Sunflower remains steadfast with plan for Holcomb plant

3/15/2014

By SCOTT AUST

By SCOTT AUST

saust@gctelegram.com

Three weeks after a Kansas Department of Health and Environment public hearing, officials with Sunflower Electric Power Corp. don't have any idea when or how KDHE will rule on an addendum to the construction permit for the Holcomb 2 power plant project, but feel good about the process.

Stuart Lowry, president and chief executive officer, said the process stayed focused on the issues identified by the Kansas Supreme Court in its remand of the permit back to KDHE.

"We felt like the modeling proved the emissions standards that they were asked to re-evaluate, that the project could meet those standards. We submitted comments supportive of that conclusion and hope KDHE will agree and the addendum will be approved, and we can move on to the next step," he said.

Lowry, who was traveling to various Sunflower sites this week, stopped in to The Telegram to talk about the ongoing regulatory process. He said Sunflower still strongly believes in the Holcomb expansion project.

Construction of a second generator at Sunflower's Holcomb plant was blocked in 2007, when Kansas denied a building permit because of health concerns about greenhouse gases.

A 2009 settlement agreement between then-Gov. Mark Parkinson and Sunflower allowed the permitting process to begin again. In December 2010, the KDHE approved the building permit for the 895-megawatt coal-fired power plant, which was estimated to cost as much as $3 billion to construct. The Sierra Club then filed suit in 2011.

Last October, the state Supreme Court sent the permit back to KDHE to apply one-hour federal air quality emission standards for nitrogen dioxide and sulfur dioxide, and new air emission limits before granting the permit. The addendum essentially said the things the court asked for in October have been done and retesting was not necessary.

A month-long public comment period was completed Feb. 19. At some point, KDHE will make a decision about the addendum and the permit, but no timetable has been released.

Lowry said Sunflower's development agreement with Tri-State Generation and Transmission Association, an electric power supplier in Colorado, is still in effect. The first major hurdle is securing a permit for the project, he said, a process that has been unusual due to the changing stability of the regulatory environment.

Many of the regulations KDHE implements are promulgated by the EPA, and the EPA has been evaluating a number of different emission standards and regulations that apply to coal plants, Lowry said.

In a perfect world, regulations would be well-known, making KDHE's work more clear cut, he said. But the regulatory environment is in a state of flux when it comes to emission standards, so even if the current addendum is approved, there are a number of other regulations that could affect the project.

The one Sunflower is keeping close watch on is a new source greenhouse gas rule the EPA has proposed, which would use carbon capture and storage as the emission control technology. The idea is carbon emissions would be captured and stored somewhere, perhaps underground.

Lowry said carbon capture and storage technology is largely unproven. He said a project in Kemper County, Miss., appears to be a model the EPA is using. At that site, carbon dioxide is captured and then injected into the ground to help recover gas from marginal oil fields.

That model could be difficult to replicate since not every power plant is located near an oil field, Lowry said. The process to capture and store carbon is also energy intensive, he said, requiring a lot of output from the power plant to operate, which diminishes the amount of electricity available for consumers and increases the cost of power.

Cindy Hertel, Sunflower communications manager, said Department of Energy representatives commented during a recent hearing that the first generation capture and control technology make electricity 70 to 80 percent more expensive.

Lowry said from a power plant development perspective, power companies need to be certain they can comply with regulations before moving forward with a project.

"If the regulation is uncertain, that's a hurdle. If the proposed regulation may or may not apply to you, which is really the case with the Holcomb expansion project, that presents a hurdle," he said.

According to Lowry, regulators have readily admitted that Holcomb and a few other projects around the country are "rare birds" in that they are so deep into the permitting process it's uncertain how they will be treated as new regulations come along.

If a regulation ultimately is adopted that the company feels it cannot meet the standard, that's a hurdle a project might not be able to overcome, he said.

"To be honest, what we have to do right now is focus on the task at hand, which is getting the permit in hand," Lowry said.

The process for building a power plant starts with regulations, he said. Regulations guide the permit, the permit guides the plant design, the design determines the construction estimates and those estimates guide the "bus-bar" cost, which essentially is all the costs that go into building and operating the plant before it puts energy onto the grid.

All things being equal, Sunflower sees the Holcomb expansion project as a low-cost energy option for decades into the future. The unknown variables are regulations like carbon capture and storage. Lowry said if a new rule like that is adopted, things are no longer business as usual, and it could change the economic evaluation.

"The short answer is I just can't predict the future against which we're going to be making this decision. As time goes by, we get more clarity about it. I think our role, the thing we're trying to contribute to the discussion is just what coal brings to the resource mix from an energy supply perspective. That's our expertise," he said.

Both Lowry and Hertel emphasized the low cost and stability of electricity produced from coal.

"One thing we found during a recent cold period is having that generation resource mix is very advantageous," Hertel said.

Sunflower and other utilities in a nine-state region that are part of the Southwest Power Pool saw electric usage spike well above normal during a brutal cold snap on Feb. 6 that caused natural gas prices to rise to a level 8 or 9 times higher than normal, and caused the market price of energy to grow about 100 times normal, they said.

"What was interesting to us was at a period of time when market prices were at $1,200 - $1,500 per megawatt hour ... we were providing power to our members, from Holcomb, at around $24 a megawatt hour," Lowry said.

The takeaway, Lowry said, is Sunflower has an abundant supply of coal with long-term contracts in place to supply and deliver it to Holcomb station, which provides a good hedge against market volatility.

"That is a real benefit to coal that you can sometimes forget about it when you have a long period of gas prices and market prices that have been reasonable for a long period of time," he said.

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