PPL Corp. (NYSE: PPL) said in its annual Form 10-K report, filed Feb. 23 with the Securities and Exchange Commission, that as a result of environmental requirements, Louisville Gas and Electric and Kentucky Utilities anticipate retiring five older coal-fired electric generating units.
Those units are at the: Cane Run plant (Units 4-6, 563 MW), which are to be retired in 2015; and at the Green River plant (Units 3-4, 161 MW), with these units to be retired in 2016. In addition, Kentucky Utilities retired the remaining 71-MW coal-fired unit at the Tyrone plant in February 2013 and retired a 12 MW gas-fired unit at the Haefling plant in December 2013.
Despite these retirements, coal is expected to be the predominant fuel used by LG&E and KU for baseload generation for the foreseeable future. However, natural gas will play a more significant role starting in May 2015 when the 640-MW (summer net) Cane Run Unit 7 is expected to be placed into operation as baseload generation. The natural gas for this generating unit will be contracted from suppliers separately from LG&E’s natural gas customers. Natural gas and oil will continue to be used for intermediate and peaking capacity and flame stabilization in coal-fired boilers.
To enhance the reliability of natural gas supply, LG&E and KU have secured long-term pipeline capacity on the interstate pipeline serving the new NGCC unit at Cane Run and six simple cycle combustion turbine units.
Also in terms of new capacity, in August 2014, LG&E and KU entered into a Capacity Purchase and Tolling Agreement with Bluegrass Generation Co. LLC. This agreement, which is effective May 1, 2015, through April 30, 2019, is an operating lease in which LG&E and KU will purchase capacity produced up to 165 MW for 30 hours each year.
For their existing units, LG&E and KU expect for the foreseeable future to purchase most of their coal from western Kentucky, southern Indiana and southern Illinois. In 2015 and beyond, LG&E and KU may purchase certain quantities of ultra-low sulfur content coal from Wyoming for blending at Trimble County Unit 2. The Form 10-K doesn’t name the sources for that coal, but basically the Powder River Basin mines in Wyoming that fit that desciption are Cloud Peak Energy‘s Antelope mine, Peabody Energy‘s North Antelope Rochelle mine and Arch Coal‘s Black Thunder operation.
PPL’s PPL Montana unit, with the other Colstrip power plant owners, is party to contracts to purchase 100% of its coal requirements with defined coal quality characteristics and specifications for this Montana facility. 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 85% to 100% of their coal requirements (at owners’ option) 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.
Coal supply contracts are in place to purchase low-sulfur coal with defined quality characteristics and specifications for PPL Montana’s Corette plant, also located in Montana fairly near Colstrip. The contracts covered 100% of the plant’s coal requirements in 2014 and similar contracts are in place to supply 100% of the expected coal requirements through the suspension of plant operations scheduled for no later than April 2015. The Corette plant is expected to be retired in August 2015.
PPL works along various lines on clean-air compliance
In February 2012, the U.S. Environmental Protection Agency finalized the Mercury and Air Toxics Standards (MATS) rule requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule was challenged by industry groups and states, and was upheld by the D.C. Circuit Court in April 2014. In November 2014, the U.S. Supreme Court granted a petition for review of the rule.
LG&E, KU and PPL Energy Supply have received compliance extensions for certain plants related to the April 2015 initial compliance deadline. Notable is that the PPL Energy Supply plants, including the big Montour and Brunner Island coal plants in Pennsylvania, are due to be spun off in the second quarter of this year into the newly-formed Talen Energy.
PPL Energy Supply believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants, the capital cost of which is not expected to be significant. PPL Energy Supply continues to analyze the potential impact of MATS on operating costs. PPL Energy Supply is retrofitting the scrubbers at its Colstrip, Montana plant, the cost of which is not expected to be significant. PPL Energy Supply will suspend operations at the Corette plant by April 2015 due to MATS needs.
LG&E’s and KU’s anticipated retirements of generating units at the Cane Run and Green River plants in 2015 and 2016 are in response to MATS and other environmental regulations.
The EPA’s Cross-State Air Pollution Rule (CSAPR) addresses the interstate transport of fine particulates and ozone. In accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for SO2 and NOx emissions from fossil-fueled plants in two phases: Phase 1 in 2015 and Phase 2 in 2017. SO2 emissions are subject to an annual trading program and NOx emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to CSAPR will be heard before the D.C. Circuit Court on Feb. 25, 2015.
Under the EPA’s regional haze programs, states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. To date, the focus of regional haze regulation has been on the western U.S. As for the eastern U.S., the EPA determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized under state programs to satisfy BART requirements for SO2 and NOx. However, the EPA’s determination is being challenged by environmental groups and others.
LG&E’s coal-fired Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA finalized a Federal Implementation Plan (FIP) of the Regional Haze Rules in September 2012, with stricter emissions limits for Colstrip Units 1and 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 and 4), and stricter emission limits for the Corette plant (which are not based on additional controls). The cost of the additional controls for Colstrip Units 1 and 2 could be significant. PPL Energy Supply is meeting the stricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit and that litigation is ongoing.
PPL noted about possible future environmental restrictions: “In the first quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in their earliest stages of consideration and PPL and PPL Energy Supply cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL’s or PPL Energy Supply’s financial condition or results of operation.”