East Kentucky Power Co-op needs PSC okay for Bluegrass purchase by Dec. 1

East Kentucky Power Cooperative told the Kentucky Public Service Commission on Sept. 21 that it still needs a commission approval by Dec. 1 on its proposed buy of a lease on the gas-fired Bluegrass power plant, since any delay from that point will push it into buying higher-priced replacement capacity on the open market.

EKPC applied July 24 with the PSC for approval to acquire and operate the existing simple-cycle combustion turbine facilities in LaGrange in Oldham County, Kentucky, from Bluegrass Generation Co. LLC.

“EKPC still believes it needs a final decision by December 1, 2015 because if it is not able to close on the Bluegrass capacity in December, 2015, then it will need to seek additional capacity to cover its load’s cost exposure in the market during January and February 2016,” said the cooperative in response to a new series of questions in an ongoing docket where it is seeking approval of the Bluegrass buy. “Prices generally escalate closer to the delivery date for electric products. EKPC would not desire to be pushed into a price-taker position for the purchase of such capacity. The later in the month of December a decision is made that places EKPC in the market for power, the less flexibility EKPC will have to purchase a desirable product, which means its Owner-Members will pay a higher price for their electricity than if ample time is allotted for thorough negotiations.”

In response another question, the cooperative noted that PJM Interconnection currently has two different types of Incremental Capacity auctions. Traditional Incremental Auctions (lA) are held subsequent to the Base Residual Auction (BRA) to adjust for changes in capacity and/or load expectations. The BRA is held three years prior to the delivery year, and each year thereafter there is an lA until the delivery year, for a total of three lAs.

PJM has a new capacity product, designated as Capacity Performance (CP) and in August 2015 held a BRA for the 2018/19 delivery year that included this product. PJM also held separate lAs to acquire CP capacity (called “CP lAs”) in August and September 2015 for the two future delivery years (2016/17 and 2017/18) that had already held their BRAs but did not include CP capacity. PJM required that a unit had to have received an award from a prior auction in order for that unit to be able to participate in these two CP lAs. The Bluegrass units were not eligible to participate in the CP lAs for 2016/17 and 2017/18 because they did not hold a prior auction position.

There will continue to be the traditional lAs until the CP capacity product is fully implemented, EKPC added. There will be a traditional third lA held for non-CP capacity for the 2016/17 delivery year in March 2016 and a second lA for non-CP capacity for the 2017/18 delivery year in July 2016.

If EKPC acquires the Bluegrass plant, it can offer Bluegrass Units 1 and 2 into those lAs in 2016 for non-CP capacity awards, the cooperative pointed out in the Sept. 21 filing.

In the 2018/19 BRA, CP capacity cleared at $164.77/MW-day and non-CP capacity cleared at $149.98/MW-day. In that auction, the non-CP capacity cleared at 91% of the CP capacity value. The 2017/18 CP lA cleared at $151.50/MW-day and the 2016/17 CP lA cleared at $134.00/MW-day. A similar clearing price for upcoming non-CP lAs for the 2016/17 and 2017/18 delivery years would suggest that the price for non-CP capacity should be $120/MW-day or greater. In contrast, the second IA for the 2016/17 delivery year held in July 2015 cleared at $31/MW-day. The first lA for the 2017/18 delivery year will be held in late September and should provide additional information. EKPC said it continues to believe that there is significant positive value in the purchase of Bluegrass.

EKPC looking at option of adding diesel as a back-up fuel at Bluegrass

In response to another question about whether it will add dual-fuel capability at this gas-fired plant, EKPC said it has asked ACES to solicit quotes from gas suppliers for firm gas transportation service to the Bluegrass Plant. EKPC has also begun an initial evaluation of the new equipment required and modifications needed for existing facilities to be able to bum diesel fuel in the units. EKPC will collect data for all of its options including the potential costs and penalties of not having back-up fuel available if the units clear the CP capacity market in the future. EKPC would then expect to complete a thorough analysis of its back-up fuel options.

This decision should not impact EKPC’s ability to move forward with the plant as currently configured. Any back-up fuel position would be an enhancement to the current plant value and not a requirement for economic operations under existing conditions, EKPC said.

The Bluegrass units would not be expected to clear a CP market with delivery requirements prior to June 1, 2018. If diesel fuel is the chosen option, then EKPC would need to make its decision and begin modifications by summer 2016. If firm gas transportation is the choice, then EKPC said it can delay its actions until closer to delivery times when firm transportation will be required.

Bluegrass leases and operates three natural gas-fired simple cycle combustion turbine units at the Bluegrass station, pursuant to a 2000 Lease Agreement with Oldham County. Each unit has a rated capacity of 198 MW, giving the station a total rating of 594 MW of winter capacity. The Bluegrass net summer capacity is 165 MW per unit, for a total of 495 MW.

Bluegrass Unit 3 is subject to a four-year Tolling Agreement that was entered into between Bluegrass and Kentucky Utilities and Louisville Gas & Electric in 2014. Under the Tolling Agreement, KU and LG&E will have access to 165 MW of firm generation capacity and output from Bluegrass Station Unit 3 from May 1, 2015, through April 30, 2019. EKPC plans to take on that agreement.

On June 26, EKPC and Bluegrass entered into an Asset Purchase Agreement whereby Bluegrass agreed to sell and assign, and EKPC agreed to purchase and assume, substantially all of the assets and certain specified liabilities of Bluegrass. Because the Bluegrass Station is currently leased by Bluegrass from Oldham County as part of a complex financing plan put in place as part of the development of the plant, EKPC will take an assignment of the lease between Bluegrass and Oldham County and certain bonds held by Bluegrass and payable by Oldham County.

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.