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Ala. utility plans to close coal-fired plant, citing US EPA coal ash rule


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Ala. utility plans to close coal-fired plant, citing US EPA coal ash rule

PowerSouth Energy Cooperative will retire its coal-fired Charles R. Lowman plant due to federal coal ash regulations, the utility's CEO said.

The 556-MW plant's three units will be replaced with natural gas-fired generation, CEO Gary Smith told employees in a Dec. 31, 2018, message. Smith cited the U.S. Environmental Protection Agency's Coal Combustion Residuals, or CCR, rule as the driving force behind the move.

PowerSouth Energy representatives did not immediately respond to requests for additional comment on Jan. 31. The generation and transmission cooperative supplies wholesale electricity to 16 distribution cooperatives and four municipal utilities in Alabama and the Florida panhandle.

Issued by the Obama administration in 2015, the CCR rule set the first-ever national standards for the safe storage and handling of coal residuals, also commonly referred to as coal ash. Like most coal plants of its era, the Lowman plant disposes of coal ash and other residuals from burning the fuel for electricity in clay holding ponds. The problem is that those ponds now technically considered "unlined" under current regulations can leach toxic pollutants into the underlying groundwater, which can then contaminate nearby surface waters.

The original CCR rule gave power plant operators until Oct. 17, 2018, to demonstrate compliance, and those that failed to do so had an additional six months to initiate closure of impoundments that did not meet the rule's requirements. But the EPA in July 2018 finalized changes extending the deadline for initiating closure to Oct. 31, 2020, in response to concerns raised by utilities. In addition, the U.S. Court of Appeals for the District of Columbia Circuit in August 2018 found the original CCR rule's provision that unlined impoundments need only initiate closure or retrofit after they are found to violate groundwater protection standards was not sufficiently protective.

"Because we will not be able to move coal ash to our ponds after October 2020, we are left few choices other than to close the Lowman Plant and obtain additional generation resources to replace the coal-fired generation," Smith told employees. The CEO lamented the loss, noting the shift will make PowerSouth Energy Cooperative more dependent on gas-fired generation. In his December 2018 message, Smith said the Lowman plant was economically dispatched ahead of the co-op's most efficient gas-fired units for the previous four weeks due to higher gas prices. "With the closure of the Lowman plant, we lose the diversity of coal-fired generation as a natural hedge against higher natural gas prices," he said.

Original Lowman unit operating for 50 years

The first unit at the Lowman plant, in Washington County, Ala., began operating in 1969 and has a nameplate capacity of 66 MW, according to S&P Global Market Intelligence data. Two other units, each with a nameplate capacity of 236 MW, began operating in 1978 and 1980. The plant's primary source of coal in 2018 was Alliance Resource Partners LP's Gibson mine in Indiana.

According to S&P Global Market Intelligence capacity factor data through October 2018, which measures the percentage of hours the plant was in operation, the plant's highest use was in high-demand months of July and August, at nearly 60%. However, the plant was hardly used between February and June.

PowerSouth's overall generation portfolio totals nearly 2,000 MW of nameplate capacity, and is already two-thirds natural gas. In October 2018, the utility issued a request for proposals for up to 80 MW of solar capacity to be in service by Oct. 31, 2022.

The plant closure was announced a month before Fitch Ratings on Jan. 31 downgraded $97 million in PowerSouth bonds to BBB+ from A-, with a negative outlook. The downgrade was prompted by the utility's "anticipated increase in financial leverage" related to its contract to buy 125 MW from the troubled Vogtle nuclear project through the Municipal Electric Authority of Georgia, as well as higher debt needed for major capital expenses.

Fitch said PowerSouth plans to add baseload, natural gas-fired generating capacity by 2023, and has a 631-MW facility in mind, and peaking capacity by 2027.