The Wabash Valley Power Association on Jan. 21 petitioned the Indiana Utility Regulatory Commission for a Certificate of Public Convenience and Necessity to purchase Lively Grove Energy Partners LLC and its only asset, a 5.06% undivided interest in the Prairie State Energy Campus (PSEC) located in Illinois from Peabody Electricity LLC.
Wabash Valley is also seeking authority to execute notes as evidence of indebtedness to finance the purchase and related costs.
Coal producer Peabody Energy (NYSE: BTU), which originally developed the Prairie State project as a minemouth power generator, had announced this prospective sale on Jan. 21.
M. Keith Thompson, employed by the Wabash Valley Power Association as its Vice President of Power Production, said in Jan. 21 supporting testimony that this 5.06% undivided interest represents 83 MW of capacity in the plant.
The PSEC is a minemouth coal-fired plant consisting of: two generating units totaling 1,650 MW supercritical pulverized coal-fueled power and state-of-the-art environmental control technologies; an on-site captive coal mine with more than 25 years of remaining proven coal reserves; and on-site coal combustion residual (CCR) disposal landfill. The plant, located in Washington County, Illinois, is within the Midcontinent Independent System Operator (MlSO) region. Unit 1 went into commercial operation in June 2012, and Unit 2 went into commercial operation in November 2012.
The power plant is equipped with a state-of-the-art pollution control equipment, including a Wet Electrostatic Precipitator, Selective Catalytic Reduction, Dry Electrostatic Precipitator, Flue Gas Desulfurization, and a single 700-foot exhaust stack.
The mine is comprised of a 35-square-mile area and approximately eight-foot continuous coal seam located 250 to 300 feet below the surface. Certain data about the mine is redacted from the public version of Thompson’s testimony.
The PSEC is owned by the nine participants as tenants in common. Peabody is currently the only non-public power owner of PSEC. There are eight public power owners of PSEC, including American Municipal Power, Illinois Municipal Power Agency, Indiana Municipal Power Agency, Missouri Joint Electric Utility Commission, Prairie Power, Southern Illinois Power Cooperative, Kentucky Municipal Power and the Northern Illinois Municipal Power Agency.
Lee R. Wilmes, employed by Wabash Valley Power Association as its Vice President of Power Supply, said the purchase price for Lively Grove and its 5.06% undivided interest in PSEC is $57 million. He said Wabash Valley did not issue a request for proposals (RFP) for this capacity. Wabash Valley is continuously in the marketplace looking for opportunities to add to its power supply portfolio to meet the needs of its members. The challenge Wabash Valley faces is that the owners of existing generation typically desire to sell entire units, and sometimes fleets of units, in one transaction. The scale of such a purchase would be too large for Wabash Valley’s needs, Wilmes pointed out.
“The same is true for building new generation resources,” Wilmes added. “Without finding partners to achieve the scale required, Wabash Valley cannot independently build economic large-scale generation. Therefore, Wabash Valley needs to be opportunistic in looking for when the right set of circumstances converge to allow it to partner with others in existing or new-build generation. The PSEC purchase is just such an opportunity.
In Wabash Valley’s 2013 integrated resource plan (IRP), it utilized the following estimates for its generation expansion alternatives. The estimated installed cost of a large-scale base load coal plant was $3,784/kw. The estimated installed cost of a new peaking unit was $746/kw, and the estimated installed cost of a new combined cycle unit was $1,013/kw. At the $57 million purchase price, the interest in PSEC will cost $687/kw.
Wilmes added: “It is important to note that the purchase price also includes a corresponding interest in the adjacent Mine with at least 25 years of remaining reserves to supply the plant, the value of which lowers the PSEC cost of $687/kw significantly when comparing to the IRP expansion alternatives.
“For a purchase price less than the cost to build a new peaking plant, Wabash Valley is purchasing a very economical base load generating plant with a fixed fuel supply with no transportation cost or risk. In addition, the IRP included generation from the exiting Wabash Valley-owned Wabash River Unit 1. Due to the capital costs required to replace the common facilities shared with the soon-to-be-retired Duke Energy Indiana, Inc.-owned Wabash River Units 2-5 and potentially Unit 6, Wabash Valley announced the retirement of its Wabash River Unit 1 targeted for spring of 2016. This will result in a loss of approximately 81 MW of base generation. The 83 MW resulting from Wabash Valley’s purchase of the interest in PSEC will replace the retired Wabash River Unit 1 base generation included in the IRP.”
Wabash River is a coal-fired plant mostly owned by Duke Energy Indiana. Unit 1 was repowered in the 1990s as an integrated gasification combined cycle unit with U.S. Department of Energy funding help. The unit initially used coal as a feedstock, then switched to cheaper petroleum coke.
Noted Wilmes about Wabash River #8: “This facility is an approximately 168 MW peaking plant located in Vigo County, Indiana. It is the remaining generation after the retirement of sgSolutions‘ gasification facility and the Wabash River Unit #1 steam turbine. After the retirements, expected in the spring of 2016, the gas turbine Unit #8 will be fueled by natural gas.”
Peabody Energy, the nation’s largest coal producer, announced Jan. 21 that it had entered into a definitive agreement to sell this stake in the PSEC. The definitive agreement was entered into following a competitive bidding process Peabody launched in the fourth quarter of 2015 as part of the company’s emphasis on portfolio optimization and sale of non-core assets. Closing on the transaction is anticipated to occur before the end of the second quarter of 2016, subject to certain governmental and regulatory approvals, expiration of purchase rights and other customary conditions.