Energy Future Holdings, which along with many of its subsidiaries is in bankruptcy protection, plans to cease burning locally-mined lignite at two of its Texas power plants and switch those plants entirely to burning higher-Btu Powder River Basin coal.
Energy Future’s Luminant subsidiary, in terms of lignite/coal fueled generation fleet capacity, has a total of 8,017 MW at the Big Brown (two units), Monticello (three units), Martin Lake (three units), Oak Grove (two units) and Sandow (two units) sites. Luminant’s lignite/coal-fueled generation fleet operated at a capacity factor of 69.6% in 2014, 74.1% in 2013 and 70.0% in 2012. “This performance reflects increased economic backdown of the units and the seasonal suspension of certain units…,” said Energy Future in its March 31 annual Form 10-K report.
The company added: “Luminant meets all of its fuel requirements at its Oak Grove and Sandow generation facilities with lignite that it mines. Luminant meets its fuel requirements for its Big Brown, Monticello and Martin Lake generation units by blending lignite it mines with coal purchased from multiple suppliers under contracts of various lengths and transported from the Powder River Basin to Luminant’s generation plants by railcar. In 2014, approximately 56% of the fuel used at the Big Brown, Monticello and Martin Lake generation facilities and 73% of the fuel used at all of Luminant’s lignite/coal fueled generation facilities was supplied from surface minable lignite reserves dedicated to our generation plants, which are located adjacent to the reserves.
“As a result of projected mining development costs, current economic forecasts and regulatory uncertainty, in 2014, Luminant decided to transition the fuel plans at its Big Brown and Monticello generation facilities to be fully fueled with coal from the Powder River Basin. As a result, it plans to discontinue lignite mining operations at these sites once mining and reclamation of current mine sites is complete. Lignite mining and the majority of reclamation activities at these facilities is expected to be completed by the end of 2020 unless economic forecasts and increased regulatory certainty justify additional mine development.”
Luminant is currently the ninth-largest coal miner in the U.S. and the largest lignite coal miner in Texas. Luminant owns or has under lease an estimated 730 million tons of lignite reserves dedicated to its generation plants, including an undivided interest in approximately 170 million tons of lignite reserves that provide fuel for the Sandow facility. Luminant also owns or has under lease approximately 85 million tons of reserves not currently dedicated to specific generation plants. In 2014, Luminant mined approximately 30 million tons of lignite to fuel its generation plants. Based on its current planned usage, Luminant believes that it has sufficient lignite reserves for the foreseeable future and has contracted all of its anticipated Powder River Basin coal requirements and related transportation through 2015.
Said the Form 10-K about economic backdown of coal units: “In 2013, ERCOT approved our notice of intent to seasonally suspend operations for approximately eight months beginning each October at two of the three generation units at our Monticello generation facility and one of the three generation units at our Martin Lake generation facility. We decided to take this action due to low wholesale electricity prices and other market conditions impacting these facilities. While the units are under seasonal suspension, they generally only run in the summer months, but after notification to ERCOT, we can run them in other months, as we did in early 2014 in response to higher than anticipated wholesale electricity prices. We will continue to monitor wholesale electricity prices and market conditions in determining whether to continue seasonal operations and/or return the units to service prior to peak demand months.”
The Form 10-K pointed to EPA’s Regional Haze program as a threat to coal capacity. “In November 2014, the EPA released a proposed action approving in part and disapproving in part Texas’ [State Implementation Plan] for Regional Haze and proposing a [Federal Implementation Plan] for Regional Haze. … The EPA’s proposed emission limits assume additional control equipment for specific coal fueled generation units across Texas, including new flue gas desulfurization systems (scrubbers) at seven generation units and upgrades to existing scrubbers at seven generation units. Specifically for Luminant, the EPA’s emission limitations are based on new scrubbers at Big Brown Units 1 and 2 and Monticello Units 1 and 2 and scrubber upgrades at Martin Lake Units 1, 2 and 3, Monticello Unit 3 and Sandow Unit 4. Luminant is currently evaluating the requirements and potential financial and operational impacts of the proposed rule, but new scrubbers at the Big Brown and Monticello units necessary to achieve the emission limits required by the proposed FIP (if those limits are even possible to attain) would likely challenge the long-term viability of those units. Comments on the EPA’s proposal are due in April 2015, and the rule is expected to be finalized in September 2015. While Luminant continues to evaluate this proposal, we believe this proposed rule aggressively interprets the Regional Haze requirements. As proposed, the scrubber upgrades would be required three years after the rule is finalized, and the new scrubbers would be required five years after the rule is finalized. Assuming the proposed rule is finalized in September 2015, compliance would be required beginning in September 2018 and September 2020, respectively.”
The filing added about existing air emissions equipment: “Each of our lignite/coal fueled generation facilities is currently equipped with substantial emissions control equipment. All of our lignite/coal fueled generation facilities are equipped with activated carbon injection systems to reduce mercury emissions. Flue gas desulfurization systems designed primarily to reduce SO2 emissions are installed at Oak Grove Units 1 and 2, Sandow Units 4 and 5, Martin Lake Units 1, 2, and 3, and Monticello Unit 3. Selective catalytic reduction systems designed to reduce NOX emissions are installed at Oak Grove Units 1 and 2 and Sandow Unit 4. Selective non-catalytic reduction systems designed to reduce NOX emissions are installed at Sandow Unit 5, Monticello Units 1, 2, and 3, and Big Brown Units 1 and 2. Fabric filter systems designed primarily to reduce particulate matter emissions are installed at Oak Grove Units 1 and 2, Sandow Unit 5, Monticello Units 1 and 2, and Big Brown Units 1 and 2. Electrostatic precipitator systems designed primarily to reduce particulate matter emissions are installed at Sandow Unit 4, Martin Lake Units 1, 2, and 3, Monticello Units 1, 2, and 3, and Big Brown Units 1 and 2. Sandow Unit 5 uses a fluidized bed combustion process that facilitates control of NOX and SO2. Flue gas desulfurization systems, fabric filter systems, and electrostatic precipitator systems also assist in reducing mercury and other emissions.”
Said the filing about asset impairment: “During 2014, the decrease in forecasted wholesale electricity prices in ERCOT, potential effects from environmental regulations and changes to our operating plans led to recording $4.670 billion in noncash impairment charges substantially all related to our Martin Lake, Monticello and Sandow 5 generation facilities. Additional material impairments related to these or other of our generation facilities may occur in the future if forward wholesale electricity prices in ERCOT continue to decline or if additional environmental regulations increase the cost of producing electricity at our generation facilities.”