Georgia PSC staff recommends earlier retirement for Hammond coal plant

Staff at the Georgia Public Service Commission are making the case that Georgia Power should look at retiring the coal-fired Hammond Units 1-4 earlier than expected, and that the Southern Co. (NYSE: SO) subsidiary should minimize any capital investments in those units in the meantime.

Tom J. Newsome, the Director of Utility Finance with the Georgia PSC, and Philip M. Hayet, a utility rate and planning consultant at J. Kennedy and Associates Inc., provided joint May 6 testimony to the PSC in the 2016 integrated resource plan (IRP) case of Georgia Power. Within that IRP is a Unit Retirement Study (URS).

Based on its analysis, Georgia Power, in its IRP application, is seeking decertification of 377 MW of generating capacity. Staff investigated whether the company’s analysis of resources identified for retirement was reasonable, and whether alternative or additional unit retirements should be considered. Staff’s review included analysis of the Georgia Power URS methodology, and staff’s own independent URS evaluation conducted using alternative modeling tools and assumptions.  

The staff testimony said that concerns with the URS include:

  • Georgia Power’s assumptions concerning the type and need date for replacement capacity are inconsistent with its assumed load forecasts;
  • The analysis the company performed to develop the retirement priority order was based on outdated data assumptions created in the 2013 IRP;
  • Georgia Power’s assumed market capacity price assumptions overstate the potential capacity sales revenue available from surplus capacity, which in turn, overstates the benefit of continuing to operate units;
  • Georgia Power’s Unit Retirement Study does not, on the whole, support continued operation of Plant McIntosh Unit 1. 

Staff agrees with the company’s recommendation to retire the Mitchell Units 3, 4A and 4B, Kraft Unit 1 combustion turbine (CT) and Intercession City CT units.

Staff’s results are consistent with the company’s analysis regarding continued operation of the Bowen 1-4, Scherer 1-3, Wansley 1-2, and Gaston 1-4 units. These units are coal-fired, except that Gaston has lately been converted to burning natural gas instead of coal.

Staff’s results support retirement of McIntosh Unit 1, Hammond Units 1-4, and Yates Units 6-7. However, since the coal-to-gas-converted Yates Units 6-7 currently run little, mostly for peaking use, PSC staff sees no urgency that they be retired in the near term.

Staff: Hammond, McIntosh retirement decisions can wait until next IRP

Staff’s modeling analysis results indicated it was not economic to continue operating McIntosh Unit 1 or Hammond Units 1-4 over the long term. However, staff does not believe it is necessary for the company to shut down these units right away and any decision to retire these units should be postponed until the 2019 IRP or an interim IRP is filed. However, staff’s recommendation is contingent on the company agreeing to minimize all capital investment in these units until the 2019 IRP or interim IRP is concluded. That means the units may be more prone to mechanical issues, and therefore run relatively little, in the period before retirements.

Georgia Power based its analysis on the assumption that a coal plant would be replaced by an equal amount of combined cycle capacity at some time in the future when replacement capacity (the “need date”) was needed. For example, any retirement of the coal-fired Bowen Units 1-4 (3,142 MW) was followed by replacement of the same amount of CC capacity.

In one scenario modeled by staff, by 2017, the CT units and Mitchell Unit 3 (377 MW) that the company recommends retiring were retired, and McIntosh Unit 1, a 139-MW coal unit, was assumed to be retired. In total, 516 MW would have been retired before considering the retirement of Hammond Units 1-3. Next, the Hammond 1–3 units, amounting to 330 MW, were evaluated for retirement.

The company is seeking to decertify the remaining 17-MW CT at Plant Kraft, two small CTs at Plant Mitchell totaling 62 MW, and another 143-MW CT (Intercession City) jointly owned and located in Duke Energy Florida’s service territory. In addition, the company is recommending decertification of the 155-MW Mitchell 3 coal unit that it had previously evaluated for conversion to biomass operation. The company’s economic evaluations showed small benefits that favored retiring the CT units, and much more significant benefits that favored the retirement of the Mitchell 3 unit, particularly in light of all of the capital investment necessary to meet current environmental regulations. 

Said the staff report: “All of the units are relatively inefficient to operate (the Kraft and Mitchell CTs are extremely inefficient). Staff notes that the Company’s results for the Kraft CT indicate that there would be a small benefit for its continued operation. However, the magnitude of the benefits are very small and, given other reasons discussed below, Staff agrees with the Company’s conclusion that the Kraft CT, and the other units should be retired. 

