Great Plains to spend up to $1.5bn on environmental needs – known and unknown

The current estimate of capital expenditures (exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes) for Great Plains Energy (NYSE: GXP) subsidiaries to comply with current final environmental regulations where the timing is certain is approximately $700 million.

This estimate reflects costs to install environmental equipment at Kansas City Power & Light‘s (KCP&L) La Cygne Nos. 1 and 2 by June 2015 to comply with the best available retrofit technology (BART) rule and environmental upgrades at other coal-fired units through 2016 to comply with the Mercury and Air Toxics Standards (MATS), said Great Plains Energy in its Feb. 25 Form 10-K annual report.

The companies estimate that other capital projects at coal-fired units for compliance with the Clean Air Act and Clean Water Act based on proposed regulations or final regulations with implementation plans not yet finalized where the timing is uncertain could be $600 million to $800 million, which includes approximately $350 million to $450 million for KCP&L. These other projects are not included in the approximately $700 million estimated cost of compliance discussed above.

Great Plains Energy’s wholly owned direct subsidiaries with significant operations are: KCP&L, which is an integrated, regulated electric utility that provides electricity to customers primarily in Missouri and Kansas; and KCP&L Greater Missouri Operations Co. (GMO), an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GMO also provides regulated steam service to certain customers in the St. Joseph, Missouri, area.

Great Plains Energy’s cash utility capital expenditures, excluding AFUDC to finance construction, were $773.7 million, $669.0 million and $610.2 million in 2014, 2013 and 2012, respectively. Utility capital expenditures represent a significant portion of Great Plains Energy’s capital requirements. Utility capital expenditures projected for the next five years include improvements to generating, distribution and transmission facilities, software upgrades and expenditures for environmental projects at coal-fired power plants.

The EPA BART rule directs state air quality agencies to identify whether visibility-reducing emissions from sources subject to BART are below limits set by the state or whether retrofit measures are needed to reduce emissions. BART applies to specific eligible facilities including: KCP&L’s La Cygne Nos. 1 and 2 in Kansas; KCP&L’s Iatan No. 1, in which GMO has an 18% interest, and KCP&L’s Montrose No. 3 in Missouri; GMO’s Sibley Unit No. 3 and Lake Road Unit No. 6 in Missouri; and Westar Energy‘s Jeffrey Unit Nos. 1 and 2 in Kansas, in which GMO has an 8% interest. Both Missouri and Kansas have approved BART plans.

KCP&L has a consent agreement with the Kansas Department of Health and Environment (KDHE) incorporating limits for stack particulate matter emissions, as well as limits for NOx and SO2 emissions, at its La Cygne Station that will be below the presumptive limits under BART. KCP&L further agreed to use its best efforts to install emission control technologies to reduce those emissions from La Cygne prior to the required compliance date under BART, but in no event later than June 1, 2015.

In August 2011, the Kansas Corporation Commission (KCC) issued its order on KCP&L’s predetermination request that would apply to the recovery of costs for its 50% share of the environmental equipment required to comply with BART at La Cygne. In the order, KCC stated that KCP&L’s decision to retrofit La Cygne was reasonable, reliable, efficient and prudent and the $1.23 billion cost estimate is reasonable. If the cost for the project is at or below the $1.23 billion estimate, absent a showing of fraud or other intentional imprudence, KCC stated that it will not re-evaluate the prudency of the cost of the project. If the cost of the project exceeds the $1.23 billion estimate and KCP&L seeks to recover amounts exceeding the estimate, KCP&L will bear the burden of proving that any additional costs were prudently incurred. KCP&L’s 50% share of the estimated cost is $615 million. The La Cygne project is expected to be in-service by June 2015.

During 2015, the power plants of the utility subsidiaries, including jointly owned units, are projected to burn about 16 million tons of coal. KCP&L and GMO have entered into coal-purchase contracts with various suppliers in Wyoming’s Powder River Basin (PRB), the nation’s principal supply region of low-sulfur coal, and with local suppliers. The coal to be provided under these contracts is expected to satisfy about 95% of the projected coal requirements for 2015, approximately 45% for 2016 and about 20% for 2017. The remainder of the coal requirements is expected to be fulfilled through additional contracts or spot market purchases. KCP&L and GMO have entered into coal contracts over time at higher average prices affecting coal costs for 2015 and beyond.

KCP&L and GMO have also entered into rail transportation contracts with various railroads to transport coal from the PRB to their generating units. The transportation services to be provided under these contracts are expected to satisfy almost all of the projected transportation requirements for 2015 through 2019. The contract rates adjust for changes in railroad costs.

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.