A unit retirement study update confirms the economic viability of the coal-fired Bowen, Wansley and Hammond power plants, but still points to the need to fuel switch other coal capacity over the next few years due to factors like new U.S. Environmental Protection Agency clean-air mandates, according to rebuttal testimony filed Dec. 29 by Georgia Power at the Georgia Public Service Commission.

The joint testimony is from Jeffrey Burleson, Vice President of System Planning for parent Southern Co. (NYSE:SO); Garey Rozier, Manager of Resource Planning for Southern Co. Services; Kyle Leach, Director, Resource Policy and Planning for Georgia Power; and Larry Legg, Manager of Market Planning for Georgia Power.

The testimony came in a case where Georgia Power has asked for: decertification of the coal-fired Branch units 1-2 and the oil-fired Mitchell Unit 4C; applied for certification of power purchase agreements (PPAs) with BE Alabama LLC from the Tenaska Lindsay Hill power plant and with Southern Power Co. from the Harris, West Georgia and Dahlberg Electric plants; and updated its integrated resource plan.

A needs assessment update incorporates new assumptions on the availability of Kraft and McIntosh as well as Yates units 6-7 based on further analyses, though these changes do not alter the company’s ultimate recommendations. While certification of all four PPAs will likely cause the company to exceed its planning target reserve margin, this result is reasonable given the amount of uncertainty facing the company and its customers, the company witnesses said.

Continuing with baghouse installation work at Bowen, Wansley and Hammond at this time is also in the best interest of customers and will potentially make it more likely that the company will be able to obtain necessary environmental compliance extensions for complying with EPA’s final regulation to set national emission standards for hazardous air pollutants from coal- and oil-fired electric utility steam generating units, known as the Utility MACT.

EPA, by the way, officially calls this the Mercury and Air Toxics Standards (MATS) rule. Utility MACT, on the other hand, is a title that has been used for some time within the utility industry, with MACT standing for Maximum Achievable Control Technology.

EPA issued a pre-Federal Register internet version of the Utility MACT on Dec. 21, 2011, a mere eight days prior to the filing of the Georgia Power testimony. “The Company is actively reviewing the rule and evaluating its compliance strategy for all of its units,” the filing added. “Given the short time that we have had to digest the over 1,100-page rule, it would be premature for the Company to draw any conclusions at this time. Although the final rule is very stringent and many aspects of the rule are similar to that of the proposed rule, the final rule includes many changes that warrant a full evaluation to determine any effects on the Company’s compliance strategy. Therefore, the Company has not revised any of its control assumptions for its units.”

The unit retirement study update utilizes the Budget 2012 (B2012) load and energy and fuel forecasts and contains analyses for switching Bowen, Wansley, Hammond and Yates units 1-5 to natural gas, as was requested by the commission’s Public Interest Advocacy (PIA) staff. Additional retirement studies were performed for Yates units 6-7 and Gaston units 1-4. 

PIA staff and the company are in agreement on a number of the primary issues at stake in this proceeding, the filing said. PIA staff supports the company’s request to retire and decertify Branch units 1-2 and Mitchell Unit 4C. PIA staff also supports the company’s conclusion that it is reasonable to assume that approximately 2,000 MW of capacity will be unavailable to meet customer needs in 2015 and, as a result, additional capacity is needed to ensure reliability for Georgia Power customers. PIA staff also acknowledged that the company is entitled to recover the costs associated with the retirement of Branch Units 1-2 and Mitchell Unit 4C. PIA staff also generally supports the company’s request to initiate work on the installation of baghouses on the three plants.

There are a few areas of disagreement between the company and PIA staff concerning the amount of PPA capacity needed to strive to ensure reliability in 2015, whether the timing of certain cost recovery should be determined in this proceeding, the timing of baghouse expenditures and the appropriate additional sum amount for the PPAs.

The additional studies included in the unit retirement study update are: Yates units 1-5 fuel switched to natural gas (as requested by the staff); Yates units 6-7 fuel switched to gas; Gaston units 1-4 fuel switched to gas; and Hammond, Bowen and Wansley staying on coal with new emissions controls installed.

“As anticipated, the economics associated with Plants Bowen and Wansley overwhelmingly support controlling these units for compliance with the newly released Utility MACT rule and anticipated future environmental regulation requirements,” the testimony said. “While the economics associated with Plant Hammond Units 1-4 have changed with current projections and are not as strong as for Plants Bowen and Wansley, the company continues to support the need for controlling these units for the benefit of Georgia Power’s customers. Since a scrubber was previously installed at Plant Hammond in 2008, the economics of retrofitting additional environmental controls on Plant Hammond are more favorable than for other units currently without a scrubber. Continued operation of Plant Hammond also maintains important fuel diversity benefits to the system, as well as significant ancillary benefits, including county tax revenues and quality employment for the state of Georgia."

For purposes of the needs assessment update, Georgia Power has: updated the load forecast information using the B2012 load forecast; updated the forecast for demand side options; assumed Kraft units 1-4 and McIntosh Unit 1 are unavailable beginning in 2015; and assumed that Yates units 6-7 are fuel switched to gas and available in 2015. 