“The original equipment manufacturer for the Kraft and Mitchell CTs, Pratt & Whitney, no longer manufactures or supports the units, and spare parts are difficult to obtain. With regard to the Intercession City CT, transmission service costs have increased substantially since its initial operation. Consequently, it would be more economic to retire that CT as well. Finally, with regard to Mitchell 3, the unit is no longer in compliance with existing emissions rules and is currently not operating. Even if the Company wanted to operate the unit, it would first have to upgrade it to be in compliance with the EPA Mercury and Air Toxics Standards Rule (“MATS”). Both the Company’s and Staff’s analyses indicate that it would not be economic to make ongoing capital investments to continue operating these units and, therefore, they should be retired.”

Even the newest Hammond unit didn’t pass staff scrutiny

The PSC staff report added: “The Company conducted its evaluation of the Hammond Units by assuming that all four units would either continue to operate or would all retire at the same time. Staff was concerned that the Company’s benefits associated with the Hammond plant might largely be driven by the benefit attributed to Hammond 4 alone, the newest and largest of the four units. Thus, Staff requested the Company perform separate evaluations for Hammond 1-3 and Hammond 4, which the Company provided in response to STF 1-31.

“The Company evaluation of the retirement of all four units together showed that the expected value benefit of continuing to operate all four units was $[redacted] million. When the units were evaluated separately, the benefit of Hammond Units 1-3 was $[redacted] million, and the benefit of continuing to operate Hammond 4 alone was $[redacted] million. This demonstrates that most of the benefit of operating the Hammond plant is indeed provided by operating Hammond 4 alone.

“When it provided the separate analyses for Hammond 1-3 and Hammond 4, the Company also took the opportunity to supply another case examining Hammond 1-4 together, but using a revised and lower cost projection of coal transportation costs from the Illinois Basin. Staff compared this case with all four units retired together to the original Hammond 1-4 case that the Company filed at the start of the IRP. The Company’s results show that when the new transportation rates are considered, the benefits of continuing to operate the Hammond 1-4 units more than double, increasing from $[redacted] million to $[redacted] million.”

In the 2013 IRP, Georgia Power’s retirement study concluded that it was economic to continue operating McIntosh 1. Staff’s analysis in that IRP showed that there was a small but positive benefit under its analysis. In this 2016 IRP, McIntosh 1 is no longer economic in either the company or staff’s analysis due to changed economic circumstances.

Key stats for these units are:

  • McIntosh Unit 1, installed in 1979, 139 MW summer capacity;
  • Hammond Unit 1, installed 1954, 110 MW summer capacity;
  • Hammond Unit 2, installed 1954, 110 MW summer capacity;
  • Hammond Unit 3, installed 1955, 110 MW summer capacity; and
  • Hammond Unit 4, installed 1970, 510 MW summer capacity.

If all five of these units were retired, 979 MW of capacity would be removed from the company’s installed base of resources.  From an analysis of the Southern Co. system’s load and capacity resources, it appears that given the amount of excess capacity that currently exists, the system could incur a substantially greater reduction in capacity and still not advance the need date for capacity, said the report.

By the end of the study period (Year 2045), the oldest and smallest Hammond units, Units 1–3, will be over 90 years old, and currently those units are over 60 years old. During the recent IRP hearing, the company stated it has experience operating hydro units for more than 100 years, and given that experience it believes it would not be a problem to operate Hammond Units 1-3 a comparable amount of time, staff wrote. “However, the Company’s comparison between a hydro unit and a coal unit is an apples to oranges comparison as the coal unit has more mechanical systems which are more costly to maintain. It does not seem reasonable to conclude that coal-fired steam turbine units could operate economically as long as hydro units given that hydro units are not nearly as complicated as coal-fired steam turbine units.  The fact is that not many coal units today are still around that have operated for 80–90 years.”

Less than 4% of all coal capacity that is operating today was built prior to 1955, which is when the three small Hammond units were installed. Of the older operating coal units in the U.S., only five coal units operating today are 80 years old or older, and no coal units that are operating today are more than 90 years old. “This industry experience would suggest that it would be unlikely the Company could economically operate these smaller coal units through the end of the study period,” staff wrote.

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.