Kentucky Compliance Considerations

Transcription

1 06 KIUC Energy Conference Clean Power Plan - Act II Kentucky Compliance Considerations Michael L. Kurtz, Esq.

2 The U.S. Supreme Court s February 9, 06 stay (5- vote) of the EPA s Clean Power Plan (CPP) was almost unprecedented and dramatically changed the playing field. Now, unlike the MATS rule, all appeals of the CPP will have to be exhausted before States need to start the process of compliance. This means that fundamental legal issues will need to be resolved in EPA s favor before compliance starts. For example: ) Did the Clean Air Act explicitly authorize EPA to fundamentally transform the U.S. energy system?; ) Is a best system of emissions reduction for a coal plant in Kentucky generation shifting to a wind farm in Indiana?; ) Can EPA require States to adopt existing source standards that are more stringent than the corresponding new source standards (the CPP s emission reduction requirements cannot be met even if every existing coal and natural gas plant is closed and replaced with brand new plants using what EPA determined to be state-of-the art technology)?; and ) Can EPA double-regulate coal plants under Section (d) and Section? 5) Does the CPP unconstitutionally force the states to implement federal policies? If not vacated, it seems likely that at least some portion of the CPP will be remanded to EPA. But it is still a valuable exercise to discuss compliance options because of legal and political uncertainties.

3 Assuming that the CPP survives in its current form and that Kentucky adopts a mass based approach, then a foundational question will be how should Kentucky s CO emission allowances be awarded to in-state generators? There are two basic approaches: ) state government allocates allowances to the in-state generators at zero cost based upon historic emissions; or ) state government conducts auctions for the sale of allowances to the generators, and auction proceeds are refunded to all utilities. Zero cost allocation. Would create top down, command and control process. Political considerations could influence the allocation. Multiple reasonable approaches based on different historic periods. Plant retirements, new construction and load growth could complicate allocations. But, if the zero cost allocation is for an extended period, then this could aid utility planning. Auction approach. Would put compliance planning strategies (buy allowances, buy market energy, build new resources, etc.) on individual utilities, not on state government. Competitive market-based process should result in an efficient allocation since different utilities would value the allowances differently. If auction proceeds are retained by the state instead of being returned to ratepayers, then this approach would effectively be a tax on electricity. The very diverse mix of utilities in Kentucky would make it difficult for state government to fairly allocate allowances at zero cost.

4 Utility Specific Considerations Kentucky Power. Currently has no coal generation in Kentucky. 780 mw Mitchell is located in West Virginia. 90 mw Rockport is in Indiana and purchased under unit power contracts that expire in 0 time frame. An auction approach in Kentucky would generate revenue to off-set West Virginia and Indiana CPP costs. 68 mw Big Sandy conversion to natural gas is relatively small. Construction on conversion began after January 0 and should not be a Section (d) unit. A 58.5 MW biomass purchase contract currently under judicial review. FRR Member of PJM. Duke Energy Kentucky. 600 mw coal fired East Bend station located in Kentucky. 56 mw of CT capacity located in Ohio which has historically run very little. Natural gas CTs not covered under CPP. Member of PJM. East Kentucky. All generation located in Kentucky. Approximately,700 mw coal generation. Approximately,600 mw of natural gas CT capacity, including the recently purchased Bluegrass Station. Gas CTs not covered under CPP. Could meet 0% of native load with CTs at 0% capacity factor. RPM member of PJM.

5 Utility Specific Considerations (cont d) LG&E/KU. Serves 9% of total Kentucky retail load. Not an RTO member. 5% of Trimble County and owned by IMEA/IMPA. New Cane Run 7 60 MW NGCC highly efficient and is covered by Section (d) since it was under construction in January 0. With currently low gas prices, Cane Run 7 is lower cost than most coal plants. Approximately,00 MW of gas CTs not covered under CPP. 0 MW solar project under construction. May lose some all-requirements municipal load to market sales. Proposed 700 MW NGCC put on hold. Big Rivers. Member of MISO. Significant recent changes in both generation supply and Member load. Coleman station currently not operating. Operates HMP&L Station for the City, with contractual right to output not retained by HMP&L. 0 MW Wilson Station currently sold in off-system market. Smelter load currently served by Kenergy at market rates.