The company’s initial application contemplated the fuel switching of McIntosh Unit 1 from coal to gas and assumed the continued operation of Kraft units 1-4 on gas with oil back-up. As a result, these units were assumed to be available to serve customers in 2015 in the initial application.

New pipeline capacity a boost to Yates conversion

Over the past several months, the company has continued to evaluate the availability of gas supply at Yates. Yates is connected to the Transco system, which flows through the Southeast to New York and accesses the new shale gas production from the Marcellus Shale. Transco recently announced plans to construct a 250-mile pipeline across southern Pennsylvania to allow southbound flow that would enhance supply access to the southwestern Marcellus/Utica shale supply areas, Georgia Power noted. This proposed Atlantic Access project will provide a firm path to Transco’s interconnect with the Elba Express pipeline in South Carolina.

“Due to the projected increased availability of Marcellus Shale Gas in the Northeast over the next several years and the accompanying pipeline projects, the company now believes that, for other than the winter heating season, some amount of gas supply will be back-hauled to the Southeast and free up pipeline transportation capacity in the Southeast,” the company testimony said. “This will increase the availability of gas to Plant Yates in the summer and makes fuel switching of Plant Yates Units 6 & 7 a viable, cost-effective option for customers. The pipeline lateral from Transco to Plant Yates is already in place and can support this option. As a result, while the Company is still evaluating potential environmental regulatory approvals that may be needed, it is currently expected that gas operations at Plant Yates Units 6 & 7 could be fully implemented by 2015.”

Georgia Power currently purchases 50% of the capacity and energy from Gaston units 1-4, which are owned by Southern Electric Generating Co. (SEGCO). SEGCO has made no decision as to what the optimal compliance strategy for the units might be, depending upon the requirements and compliance timing associated with potential federal rules, the testimony noted. Possible strategies include: the addition of control equipment for continued operation on coal; the utilization of multiple fuel options, with control technologies; and other options that may arise with time. For purposes of this proceeding, an economic analysis reflecting fuel switching Gaston to gas was included in the unit retirement study update.

“While no final decision has been made on a compliance strategy, SEGCO has indicated its intent to continue to fully meet its contractual obligations to provide cost-effective capacity and energy to its off-takers,” the company witnesses wrote. “As a result, the company continues to assume in the needs assessment update that capacity from Plant Gaston will be available in 2015 and beyond to serve the needs of customers.”

As for the Utility MACT rule, it should be noted that the final rule likely will not be published in the Federal Register until sometime in early 2012 and changes could be made between released version of the final rule and the Federal Register published final rule, Georgia Power pointed out.

In addition, the company continues to anticipate the potential impact of other EPA rulemakings. The EPA is expected to propose revised effluent limitations guidelines for wastewater and issue its final 316(b) rule by July 2012, but the ultimate requirements and timelines for compliance with these rules are uncertain. The EPA is also expected to finalize a new coal combustion waste rule sometime in late 2012 or early 2013.

The combined effect of these two water and waste rules could equal approximately 40% of the projected capital costs for environmental controls. However, these estimated potential costs were included in the original and updated unit retirement studies. Therefore, the recently issued Utility MACT rule and the remaining pending environmental rules continue to create great uncertainty for the company in its efforts to continue to provide economic and reliable electric service to customers.

Extension needed on Utility MACT deadline for three plants   

Also, the company cannot complete the construction of baghouses on Bowen, Wansley and Hammond by early 2015 and so the company will need to obtain at least a one-year extension from the Georgia Environmental Protection Division and pursue additional extension options in order to provide reliable power to customers during installation of controls. 

Georgia Power said it believes that by continuing work on the baghouses now, it will be in a good position to obtain from the Georgia EPD the one-year extension authorized under the Clean Air Act. In fact, the EPA stated in the final Utility MACT rule that a one-year extension beyond the agency’s three-year compliance deadline should be available for units that need it, the utility pointed out.

It would be cost prohibitive for the company to secure replacement capacity today for about 5,000 MW of capacity that would be needed across Georgia Power’s system to ensure reliability in the summer of 2015, in addition to the 1,562 MW of PPAs already contracted for by the company, Georgia Power said. This replacement capacity would cost customers, at a minimum, up to $400m a year, and the company said it does not believe there is sufficient capacity that could be relied upon to serve load in the region in this time frame.

Georgia Power noted in the amended application that it has changed its mind since the original application was filed about future coal supply for three of the four units at Hammond, with all four units already equipped with an SO2 scrubber. “In the original analysis of Units 1-3, the coal sourcing was based on Central Appalachian coal,” the company said. “This analysis, however, assumes an alternate fuel blend at Plant Hammond, which includes Central Appalachian and Illinois Basin coal. Each year during its planning process, Georgia Power evaluates several sources of coal delivery to determine its long term cost projections. With the results from B2012, Illinois Basin offers a projected cost savings for customers compared to Central Appalachian coal for delivery to Plant Hammond. ... Although additional evaluations will be performed, the Company feels confident it will be able to take advantage of Illinois Basin coal at Plant Hammond."