The Kentucky Public Service Commission (PSC) on Dec. 21 released the action plan that outlines how Big Rivers Electric Corp. will implement the recommendations made in an independent review of this western Kentucky utility cooperative.
Big Rivers has said it will adopt all of the recommended measures as it seeks to mitigate the loss of its two largest customers, which are aluminum smelters. That loss has forced Big Rivers to idle one of its coal-fired power plants and to sell off-system power to keep another coal plant open.
“The PSC is pleased that Big Rivers is moving ahead with the steps necessary to adjust to major changes in its operational and financial circumstances,” PSC Chairman Jim Gardner said. “The goal of this process is to potentially lessen the impact of those changes on the utility’s remaining customers.”
The PSC ordered the review – known as a focused management audit – in April 2014, when it approved a rate increase requested by Big Rivers. The rate increase was the second of two requested by Big Rivers to maintain financial stability after Century Aluminum smelters in Hawesville and Sebree stopped purchasing power from the utility. Together, the two smelters accounted for about two-thirds of Big Rivers’ load and revenue.
In ordering the audit, the PSC placed the focus “on the steps that Big Rivers has undertaken or should undertake to mitigate any further financial impact” from the loss of the smelters, as well as “the strategic planning, management and decision-making of Big Rivers relating to its mitigation efforts.”
The final audit report included 23 findings that were distilled into five recommendations:
- Consider adding to its board a member with specific expertise in energy finance or merchant generation. This would likely require changing the cooperative’s bylaws.
- Continue to develop in-house expertise in price forecasting and power market sales, but only in support of its core mission.
- Immediately begin a study of the sale, retirement or redevelopment of the Coleman coal plant and consider options for the Wilson coal plant in two or three years.
- Continue to pursue increased sales to existing customers and to new members.
- Begin discussions with its lenders and the PSC to address existing restrictions to the sale of the Coleman plant and study of financial options for such a sale.
The first recommendation has a medium priority, while consultant Concentric Energy Advisors attached a high priority to the latter four. Big Rivers adopted all five recommendations. The action plan includes a timetable for each of the five tasks. Beginning next year, Big Rivers will submit regular progress reports to the PSC until all of the steps in the action plan have been completed.
Big Rivers is owned by the three distribution cooperatives – Jackson Purchase Energy Corp., Kenergy Corp. and Meade County Rural Electric Cooperative Corp. – to which it provides power. Together, the three cooperatives serve about 112,000 customers in 26 counties in western Kentucky.
Action plan says idled Coleman plant could lose interconnection rights
Said the action plan from the PSC: “Coleman has been idled since May of 2014. If Big Rivers has not returned Coleman to service by September 2016, MISO will likely begin steps to terminate Coleman’s interconnection rights. If these interconnection rights are terminated, it will require a year to reinstate the interconnection rights before Coleman is returned to service. The Wilson unit continues to be profitable in the marketplace. Big Rivers was able to sell a portion of the output from the Wilson facility under a bilateral contract through December 2015 and has sold the full capacity through May 2016, giving Big Rivers some latitude to address next steps with the Wilson facility.
“There is optionality with the Wilson unit that supports its continued operation for the foreseeable future until compliance with environmental mandates is required. Big Rivers has received extensions to April 16, 2016 for MATS compliance from the Kentucky Division of Air Quality for the Green, Reid and Wilson stations. Furthermore, Big Rivers has determined that Wilson can operate for an additional four to six years while maintaining a positive balance of SO2 CSAPR allowances. Big Rivers would have the options of purchasing additional allowances, reducing sulfur levels in the fuel, or reducing generation levels before installing environmental compliance equipment on Wilson.
“Given that Coleman is not needed to serve member load, is idled, and is less competitive in the market, the options available for this plant are continued mothballing, decommissioning/retirement or sale. Big Rivers has had discussions regarding the sale of the Coleman facility and has included offers to sell the facility in its response to RFPs with no success to date. Discussions have also occurred between Big Rivers and a counterparty in which the counterparty has indicated an interest in purchasing one of the Coleman units, or entering into a tolling arrangement if Big Rivers first converts the unit to natural gas. In addition, while Century had indicated some interest in purchasing the Coleman facility, there have been no recent discussions between Century and Big Rivers regarding the purchase of the Coleman facility.
“The current market for coal-fired generating plants has yielded prices significantly below the net book value of either Coleman or Wilson. Consequently, it is unlikely that a sale of either Coleman or Wilson could be executed at or above the net book value of either of these plants. Accordingly, any sale would require revisions to Big Rivers’ mortgage indenture to prevent a sale from negatively impacting Bondable Property. The recovery of the difference between the net book value and sale price from Big Rivers’ members would likewise need to be addressed as would other financing, earnings, equity, service and regulatory requirements.
“A detailed study of the strategic options for Coleman in particular is warranted at this time. The options include, but are not limited to, a sale or repowering of the facility, retirement of the facility, or redevelopment of the facility for alternate use. The access of the facility to infrastructure and water will allow for flexibility in considering future uses of the site.”