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Regulations and Rates
12/12/2011 10:18:34 AM
As committed stewards of the environment, Sunflower supports regulation that protects public health and environment, but we also believe the regulations should be achievable and manageable while not inhibiting our nation’s economic growth or placing unnecessary economic burden on ratepayers.
Written by Stuart Lowry, President and CEO of Sunflower Electric Power Corporation
This time of year, it’s easy to guess team loyalties from the frequent banter exchanged between fans of opposing teams. In a world of rapidly changing technology and instant feedback, I am intrigued that games originating long ago can still captivate so many and have concluded one reason is because these games often mirror the daily challenges we each face.
This certainly holds true in the electric industry. At Sunflower, our goal is to bring our A-game every day in order to best meet the needs of our Members-owners and those they serve. In reflecting on 2011—which was full of challenges, particularly from external entities—I believe one of Sunflower’s roles was that of the offensive coordinator, interpreting and planning for new environmental regulations so that the quarterback, our Member-owners, can continue their mission of serving you with reliable power at the lowest possible cost.
The fact that so many environmental regulations are coming at once has created a scenario commonly referred as the “EPA Train Wreck,” a multitude of regulations with unpredictable implementation dates. As committed stewards of the environment, Sunflower supports regulation that protects public health and environment, but we also believe the regulations should be achievable and manageable while not inhibiting our nation’s economic growth or placing unnecessary economic burden on ratepayers.
Unfortunately, the price tag for becoming compliant with these regulations is not cheap, which is never welcome news. Below are explanations of three rules that have the potential to significantly increase the cost of electricity in our system and what Sunflower has done to “protect the quarterback”:
- Maximum Achievable Control Technology for Reciprocating Internal Combustion Engines (RICE MACT): The RICE MACT rule became effective in May 2010 and sets emission limits for all types of internal combustion engines, including electricity generators used for peak-shaving, backup or emergency sources of generation.
Sunflower contracts with several municipal utilities for use of their internal combustion engines during peak energy demand or emergencies. As a result of the RICE MACT rule, each municipal must determine if it is cost effective to retrofit its units to meet these requirements. Several municipals in our system are leaning toward moth-balling older units due to the cost of retrofit. In fact, the Sunflower system could lose nearly 43 megawatts of reserve generation, requiring us to build new generation or seek it elsewhere sooner than anticipated in order to meet our obligations to the Southwest Power Pool, the organization that ensures reliable generation and transmission of energy across our region.
The Sunflower system will no doubt incur increased costs in order to meet the deficit created by this EPA rule.
- Maximum Achievable Control Technology for Electricity Generating Units (EGU MACT): The requirements for EGU MACT became effective when it was proposed in May, and the final rule is expected by mid-December. The rule establishes two sets of requirements for coal and oil-based units: one set is for existing units, and a second set—with more restrictive limits—is for new EGUs.
With the installation of additional mercury control equipment, which will cost Sunflower approximately $2.7 million, Holcomb 1 (H1) will meet the EGU MACT requirements for existing coal units. However, the Holcomb Expansion Project (H2) cannot be built unless substantial revisions are made to the rule for new electricity generating units because the final emission limits have never been achieved by any electricity generating unit.
On behalf of our Members, Sunflower has been active in proposing the following solutions: adding a sub-classification with less stringent values for the new projects that have permits but have not begun construction; classifying these projects as existing units; or withdrawing the rule. A letter has also been written to President Obama, explaining the necessity of EPA implementing one of the above solutions.
Cross-State Air Pollution Rule (CSAPR): CSAPR, intended to improve air quality in regions that are impacted by emissions that cross state lines, was finalized in July and will become effective Jan. 1, 2012, a mere six months after the publication of the proposed rule. This rule requires electricity generating units in 27 eastern states to reduce nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions. Kansas, along with five other states, must also further reduce NOx emissions during the ozone season, a five-month period from May through September.
Since Kansas was not included in the initial proposed rules to control NOx and SO2, generating utilities in our state were blindsided by the final rule and near-term effective date—a situation that creates a great financial and compliance burden on Sunflower and, ultimately, on our Members and you. Although we had planned to install newer NOx reduction equipment at Holcomb Station in 2013, CSAPR forced us to move the $20 million project to early 2012, a change in schedule that escalates the cost by $2.5 million.
Under the new rule Sunflower will receive inadequate NOx allowances to enable H1 to operate at full capacity, so in 2012 we expect to have to buy a limited number of allowances at a currently unknown price for H1. An even larger number of allowances will need to be purchased for our natural gas-based units. As a result of CSAPR, along with MACT and other regulations, it is estimated that Kansans can expect their utility bills to increase approximately 16 percent in the first year.
Unfortunately, it doesn’t end there. Research by the Southwest Power Pool indicates that in the near-term CSAPR could have serious consequences on the electric grid. An inadequate balance of transmission and generation availability raises the possibility of cascading outages or rolling blackouts that would doubtless have significant impacts on human health, public safety, and the region’s economy.
In October, Sunflower joined other utilities in filing a request for stay and a request for reconsideration with the EPA. We have also testified at state and federal levels about the ramifications of this rule.
I realize it’s not great news, but please know this: electric cooperatives have an obligation to keep the lights on, and we are fighting the battle every day to do it at the lowest possible cost. I hope it is reassuring to know that Pioneer Electric Cooperative and the other members of the Sunflower family are on your team and looking out for you.
In closing, I would like to wish you many blessings during this holiday season and in the new year.
- Stuart Lowry, President and CEO of Sunflower Electric Power Corporation
Stuart Lowry, President and CEO of Sunflower Electric Power Corporation