6 Utility Specific Considerations (cont d). serves load in seven states. Not regulated by KPSC. Has far more generation in Kentucky than in-state cooperative load. currently constructing,05 mw NGCC at Paradise site. Construction began after January 0 and should not be a Section (d) unit, although leakage rules are unclear. Nine operating units at, all of which burn Powder River Basin coal. Units and are being retrofitted with pollution control equipment. The seven at risk Units will be years old in 0, the first year of CPP compliance. Retirement of these units would reduce the demand for CO emission allowances and therefore reduce the price. The,00 mw Paducah gaseous diffusion plant ceased operations in 0. Municipal Utilities. Not regulated by KPSC. Two municipal utilities own generation: Owensboro Municipal Utilities Elmer Smith Plant and Henderson Municipal Power and Light Station Two. Announced retirement of Elmer Smith in 09-0 time frame. Some municipal utilities served by investor owned utilities at cost based rates and others are actively seeking market alternatives.

7 State-Wide Considerations If an auction approach is adopted, then there needs to be legislation ensuring that all auction proceeds are returned to consumers, not retained for general fund or other purposes. Should consider legislation authorizing utility implementation of a CPP Rider to recover CO emission allowance costs and credit back auction proceeds. Only in-state generators should be allowed to own Kentucky CO emission allowances. Environmental groups seeking to hoard allowances to force closure of coal plants and financial firms seeking arbitrage profits should be excluded from owning allowances. A secondary market for buying and selling allowances by in-state generators should be encouraged.

8 0 Utility KPC KPC Facility Name Unit ID Big Sandy Big Sandy BSU BSU Tons CO Emitted Net MWh,87,6 699,5 Percent of 0 total CO Emissions Equivalent Number of 0 Allowances if Number of 0 Percent of 0 Auction Proceeds are Allowances Based total Kentucky Refunded Based on on 0 Emissions retail sales 0 Sales,9,88 789,88,7,6.9%,6,5 8.% 6,78,56 DUKE East Bend,6,,8,0.57%,7,9 5.7%,968,55 H L Spurlock H L Spurlock H L Spurlock H L Spurlock John S. Cooper John S. Cooper William C. Dale William C. Dale William C. Dale William C. Dale,88,568,868,,57,089,8,96,7,08,7,7,0,68,97,57 570,90 579,9 857,690 88,0 6,00 7,6 5,79 6,99 8,00,670 08,695,0 9,787,8 0,06,86 0.8% 8,95,70 5.7%,058,58 *Generating Units in Red have retired since 0, are currently not operating or have announced plans to retire before 0. BSUI is being converted to a 68 MW natural gas plant and is building a,05 MW NGCC at Paradise. Construction on both began after January 8, 0 and neither should be covered under Section (d), but there could be leakage issues.

