Three utilities seek Wisconsin PSC approval for Columbia coal plant ownership changes

Wisconsin Power and Light (WPL), Wisconsin Public Service Corp. (WPS) and Madison Gas and Electric (MGE) on Aug. 9 jointly applied to the Public Service Commission of Wisconsin for approval of the transfer of partial ownership interests in Unit 1 and Unit 2 of the coal-fired Columbia Energy Center, located in Pardeeville, Wisconsin.

The applicants propose to adjust their ownership shares in Columbia as the result of the modified capital-expenditure obligations contemplated in the Second Amended and Restated Agreement for Construction and Operation of the Columbia Generating Station (“Amended Operating Agreement”) negotiated among the applicants.

On May 6, 2016, the commission approved WPL’s application for a Certificate of Public Convenience and Necessity (CPCN” to construct a 650-MW natural gas-fired, combined cycle facility in the town of Beloit, Wisconsin. The estimated total cost for the project, known as the Riverside Energy Center Expansion (RECE), is approximately $700 million. In connection with the RECE CPCN proceeding, WPL entered into agreements with Wisconsin Electric Power, WPS, and MGE resolving certain issues in the proceeding and, among other commitments, requiring WPL, WPS, and MGE to negotiate terms to modify temporarily each company’s capital-expenditure obligations associated with Columbia, which is jointly owned by the three utilities.

To effectuate the Columbia component of the RECE agreements, the applicants propose to enter into an arrangement under which WPL will agree to increase its capital-expenditure obligations for a set term. In return for increased capital expenditures made, WPL’s ownership share in Columbia will increase proportionally. All transfers of partial ownership interests from WPS and MGE to WPL will be permanent. Under the Amended Operating Agreement, WPL will continue to operate the facility.

The proposed transaction will better align each of the applicants’ capacity and energy needs with its overall resource mix, the utilities said. The transaction also supports efficient operational management of Columbia since it will provide WPL with additional decision-making responsibility for capital and operational expenses.

Applicants’ proposed transaction arises out of two agreements that served to resolve substantial issues raised in the RECE proceeding and facilitate the commission’s ultimate approval of RECE. WPL entered into one agreement with WEPCO and WPS, and another with MGE. Among other commitments, the agreements grant purchase options to WPS and MGE for as much as 250 MW of the currently-anticipated 700 MW of RECE installed capacity. The agreements also call for the applicants to negotiate a further agreement transferring portions of Columbia capacity now held by WPS and MGE – roughly 80 MW – to WPL in exchange for WPL’s assumption of increased capital expenditures. 

In relevant part, the RECE settlement agreements include the following components:

  • WPS purchase options – Upon completion of RECE construction, WPL will grant to WPS two RECE purchase options: during the facility’s first two years of operation, WPS will have the option to purchase up to 100 MW of RECE capacity; and during the third and fourth years of operation, WPS will have the option to purchase up to a cumulative 200 MW of RECE capacity. The maximum cumulative amount that WPS may purchase under both of these option periods is 200 MW.
  • MGE purchase options – Upon completion of RECE construction, WPL will also grant to MGE two RECE purchase options: during the facility’s first two years of operation, MGE will have the option to purchase up to 25 MW of RECE capacity; and during the third through fifth years of operation, MGE will have the option to purchase up to a cumulative 50 MW of RECE capacity. The maximum cumulative amount that MGE may purchase under both of its option periods is 50 MW.
  • WPL purchase options – In the event that WPS exercises its option to purchase RECE capacity, WPL will have purchase options for portions of any natural-gas combined cycle (NGCC) generating unit constructed in Wisconsin by WEPCO or WPS with a commercial operation date within ten years of the RECE in-service date. WPL purchase options include: during the first two years of operation of the WEPCO or WPS NGCC facility, WPL will have the option to purchase up to 100 MW; and during the third and fourth years of operation, WPL will have the option to purchase up to a cumulative 200 MW of the NGCC facility. The maximum cumulative amount that WPL may purchase under both of its option periods is 200 MW, unless WPS acquires less than 200 MW under its own RECE purchase options, in which case WPL’s maximum purchase amount will be capped at the amount of the WPS RECE purchase.
  • Columbia Collaboration Agreement – WPL, WPS, and MGE are required to negotiate a Columbia Collaboration Agreement through which WPS and MGE can opt out of obligations to pay certain capital expenditures associated with Columbia, which would then be incurred by WPL. In return for its additional capital expenditures, WPL will acquire a proportionally increased ownership share in Columbia. WPS and MGE will continue with their then adjusted shares of Columbia capital expenditures after June 1, 2020. In the event that all options are exercised under the RECE settlement agreements, there would be an approximate exchange of capacity among the Applicants as follows: through purchase options, a potential transfer from WPL of up to 250 MW of RECE capacity to WPS (up to 200 MW) and MGE (up to 50 MW); a transfer of approximately 47 MW of Columbia capacity from WPS to WPL; a transfer of approximately 33 MW of Columbia capacity from MGE to WPL; and through purchase options, a potential transfer from WPS of up to 200 MW of capacity in a future NGCC(s) to WPL.

It will be up to each party’s discretion as to whether it exercises an option pursuant to the terms of the respective agreements. Altogether, if all of the transfers occur, the result will be a net change of 30 MW in additional capacity for WPL, an additional 17 MW for MGE, and a reduction of 47 MW of capacity for WPS. This application relates only to the Columbia Ownership Transfer. If and to the extent the purchase options are exercised, the necessary approvals will be sought.

The Columbia Energy Center, located southeast of Portage, Wisconsin, consists of two coal-fired units, designated as Unit 1 and Unit 2. Together, the units have a generating capacity of 1,112 MW. Unit 1 began operations in 1975, and Unit 2 in 1978. Columbia is jointly owned by the applicants: WPL (46.2%); WPS (31.8%); and MGE (22%).

Since 2011, the commission has authorized more than $900 million in environmental and operational upgrades at Columbia. These include: environmental control installations to meet air emission requirements for sulfur dioxide and mercury; new coal pulverizers and steam turbine upgrades; and a Selective Catalytic Reduction (SCR) system for Columbia Unit 2 to comply with nitrogen air emission requirements included in a U.S. Environmental Protection Agency Consent Decree.

Under the proposed transaction, WPS and MGE would be permitted to opt out of Columbia capital expenditures (excluding amounts for the SCR upgrades at Unit 2) for the period covering Jan. 1, 2016, through June 1, 2020 (called the “Settlement Period”). During the Settlement Period, the applicants will continue to share capital expenditures for the SCR upgrades at Unit 2 consistent with their existing ownership share percentages. If and to the exent that WPS or MGE opt out of other capital expenditures, WPL will incur those expenditures. In return, WPL’s ownership share of Columbia will increase in proportion to WPL’s increased capital expenditures during the Settlement Period. Once the Settlement Period ends, the applicants will return to funding Columbia capital expenditures, fuel costs, and operations and maintenance expenses based on their ownership shares as of June 1, 2020.

The applicants propose to readjust Columbia ownership shares among themselves based on the then-current MW capacity at the end of each of the years 2016, 2017, 2018, and 2019, and on June 1, 2020.

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.