Seminole Electric Cooperative Sees Big Challenges from Clean Power Plan

Florida's Seminole Electric Cooperative faces what may be the most difficult generation transition in the nation as a result of the Obama administration's Clean Power Plan. One of the nation's largest generation and transmission rural electric cooperatives, Seminole owes its origins and its current position primarily to a single coal-fired plant.

When electric utility veteran Lisa D. Johnson took control of Florida's Seminole Electric Cooperative in mid-2013 as CEO and general manager (see sidebar), she quickly faced a daunting task. As she assumed management of the large generation and transmission (G&T) cooperative based in Tampa, Johnson inherited a system built largely on coal.

Soon after she took the job, a major part of her management task became guiding the cooperative's response to the upcoming Environmental Protection Agency (EPA) regulations aimed at reducing carbon dioxide emissions from existing coal-fired power plants.

An Existential Challenge?

It could be an existential challenge for Seminole. In an August interview, a Tampa Bay Times reporter asked Johnson, "Could costs get so high that the cooperative would be forced to disband or be sold?" She answered, "It's too soon to know if that is an option or one that we would pursue." But it is a potential outcome for the cooperative.

Leading in Times of Change

Lisa D. Johnson, 49 (Figure 1), took over management of Seminole Electric Cooperative on August 1, 2013, replacing Timothy Woodbury, who had been with Seminole since 1979 and had been CEO for six years. Johnson came to the job of CEO and general manager from Old Dominion Electric Cooperative (ODEC), a large generation and transmission cooperative in Glen Allen, Va., where she was senior vice president and chief operating officer.

1. Lisa D. Johnson. Courtesy: Seminole Electric Cooperative

When she joined ODEC in 2006, Johnson had 11 years' experience with the Southern Company and then its non-utility generating spinoff, Mirant, culminating as president of Mirant Mid-Atlantic, based in Washington, D.C.

In 2012, Johnson was named one of Virginia's most influential women. She's also a director of the Electric Power Research Institute and a 1988 graduate of Duke University with a bachelor of science degree in mechanical engineering and materials science.

"I've always believed in a wide array of experience," she told POWER. "There is a great benefit being on many sides of this industry, in terms of experiential knowledge, problem-solving, and decision-making."

In congressional testimony this spring, Johnson told the House Energy and Commerce Committee, "Seminole, in particular, would suffer substantial harm as a result of EPA's proposal, a reality that EPA has failed to, but must, address." The final EPA rule, issued this fall, doesn't provide Johnson with much additional clarity about how it will affect her organization, although the overall thrust remains negative.

"We're still sorting through the details," she said in a POWER interview in October. "It's a little bit early" to make definitive conclusions, she said. "We are certainly looking toward the state and whatever the state of Florida plans to do in terms of issuing a [state implementation plan] or not."

So far, she said, Seminole has not heard from the state about what course it will choose to take under the EPA plan, which relies on the strictures of the 1990 Clean Air Act amendments. The Clean Air Act puts states in control of implementing federal air policy. That may not be the best way to meet the Obama administration's goal of combatting the threat of global warming, because the problem far transcends state borders. But it appears to be the only policy tool available to the administration, given the failure of Congress to enact new air legislation. Johnson said she is confident Florida "will let folks know" when it has figured out the direction the state government wants to take.

If Florida refuses to offer a state implementation plan, a course some Republican opponents of the Obama plan are advocating, then the EPA would impose a "federal implementation plan" on the state. Florida's Republican governor, Rick Scott, hasn't made his views known on whether the state will submit an implementation plan or face off with the EPA.

A major problem facing both Seminole and the state is not knowing whether the EPA plan will actually go into effect, might be overturned by the courts, or might be scrapped when a new administration comes to Washington in 2017. Given the uncertainties, Seminole, said Johnson, is "going to have to put some significant effort toward planning and decision-making. It does create a question of how much of that effort could be put aside if there are changes to the rule." But Seminole must begin planning for the future, while keeping its options open.