9 0 Utility Facility Name Unit ID Tons CO Emitted Net MWh Cane Run Cane Run Cane Run E W Brown E W Brown E W Brown Ghent Ghent Ghent Ghent Green River Green River Mill Creek Mill Creek Mill Creek Mill Creek Trimble County ,79 9,,085,099,88 7,5,8,85,08,08,0,7,96,75,696,060 65,699 6,58,0,85,89,9,57,97,60,78,85,0 7,89,07,88,66,7,6 88,58,600,6,0,05,06,86,76,65,60,88 6,95 6,898,979,8,568,577,78,590,6,5,06,086 Trimble County Tyrone Cane Run 7 5,,,55,00,85,0,79,96 6,9,9 5,50,96 Percent of 0 total CO Emissions 8.07% Equivalent Number of 0 Allowances if Number of 0 Percent of 0 Auction Proceeds are Allowances Based total Kentucky Refunded Based on on 0 Emissions retail sales 0 Sales 9,,7 9.06% 9,98, *Generating Units in Red have retired since 0, are currently not operating or have announced plans to retire before 0. BSUI is being converted to a 68 MW natural gas plant and is building a,05 MW NGCC at Paradise. Construction on both began after January 8, 0 and neither should be covered under Section (d), but there could be leakage issues. **The KU/LGE Cane Run 7 60 MW natural gas combined cycle plant went into commercial operation in mid 05 and has been added since it was under construction on or after January 8, 0 and is therefore an existing unit covered by Section (d). Based upon actual operating data during the last quarter of 05, annual CO emissions of,79,96 tons were estimated based upon an 80% capacity factor and a CO emission rate of 0.9 tons per MWh gross generation. 75% of Trimble County and is owned by. 5% is owned by IMEA/IMPA.

10 0 Utility Facility Name Unit ID Tons CO Emitted Net MWh Coleman Coleman Coleman D B Wilson C C C W 9,9,05,,088,90,956,07,0,95,0,89,9,600,50,57 HMP&L Station H 69,0 69,505 HMP&L Station R D Green R D Green Robert Reid H G G R Paradise Paradise Paradise ,696 76,5,59,,80,695,0,9,55,88 5,09, 0,9,09,8,79,6,75,0,9 5,65, ,09 Percent of 0 total CO Emissions Equivalent Number of 0 Allowances if Number of 0 Percent of 0 Auction Proceeds are Allowances Based total Kentucky Refunded Based on on 0 Emissions retail sales 0 Sales.7% 9,75, % 9,90,895.7% 0,58, % 7,9,7 5,77,9,597,0 6,59,67 66, ,085 90,878 7,50 80,50 79, ,798 85,70 95,580 76,9 88,86 8,00 979,86 77,8 9,5 788,09 97,6,5,805,9,098 *Generating Units in Red have retired since 0, are currently not operating or have announced plans to retire before 0. BSUI is being converted to a 68 MW natural gas plant and is building a,05 MW NGCC at Paradise. Construction on both began after January 8, 0 and neither should be covered under Section (d), but there could be leakage issues. 's entitlement to HMP&L Station is approximately 97 MW or 6%. The City of Henderson retains approximately 7%.

11 0 Utility Facility Name Unit ID Tons CO Emitted Net MWh Percent of 0 total CO Emissions Equivalent Number of 0 Allowances if Number of 0 Percent of 0 Auction Proceeds are Allowances Based total Kentucky Refunded Based on on 0 Emissions retail sales 0 Sales MUNI MUNI MUNI Elmer Smith Elmer Smith HMP&L Station H 96,65,57,06 6,56,0,80,70,98 07,96 MUNI HMP&L Station H 78,0,6,9,56,675,5.95%,09,65 8.0% 6,7,68 950,675 8,7,765,9,0,09 85,00,866,00.00%,58,8 NA NA IMEA/IMPA IMEA/IMPA Trimble County Trimble County 85,8,90 9,,7 ***0 Retail MWh sales were: KPC 6,5,000 DUKE,06,000,9,000 0,706,000 76,757,56 0,797,000 7,57,000 MUNI 6,60,000 TOTAL 78,68,000 *Generating Units in Red have retired since 0, are currently not operating or have announced plans to retire before 0. BSUI is being converted to a 68 MW natural gas plant and is building a,05 MW NGCC at Paradise. Construction on both began after January 8, 0 and neither should be covered under Section (d), but there could be leakage issues. 75% of Trimble County and is owned by. 5% is owned by IMEA/IMPA. 's entitlement to HMP&L Station is approximately 97 MW or 6%. The City of Henderson retains approximately 7%. 76,765,0

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