Oklahoma Coal Plant Sets Closing Date After Losing PPA

An executive with the AES Shady Point coal-fired power plant in Oklahoma said the facility could close as soon as January after being notified its power purchase agreement (PPA) will not be extended.

Oklahoma Gas & Electric Co. (OG&E) this month said it will not execute another five-year extension of a PPA between the two companies that has existed since 1991.

Lundy Kiger, the vice president of the 360-MW AES Shady Point plant, on August 28 said closing the facility may be the only option with no PPA in place. Kiger told The Oklahoman newspaper “We are extremely disappointed. As an independent, it would be difficult for us to bid into the larger market as a power producer.”

Oklahoma is part of the 14-state Southwest Power Pool that stretches from Montana and North Dakota to parts of New Mexico, Texas, and Louisiana. SPP data show that coal accounts for about 52% of generation across its territory, with natural gas generation at 34%. Hydropower is about 6% of the SPP’s generation mix, with nuclear at 5%, and wind and solar combined at just below 3%.

The Shady Point plant, located near Poteau, Oklahoma, in Le Flore County, just southwest of Fort Smith, Arkansas, has about 100 workers. Kiger estimated the facility’s operation also supports 800 to 1,200 other jobs directly and indirectly and has a yearly economic impact of as much as $48 million in its region in southeast Oklahoma. He told the paper that “we see ourselves as a hedge against an increase in prices for natural gas. In the next couple of years, we could see that happen, and if it does, that would put coal in a better situation.”

In a statement, Kiger said the plant “will participate in an upcoming OG&E Request For Proposals (RFP) that OG&E will issue soon for new electric capacity needed. AES Shady Point will work to put together a proposal to have an opportunity to win the OG&E RFP and for the plant to continue operations. Outside of winning the OG&E RFP, it will be difficult for AES Shady Point as an independent power producer to compete in the SPP Market, and would likely face closing the plant on January 15, 2019. AES Shady Point will continue to look diligently at all possible options available to us now, but we realize those options are limited outside of being successful in the upcoming OG&E RFP.”

OG&E entered into the power purchase agreement with AES Shady Point in order to comply with the Public Utility Regulatory Policies Act of 1978, part of the National Energy Act enacted by Congress. The measure requires utilities to look at buying electricity from cogeneration plants built by non-utility power producers, and to enter into PPAs when costs for that power are equal to or less than what the utility would spend to produce that power from a facility it would build and own.

Though Shady Point burns coal, it has met the cogeneration requirement by taking some of its emissions of CO2 to use as a liquid and solid food-grade refrigerant for the poultry industry, which plays an important role in the state’s economy. State data show poultry, which includes broilers and eggs, contributed more than $960 million to the state’s coffers in 2017.

AES Shady Point began operating in 1991 utilizing its PPA with OG&E. The first deal ran through 2008 and included an option for up to three additional five-year extensions. OG&E says the cost to produce the power it currently buys under the PPA is now more costly than other alternatives due to increased competition in the power market. The utility in early 2017 told AES it was likely to seek proposals to buy power from other providers.

The Oklahoman said OG&E agreed to keep the current contract in force until 2019 so it could continue to look at its relationship with AES. The paper said Brian Alford, a spokesman for the utility, was mindful of the impact ending the PPA would have on the local community.

“We are only as strong as the communities we serve, and we are fully aware of the potential impact this decision will have on Poteau and the surrounding community,” Alford said. He said the utility plans later this year to seek offers for 400 MW of generation and hopes to have an agreement in place by year-end. He said the utility does want AES to participate in the offering, though he noted “we believe there are ample savings to be had by looking in the market.”

Darrell Proctor is a POWER associate editor. (@DarrellProctor1, @POWERmagazine).