Coal-Heavy by Federal Mandate

Seminole, one of the nation's largest G&T cooperatives, serves 1.4 million retail utility customers through nine distribution co-ops in 42 Florida counties. Its heart and soul is fossil energy generation-mostly coal, followed by natural gas-and 350 miles of transmission lines to deliver its power to the retail distribution co-ops.

Seminole's ties to coal are tight. In 1948, several Florida rural electric distribution cooperatives incorporated Seminole to allow them to aggregate their demand and seek lower-cost electric power as a G&T cooperative sometime in the future. Seminole was a paper organization until the 1973 Arab oil crisis. That earth-shaking development prompted the board of the virtual organization to get physical. The distribution cooperatives that run the G&T decided to turn it into a real G&T utility, selling power it generated at cost to member retail cooperatives and wheeling power at cost.

The G&T utility initially looked at oil-fired generation. That was a dead end. Congress forestalled oil generation with the 1978 Power Plant and Industrial Fuel Use Act, which banned new oil- or gas-fired electric generating plants. That left coal as the only item on the menu.

Johnson said she feels that Seminole is a victim of contradictory federal energy policy over many years. She said, "Seminole decided to build a coal-fired plant because it did not have another viable option." Given the provisions of the 1978 law, Seminole had no way to meet its growing load other than coal.

With a "prevention of significant deterioration" air permit from the EPA in 1979, Seminole began building two 650-MW coal-fired units in Palatka, in northeast Florida on the St. Johns River. The plant went into service in 1984. Over three decades of service, according to the co-op, the Seminole Generating Station (SGS) has had an average capacity factor of 80%, making it "the primary work-horse in Seminole's system" (Figure 2). It is, Johnson said, "a relatively new plant, fully outfitted with advanced environmental control and waste recycling systems."

2. Coal, as required by federal policy. Coal fuels the 1,300-MW Seminole Generating Station in Putnam County, Fla., providing more than half of the cooperative's power. The plant was built when the Power Plant and Industrial Fuel Use Act of 1978 banned all new oil- or gas-fired generating facilities. Courtesy: Seminole Electric Cooperative

Over the years, Seminole added pollution control systems to the coal-fired plant, including upgraded flue-gas scrubbers to control sulfur dioxide emissions and low-NO_x burners. The co-op says it has invested more than $530 million "in state-of-the-art environmental control technology at SGS-making it one of the cleanest coal plants in the United States." Coal for the plant comes from western Kentucky and southern Illinois, over CSX rail lines. The plant has also turned the scrubber sludge into gypsum wallboard, a recycling plus.

POWER named SGS a Top Plant Award winner in 2009, noting, "The staff of Seminole Generating Station have completed multiple, incremental plant improvements over the past decade that have significantly reduced air emissions and minimized solid waste disposal."

Seminole planned a third coal-fired unit at the generating station but cancelled that unit in 2009. At the time, Tampa Bay Times business columnist Robert Trigaux wrote, "Seminole Electric said it dropped its coal plans because regulatory changes afoot suggest a growing backlash against coal as too polluting, even with the latest smokestack technology. Seminole Electric generates the third-largest amount of electricity in Florida behind Florida Power & Light and Progress Energy Florida."

Adding Gas

Seminole's other generating asset is the 810-MW Richard J. Midulla station, a gas-fired facility in south-central Florida (Figure 3). This plant consists of a 500-MW combined cycle generator that came into service in 2002 (operating at a 50% to 70% capacity factor) and 310 MW of combustion turbine peaking capacity added in 2006 (five Pratt & Whitney aero-derivative combustion turbines).

