Coal-fired Station Two power plant another big step closer to closure

Douglas White | Henderson

FRANKFORT – The now expected closure of the city of Henderson's Station Two coal-fired power plant is another big step closer to reality, as the state Public Service Commission has signed off on Big Rivers' departure as the plant operator.

According to a press release issued Wednesday, the Kentucky Public Service Commission "has relieved Big Rivers Electric Corp. of any continuing obligation to operate an electric power plant for the city of Henderson."

In the order issued Wednesday, the PSC determined that Henderson’s Station Two power plant “is no longer economically viable.” That finding echoes a provision in the contract under which Big Rivers operates the plant and confirms the termination of the contract.

But that doesn't mean Big Rivers is immediately walking away from the plant. They have asked for, and received, approval to continue working with the plant's owner -- the city of Henderson -- thought the spring of 2019.

Meanwhile, at a city commission meeting late last month, the city commission approved authorizing Mayor Steve Austin and HMP&L chief Chris Heimgartner "to take any and all action necessary to protect the city's and HMP&L's interests related to the retirement, discontinuance and/or decommissioning of Henderson Station Two and its facilities including negotiating and entering into a capacity and energy supply contract with Big Rivers Electric Corp."

Heimgartner explained that, among other things, that would allow the city to negotiate a short-term power supply deal with Big Rivers (which has other power stations) until the city of Henderson makes arrangements such as open-market purchases, natural gas-fired generators or other means.

Station Two is a coal-fired power plant. It has two units with a combined capacity of 312 megawatts. Big Rivers, based in Henderson, has operated the plant under a series of contracts going back to 1970.

The contracts allow Big Rivers to terminate them upon a determination that Station Two is no longer able to reliably produce electricity at an economically competitive price. The output from the plant is sold into the wholesale market of the Midcontinent Independent System Operator, the transmission grid operator of which Big Rivers is a member.

Two analyses, one conducted by Big Rivers and the other by an independent consultant working for them, found that the cost of producing power at Station Two in the future is likely to exceed the revenue it would generate in the MISO market.

Based on those studies, Big Rivbers notified Henderson on May 1, 2018, that the contracts have terminated.

The PSC noted that a study done for the city of Henderson earlier this year reached essentially the same conclusion as the BREC analyses. It found that virtually any other combination of available sources of electricity would be less expensive than continuing to operate Station Two.

In Wednesday’s order, the PSC also granted Big Rivers' request for authorization to continue operating Station Two through May 31, 2019, in order to allow Henderson to either make other operating arrangements or to find alternative sources of power. Big Rivers will cease operations earlier if it and Henderson reach an agreement to do so.

The PSC deferred a decision on how to deal with the financial consequences of ending the Station Two contracts. BREC said it would have to write off nearly $90 million, representing the remaining value of the contracts, and asked to set aside that amount for potential future recovery through rates.

The PSC said it would address that issue at a later date, after additional evidence has been submitted.

Other parties to the case include the Kentucky Office of Attorney General and Kentucky Industrial Utility Customers, Inc.

Today’s order and other records in the case are available on the PSC website, psc.ky.gov. The case number is 2018-00146.

The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,100 gas, water, sewer, electric and telecommunication utilities operating in Kentucky.