May 23, 2006
KLEEN ENERGY PLANT AND AAC ENERGY INDEPENDENCE
By: Kevin E. McCarthy, Principal Analyst
You asked for a description of the proposed Kleen Energy power plant and how it fits in with the Energy Independence Act.
Kleen Energy Systems LLC has proposed building a power plant in Middletown. Normally, the plant would use natural gas, but it could also burn low sulfur oil when natural gas is unavailable or uneconomic. The plant has received its Siting Council certificate and Department of Environmental Protection permits. The plant is currently certificated to operate at 520 megawatts, but its developers have petitioned the Siting Council to amend the certificate to increase the plant's capacity to 620 megawatts. (A megawatt is enough power to serve 700 to 1,000 homes.) The plant's developers believe it could be in operation within three years after obtaining financing.
PA 05-1, June Special Session, “An Act Concerning Energy Independence”, establishes initiatives for new generating facilities and conservation programs to reduce costs associated with congestion on the electric transmission system. Among other things, the act requires the Department of Public Utility Control (DPUC) to prepare a request for proposals (RFP) for resources to reduce congestion. The proposed Kleen Energy plant is eligible to respond to the RFP, which is scheduled for issuance later this year, and is participating in the DPUC proceeding that is formulating the rules for the RFP. If the plant's developers submit a proposal that is accepted, they would be eligible to enter into long term contracts with electric companies for the plant's generating capacity. Such contracts can be instrumental in obtaining financing for power plants.
On the other hand, the proposed plant is not eligible for certain other provisions of the act because of its size. These provisions provide incentives for customers to install “distributed resources,” i.e., small- and medium-size generating facilities (up to 65 megawatts) and conservation and load management measures.
PROPOSED KLEEN ENERGY PLANT
In 2001, Kleen Energy Systems LLC proposed building a power plant and switchyard in Middletown. The proposed site consists of 137 acres in an industrial part of the city. The site is bounded on the north by the Connecticut River and on the west by residentially-zoned land which is now vacant. The eastern boundary is land owned by Connecticut Light & Power that contains a 345 kilovolt transmission line. The south boundary is Bow Lane, with the nearest residence being approximately 650 feet from the location of the proposed plant.
The proposed plant would operate on natural gas using a combined cycle turbine, which reuses the waste heat produced in generating power and thus increases the plant's efficiency. When natural gas supplies are not available or are not economical, Kleen Energy Systems proposes to operate the plant on low sulfur (0.05%) No. 2 fuel oil. The project developers propose using the plant as a baseload facility, which means that it would operate most of the time. The project would tie into the existing transmission line, which would relieve electric transmission constraints in the Middletown area.
Kleen Energy Systems applied for a Siting Council certificate for the plant on March 15, 2002 and received it on November 21, 2002. It is currently seeking to amend the certificate to allow a 620 megawatt plant. The plant has also received air pollution permits from the Department of Environmental Protection.
PA 05-1, JUNE SPECIAL SESSION REQUEST FOR PROPOSALS
PA 05-1, June Special Session, establishes several initiatives to reduce costs associated with congestion on Connecticut's electric transmission system. Due to constraints on the system, older and relatively expensive power plants in the state have to run more often than would be the case in the absence of such constraints. The resulting congestion costs amount to several hundred million dollars per year for Connecticut consumers.
The act requires DPUC to issue an RFP to identify measures that would reduce congestion costs over the 2006 to 2010 period. Proposals can be submitted for distributed resources and larger generating plants. Electric companies can submit proposals under certain conditions and subject to certain restrictions. Proposals submitted by entities other than electric companies that are selected by DPUC are eligible to enter into long-term contracts to sell their plant's generating capacity to the electric companies, with DPUC approval. Such contracts are often important to developers of power plants because they permit the developers to obtain financing for the plants.
Under the act, DPUC was to have developed principles and standards for the RFP by January 1, 2006. The act requires that the RFP be designed to encourage responses from various types of resources and encourage diversity in fuel types. DPUC was to have conducted the RFP by February 1, 2006. By May 1, 2006, DPUC was to have evaluated all of the proposals and approve one or more of them. In approving the proposals, DPUC must give preference to those that (1) result in the greatest reduction of congestion costs during the designated period, (2) make efficient use of existing sites and supply infrastructure, and (3) serve the long-term interests of ratepayers.
DPUC delayed implementation of these provisions because the Federal Energy Regulatory Commission is changing the rules on how congestion costs are calculated. As a result, DPUC could not determine the impact of any proposal on congestion costs. DPUC currently anticipates issuing the RFP by this September.
Under the act, if DPUC approves a bid for a long-term contract, the electric company must negotiate in good faith the final terms of the contract with the bidder and must submit the contract to DPUC for its approval. After 30 days, either party can request DPUC's assistance in resolving any outstanding issues.
DPUC must, approve, reject, or modify a long-term contract, which must contain terms to mitigate the long-term risks to ratepayers and cannot have a term exceeding 15 years. For DPUC to approve a contract, it must (1) result in the lowest reasonable costs, (2) increase reliability, and (3) minimize congestion charges over time.
The act also creates capital and operating cost subsidies for customers for installing distributed resources on their premises. These resources include small- and medium-size generating facilities (up to 65 megawatts) and conservation and load management measures. The proposed Kleen plant is not eligible for these incentives because of its size.