Indiana commission okays Wabash Valley buy of part of coal plant

The Indiana Utility Regulatory Commission on April 13 approved a Jan. 21 application from the Wabash Valley Power Association 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 was also approved in the same April 13 order for 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 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 PowerIllinois Municipal Power Agency, Indiana Municipal Power AgencyMissouri Joint Electric Utility CommissionPrairie PowerSouthern Illinois Power Cooperative, Kentucky Municipal Power and the Northern Illinois Municipal Power Agency.

Prairie State will replace retiring capacity

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.

Wilmes said: “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.”

Said the April 13 Indiana commission approval: “Based on our review of the evidence presented in the record, we find that the PSEC purchase is consistent with Wabash Valley’s 2013 and 2015 IRPs. Specifically, the evidence indicates that Wabash Valley is expected to lose 81 MW of base generation upon the retirement of its Wabash River Unit 1. Although a new 6.4 MW landfill gas plant and the planned conversion of the combustion turbine at Wabash River Unit 8 will make up some of the lost capacity, the 2015 IRP indicates that Wabash Valley will still be short by approximately 59 MW of capacity. Coupled with an additional shortage created by the expiration of a unit-contingent power purchase agreement at the end of 2017, the 2015 IRP recommends adding 96 MW of combined cycle resources and 144 MW of combustion turbine resources in 2017 and an additional 96 MW of combined cycle resources in 2018.

The April 13 order later added: “Based on the evidence presented, the Commission finds Wabash Valley has made reasonable efforts in its current and potential arrangements with other electric utilities for the interchange of power, pooling of facilities, purchase of power, and joint ownership of facilities. Wabash Valley has also implemented other methods for providing reliable, efficient, and economical electric service, including the construction of new facilities, conservation, load management, cogeneration, and procurement of renewable energy resources. Wabash Valley has also considered options available to meet increasing demand for electricity and the need for reliable energy and capacity. The evidence also indicates that the purchase of Lively Grove and a 5.06% undivided interest in the PSEC is a reliable, efficient, and economical way to meet Wabash Valley’s needs.”

The Federal Energy Regulatory Commission on April 6 approved a Jan. 27 application from the Wabash Valley Power Association, Peabody Electricity LLC and Lively Grove Energy Partners LLC for this same deal.

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.