The Sierra Club on March 4 told the Kentucky Public Service Commission that the 2014 combined integrated resource plan (IRP) for Louisville Gas & Electric and Kentucky Utilities, filed with the commission in April 2014, relies too heavily on coal and in many cases does not adequately address or justify that continued reliance.
The two utilties are both owned by PPL Corp. (NYSE: PPL) and pretty much coordinate everything, from coal procurement to resource planning.
“LG&E and KU are in the midst of important changes concerning both the customers they serve and how they meet customers’ energy needs,” the club wrote. “On the demand side, the Companies received notices of termination last year from several municipal customers, representing more than 300 MW in load, who will no longer be receiving wholesale energy from the Companies after April 2019. On the supply side, the Companies retired Tyrone 3 in 2013 and expect to retire five units at Cane Run and Green River by the end of 2015 or 2016. The Companies are constructing a 640 MW natural gas combined cycle facility (‘NGCC’) at Cane Run. And the Companies recently secured Commission approval for their first utility-scale solar project, to be located at the Brown facility.
“While the new resource acquisitions and coal unit retirements have helped diversify the Companies’ supply portfolio, the Companies still generate the vast majority of their energy from only one resource: coal. This IRP represents an important opportunity to gauge whether the Companies are planning to use a prudent mix of supply and demand resources to serve customers’ needs in the least-cost, least-risk manner. Unfortunately, the IRP falls short when it comes to evaluating whether it is economic to continue investing in existing units, and whether the Companies are fully realizing the benefits that renewable resources and demand-side management (‘DSM’) can provide for their customers.”
In particular, the club said, the IRP contains the following major flaws:
- The IRP uses neither economic modeling nor another mechanism to evaluate whether capital and fixed costs may render existing coal units uneconomic to operate;
- In particular, despite anticipating that they will spend hundreds of millions of dollars on environmental capital projects, the companies do not evaluate whether environmental capital costs will render any units uneconomic to operate;
- The modeling results indicate the coal-fired E.W. Brown Unit 3 rarely is dispatched on an economic basis, and the companies did little to evaluate whether Brown 3 would be dispatched in the absence of being designated a must-run resource;
- The companies likely underestimated the scenarios in which the coal-fired E.W. Brown Units 1 and 2 operate at such low capacity factors that they should be retired;
- The IRP uses only one DSM forecast and fails to explore any alternative levels of DSM;
- The IRP assumes that no additional energy savings can be achieved from DSM for an entire decade, from 2019-2028, because of the “remarkable assertion” that achievable energy efficiency will be exhausted by 2018; and
- The companies did not explore the system savings they could achieve by encouraging expanded deployment of rooftop and large-scale solar in their territories.
The Brown plant gets a laser focus from the Sierra Club
The club wrote: “Most of these flaws bias the IRP analysis in favor of existing coal units. Yet despite this bias, the IRP concludes that in every scenario with a carbon price or a carbon cap, both Brown Units 1 and 2 would operate at such low capacity factors that they should be retired the first year the carbon price or carbon cap goes into effect. As explained below, even in certain scenarios with no carbon price—such as some of the low load, zero carbon scenarios—Brown Units 1 and 2 operate at very low capacity factors. Taken together, the IRP results counsel in favor of closely scrutinizing planned capital spending on Brown Units 1 and 2 to revisit whether retiring the units is the least-cost, least-risk option for ratepayers.”
The club called into question how the utiliities ran their Strategist computer model runs. “While we commend the Companies for including scenarios with a carbon price and a carbon cap, the Companies set up the modeling in a way that does not capture all costs facing existing units or meaningfully compare existing units to all alternative resources. First, the Companies did not allow Strategist to make market purchases, instead confining the model to the Companies’ existing units or new, self-build units. Second, the Companies never analyzed whether future capital and fixed costs could cause an existing unit to become uneconomic. Third, the Companies designated Brown Unit 3 as must-run up to a certain capacity, and dispatchable above that minimum capacity, yet Strategist rarely dispatched Brown 3 more than the model was forced to run the unit. This calls into question how much the unit would run in the absence of a must-run designation.”
Apparently the club thinks the E.W. Brown coal plant is the weak member of the LG&E/KU herd, since much of its testimony centers on the plant. Another passage said, after touching on costs like compliance with new federal coal combustion waste rules: “We are not suggesting that the Companies must separately model retiring each unit or combination of units in each year of the analysis. But at the very least, in the IRP, the Companies should evaluate scenarios in which generating units that face significant capital costs are instead retired. Brown Units 1 and 2 are small, old, and less efficient than many other coal units in LG&E and KU’s fleet. Moreover, the Companies project that they will incur significant capital costs at Brown from 2016-2021. Thus, the Companies should have modeled retirement of Brown Units 1 and/or 2 in years, such as 2016 or 2017, that would avoid these significant capital expenses.”
It added: “For the IRP modeling, the Companies designated Brown Unit 3 as a must-run resource for all hours in all years. As a result, the model was forced to select Brown Unit 3 at a minimum load of 155 MW. The minimum capacity segment of 155 MW is 38% of Brown Unit 3’s maximum capacity of 411 MW. Above the minimum load of 155 MW, the model could select Brown Unit 3 for economic dispatch, subject to various constraints. The Companies’ IRP does not explain why Brown Unit 3 is designated as must-run in the modeling in all hours of all days. In both this and in future IRPs, the Companies should provide an explanation for must-run designations and only use such designations if justified by reliability concerns.
“The Companies’ modeling results indicate that the most economic option is to retire Brown Units 1 and 2 if there is either a carbon price or a carbon cap. In all of the mid-carbon scenarios, Brown Units 1 and 2 retire in 2020, the first year the carbon price goes into effect. Likewise, in all of the carbon cap scenarios, Brown Units 1 and 2 retire in 2020, the first year the carbon cap goes into effect. Simply put, a mid-carbon price or a carbon cap would result in Brown 1 and 2 running at such low capacity factors that the Companies assume they would be retired.
“In all of the scenarios without a carbon price or carbon cap, the Companies’ modeling projects that Brown Units 1 and 2 do not retire, but instead operate through 2028. However, as mentioned previously, these results underestimate the likelihood that Brown Units 1 and 2 would retire prior to 2028 because the Companies did not evaluate whether future capital and fixed O&M costs, including environmental capital costs, could cause Brown Units 1 and 2 to become more expensive than alternative supply- and/or demand-side options. There is an additional reason Brown Units 1 and 2 are more likely to retire in the zero carbon scenarios than the model results indicate: the Companies relied on an unweighted average of the capacity factor across the three gas prices, thereby effectively assuming that each gas price is equally likely to occur. Such an equal weighting is unexplained and likely underestimates the probability of the mid-gas price occurring.”
The two oldest steam generating units in the LG&E/KU system are Brown Unit 1 (106 MW net) and Unit 2 (166 MW net), each over 50 years old. The utilities in the IRP put them, but not the newer Unit 3, in a special category of “aging” units. They said that units in this category will have their economics periodically reviewed to ensure the efficiency of the overall system. More stringent environmental regulations could result in the retirement of these units even without a significant mechanical failure. The other five units in the “aging” category are all gas-fired units at the Cane Run, Paddy’s Run, Zorn and Haefling power plants.
The companies in 2010 completed construction of FGD equipment on Brown Units 1, 2, and 3, which gives them some life in terms of clean-air compliance needs for the future.