The Kentucky Public Service Commission, in a Feb. 28 order, granted East Kentucky Power Cooperative’s (EKPC) request for a certificate of public convenience and necessity (CPCN) to build a fuel oil system at its Bluegrass generating station.
As noted in the order, EKPC in August 2018 filed with the commission an application requesting authorization for a CPCN to build an on-site backup fuel supply project at the Bluegrass station, located in Oldham County, Ky.
The capital cost of the project is estimated to be $62.8m, and EKPC estimates that the incremental annual operations and maintenance expense associated with the project will be about $587,000. The commission added in its order that EKPC states that the project is needed to ensure the Bluegrass station’s continued reliable and economic operation in light of the Capacity Construct now in place within PJM Interconnection.
Contemporaneous with the application, EKPC filed a motion requesting a deviation from the regulation requirement of submitting plans, specifications, and drawings of the proposed construction project. The commission added that EKPC stated that it attached to its application a map of the Bluegrass station with relevant facilities and infrastructure identified. EKPC also stated that preliminary plans and specifications for the proposed project were provided as an appendix to a report submitted in conjunction with direct testimony (Attachment SY-3).
The order also noted that while additional design work is being undertaken, the appendix of Attachment SY-3 are the most detailed drawings available to EKPC. To the extent the regulation requires the submission of final, fully detailed plans and specifications, EKPC seeks a deviation from that requirement but commits to filing any plans and specifications that are created during the pendency of the proceeding that are more detailed or materially different from those submitted with the application, the commission said.
The Bluegrass station – which consists of three combustion turbine (CT) units with a combined net summer capacity of 501 MW and a combined net winter capacity of 567 MW – began commercial operation in 2002, and is configured to operate using only natural gas, which is provided by an adjacent interstate natural gas pipeline owned and operated by Texas Gas Transmission, LLC.
The order also noted that as a result of widespread generating unit unavailability during the January 2014 Polar Vortex, combined with the increased reliance on natural gas, PJM redesigned its capacity market by implementing the Capacity Performance construct to provide greater incentives for generation owners to pursue and ensure reliability and efficiency. Under Capacity Performance, generation resources in PJM are required to meet their commitments to deliver electricity whenever PJM determines they are needed to meet power system emergencies, during what are known as Performance Assessment Intervals (PAI) or Performance Assessment Hours (PAH).
The order added that a Capacity Performance resource will be subject to significant penalties if it is unable to perform when called upon by PJM during a PAI or PAH period. Conversely, if a Capacity Performance resource is called upon, and overperforms during any PAH, it will be rewarded based on performance-based bonuses. FERC approved the Capacity Performance construct in 2015, and all resources within the PJM footprint must meet Capacity Performance requirements for the 2020/2021 Delivery Year, the order added.
EKPC stated that for the 2020/2021 Delivery Year, the penalty to be assessed against a cleared resource with unavailable generation during a PAH is $3,329 per MWh. The commission added that EKPC retained Navigant Consulting, Inc., to perform a Bluegrass Capacity Penalty Risk Analysis to determine, for instance, the financial exposure EKPC may face if the Bluegrass station was unable to perform as expected during PAHs.
The primary risks concerning the availability of the Bluegrass station during PAHs are forced outage or natural gas unavailability, the commission said, adding that Navigant’s analysis shows that EKPC would be subject to about $1.4m in non-performance charges for each PAH that the Bluegrass station is unable to operate and could reach as high as $79m for a single year. By way of comparison, EKPC noted that the annual value of the Bluegrass station in the PJM capacity market was $24m based on the 2021/2022 capacity performance price of $140/MW-day in the PJM region that encompasses EKPC’s service territory, the order noted.
EKPC proposes to implement the fuel oil project utilizing two storage tanks providing 24-hours’ worth of fuel storage capacity, the commission said, noting that the storage tanks would be made of carbon steel with a total capacity of 1,160,000 gallons of usable fuel, which will allow each Bluegrass station unit to operate continuously at its maximum winter unit rating for a 24-hour period. EKPC expects that level of storage to provide adequate protection against the anticipated duration of a PJM-declared PAH, the commission said.
There will be three major components to the fuel oil project, with the first involving modifications to the CTs and associated equipment, including installation of dual fuel nozzles, new fuel oil pump skids, water injection pump skids, drain and purge system, and control systems for the CTs to operate on fuel or natural gas. The commission added that the second component involves the installation of the two 580,000-gallon storage tanks, while the third component is the balance of plant installations involving new piping, controls, instrumentation, electrical and mechanical equipment, and a demineralized water storage tank to control nitrogen oxides emissions.
Based on the analyses developed by Navigant and Burns & McDonnell, as well as its own internal review of the various alternatives, EKPC states that it ultimately selected the fuel oil option, the commission said. Among other things, the commission said that EKPC will work with Burns & McDonnell to create and procure the necessary construction and major equipment contracts, and states that the use of multiple contracts will allow it to minimize procurement costs by providing for competitive bidding to reduce contractor markups. EKPC envisions, based on current projections, implementing the project by year-end in 2020.
The commission also said that it finds that EKPC has established that there is a need to comply with the Capacity Performance requirements implemented by PJM to ensure that capacity resources that are offered and accepted into the PJM capacity market are available when called upon to perform.
Failure to perform when called upon would expose EKPC and its ultimate ratepayers to strict and significant financial penalties and assessments, the commission said, adding, “Because the Bluegrass station is served by only one gas pipeline and it currently receives gas on an interruptible basis combined with the absence of on-site fuel storage, the commission finds that it is reasonable for EKPC to address measures to mitigate this risk exposure.”
The commission also said that it finds that EKPC’s evaluation, internal and external, revealed that the proposed fuel oil project is favorable in terms of overall project costs and ability to meet the requirements of PJM’s Capacity Performance with relatively minimal impacts to current operational processes and lower risk with respect to fuel availability during the winter season.
The commission further noted that while it finds that EKPC has established good cause to permit it to deviate from certain regulatory requirements, it will require EKPC to file the “as built” drawings or plans of the fuel oil project subsequent to the completion of the project’s construction.