3. Added gas. Gas fuels 810 MW of Seminole Electric Cooperative's units: 500 MW of combined cycle power and 310 MW of peaking capacity from five aeroderivative combustion turbine units, all at the Midulla Generating Station. Courtesy: Seminole Electric CooperativeChallenges Posed by Closing Coal Plant

Under the EPA's proposed plan for carbon dioxide reductions at fossil plants under the Clean Air Act, Johnson told Congress in April, "Seminole's coal-fired power plant will be forced to close" prematurely, resulting in job losses for hundreds of plant workers and contractors and a giant hit to the tax base of the county where it is located. The layoffs would extend beyond the plant to a local gypsum wallboard plant that turns the plant's scrubber sludge into building material.

Johnson's judgment hasn't changed fundamentally with the final rule, she said, although the EPA plan has added some flexibility lacking in the first iteration. But the details remain somewhat unclear, as is the state's approach to compliance (or rejection).

In her April congressional testimony, Johnson said, "EPA projects that Seminole would lose at least 20 years of remaining life of its coal-fired units, and operate its gas-fired facility at a substantially reduced capacity; the cost of these losses, in addition to the cost of replacement generation, would be borne by its members and their consumers." She told POWER that SGS has a useful life of 30 more years. Also, the G&T "has debt that goes out almost that long," based on the incremental investments in the plant. The system's debt totals some $900 million and carries a solid A3 rating from Moody's.

According to Johnson, the loans tied to the Seminole coal plant construction and upgrades "account for more than 75% of Seminole's total outstanding debt." If the co-op had to shut down the coal plant before the end of its useful life to meet EPA rules, she said, "The member cooperatives would be burdened with paying off the debt but with no revenues to support the payments."

In her testimony, Johnson noted a particular irony. "Seminole built SGS in 1984 pursuant to the requirements of the federal Power Plant and Industrial Fuel Use Act of 1978," which forbade new power plants from using oil or natural gas and encouraged the use of coal. That law has long-since been repealed. The federal government, she said, left Seminole with only coal to meet its growing demand for power and the legal obligation to serve its customers. That was federal government energy policy. As a result, she said, "Seminole reasonably expected that its coal-fired generation . . . would not be regulated out of the market (by the very government that required it to build a coal-fired plant) during its useful life."

"Seminole reasonably expected that its coal-fired generation . . . would not be regulated out of the market (by the very government that required it to build a coal-fired plant) during its useful life."

- Lisa D. Johnson, CEO and general manager, Seminole Electric Cooperative

Closing Seminole's plant could also cause congestion in Florida's transmission system, Johnson said. The shift of the generating mix to gas dominance would upset the topology of Florida's unique peninsular grid. "Regional studies performed to evaluate the dispatch of natural gas-fired plants versus coal in an uneconomic fashion resulted in severe transmission congestion throughout the Florida region," she said. "The bulk transmission system was designed around baseload coal generation. Dispatching out of economics (such as making today's intermediate-class units run at baseload) would cause power swings to flow across transmission lines/corridors that were not designed to transport baseload generation."

Can Seminole import power from existing, third-party generation to solve its problems? Unlikely, said Johnson. "Seminole's experience in trying to contract with third parties via purchase power transactions from existing generating facilities has shown on multiple occasions that the existing transmission system interconnected to these respective facilities is congested, and it is not economically feasible."

The Tampa-based G&T buys power from the 600-MW gas-fired Osprey plant in Auburndale, Fla., which Calpine recently sold to Duke Energy. Seminole also had a contract for 13% of Duke's 840-MW Crystal River nuclear plant. Duke, which inherited the long-troubled Crystal River plant when it bought Progress Energy, decided to close the plant in 2013.

As Johnson sees it, natural gas is the likely path forward if the coal capacity has to close prematurely. "Natural gas is the most available choice," she said, "not only for coal generation replacement but new generation down the road." Florida is about 65% dependent on natural gas today, and the EPA plan could push that to 85% by the mid-2020s, by Seminole's estimates. "The lack of diversity of fuel sources to generate electricity is a big concern," