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Nipsco calls shutting down all its coal capacity its 'most viable option'

Highlights

A common situation for coal operators

'A lot of wiggle room' in time frame

Houston β€” Northern Indiana Public Service Company says retiring most of its coal-fired generation by the end of 2023 and the remainder by 2028 would be the "most viable option for customers," which market observers say Nipsco is likely to pursue.

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A unit of NiSource, Nipsco on Wednesday told attendees of its integrated resource plan 2018 update advisory meeting that its analysis of various scenarios and options indicates that that it would be best to move up to 2023 the planned retirement of its 1,625-MW Schahfer Generating Station near Wheatfield Township, Indiana, and to set 2028 as the retirement deadline for its 469-MW Michigan City Generating Station at Michigan City, Indiana. Both are fueled by coal.

NiSource serves 3.5 million natural gas customers and 500,000 electric customers across seven states.

Nipsco would continue to operate its 563-MW Sugar Creek Generating Station, which is fired by natural gas, near Terre Haute, Indiana, and its 4-MW Norway and 6-MW Oakdale hydro plants, at Norway and Monticello, Indiana, respectively. In Nipsco's 2016 integrated resource plan, the company announced the intent to retire only two of the Schahfer site's four units by 2023, which would have left about 900 MW of coal capacity operating beyond that date. The 2016 IRP contained no retirement plan for the Michigan City plant.

RENEWABLE, STORAGE ALTERNATIVES

Nipsco's latest analysis, based on responses to a request for power supply proposals issued in April, indicate that a combination of wind, solar and battery storage would likely replace most of that lost capacity.

"Technology and market changes continue to transform the energy industry, opening more competitive options and it's the primary driver of the changes being considered for our system," said Violet Sistovaris, NiSource executive vice president and Nipsco president, in a media release. "Retiring our aging coal fleet sooner will cost substantially less compared to our original plans for extending retirements over a longer duration."

Many Midwest operators of coal-fired facilities face flat or falling power prices, due to flat natural gas prices and an increasing supply of renewables, while coal plants face steady or increased operating costs, said Mark Repsher, PA Consulting energy market expert.

Nipsco will probably present this "most viable option" to the Indiana Utility Regulatory Commission by the company's announced November 1 target date, Repsher said.

"Combined with an environmental compliance picture that remains relatively opaque, even with platitudes from the Trump administration, it makes sense for entities like NIPSCO to de-risk from coal-fired facilities that may -- at best -- be treading water from an economic standpoint," Repsher said in an email Thursday.

Despite indicators favoring renewables, Nipsco is likely to replace some of that coal-fired capacity with power from natural gas resources, according to S&P Global Platts Analytics.

The R.M. Schahfer plant produced an average of 12 GWh/d in 2016, which is the most recent year in which complete US Environmental Information Administration data is available, while Michigan City produced an average of 5 GWh/d, Platts Analytics said. Using these figures, if only gas were used to replace this lost coal generation, Schahfer's retirement would lead to an incremental increased demand of 102 MMcf/d for gas generation while Michigan City would lead to an incremental increase demand of 40 MMcf/d for gas generation.

10-YEAR TIME FRAME

Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York, said he also thinks Nipsco will pursue a plan to retire all of its coal generation but added that "there is a lot of wiggle room as the time frame is 10 years, and there are five plants in question."

"What will be most crucial in this process is reliability," Cordaro said in an email Thursday. "Regulators do not want to risk or reduce reliability, especially in an era where storms and many other challenges are raising the risks to the grid. Taking baseload coal plants offline has inherent risks and should only be done if there is certainty that reliability will be maintained or enhanced."

Asked how the retirement of so much capacity might affect the MISO Indiana Hub power prices, Cordaro said, "If the move were made immediately it would increase wholesale prices, but five years from now it might not, if the cost of renewables and storage comes down significantly. That is far from certain, however."

-- Mark Watson, markham.watson@spglobal.com

-- Edited by Joe Fisher, newsdesk@spglobal.com