of the 31% share of East Bend Unit 2.

Duke Energy Kentucky currently owns and operates approximately 1,069 MW of generating capacity. This includes:

  • the 500-MW Woodsdale Generating Station, which comprises six combustion turbine units located in Butler County, Ohio;
  • MF6, a 163-MW coal-fired, base/intermediate-load plant located in Hamilton County, Ohio; and
  • the 69% interest in East Bend Unit 2 (there is no operating Unit 1), located in Rabbit Hash, Boone County, Kentucky.

MF6 was commissioned in 1960 and is designed to burn low- to medium-sulfur eastern bituminous coal. MF6 employs a system that uses “once through” cooling water from the Ohio River and is equipped with high-efficiency electrostatic precipitators and second-generation low-nitrogen oxide (“NOx”) burners. Its estimated useful life is through 2020.

East Bend was commissioned in 1981 and, unlike MF6, is designed to burn low- to high-sulfur eastern bituminous coal. East Bend, a fully scrubbed power plant, is equipped with a mechanical draft cooling tower; a high-efficiency hot-side electrostatic precipitator with dry fly ash collection; a lime-based flue gas desulfurization system (“FGD”) to reduce sulfur dioxide (“SO2”) emissions by 97%; low-NOx burners; and a selective catalytic reduction control system, which is designed to reduce NOx emissions by 85%. East Bend has an air permit that limits SO2 emissions to 1.2 lbs/MMBTU, as compared to the 5.0 lbs/MMBTU SO2 limit for MF6.

“Duke Kentucky states that it would most likely need to retire MF6 by June 1, 2015 due to the potential costs associated with bringing the unit into MATS compliance,” the PSC noted in the Dec. 4 decision. “The likely impact and cost of other emerging environmental regulations such as the Transport Rule, Rule 316(b) of the Clean Water Act, the Coal Combustion residuals rule, the Cross State Air Pollution Rule, National Ambient Air Quality Standards, and proposed greenhouse gas regulation, also will contribute to the retirement decision, given the age of the unit and its size. In evaluating the future viability of MF6, Duke Kentucky issued requests for proposals (“RFPs”) in the second quarter of 2013 for both short-term and long-term capacity. Duke Kentucky retained an independent consultant, Burns & McDonnell, to conduct the RFPs.” The purchase of 31% of East Bend Unit 2 was the lowest-cost option out of this RFP process.

The PSC noted: “Because the MF6 capacity has already been committed by Duke Kentucky through PJM delivery year 2017/2018, upon retirement of MF6, Duke Kentucky must procure unit-specific resources to satisfy its obligations or face penalties by PJM. Duke Kentucky has made arrangements that will satisfy its fixed resource requirements obligation for PJM delivery years 2015/2016 and 2016/2017, but Duke Kentucky has not yet satisfied its capacity obligation for delivery year 2017/2018. Beginning with the PJM 2018/2019 delivery year, Duke Kentucky can use the capacity associated with the East Bend purchase to remedy any deficiencies resulting from the retirement of MF6.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.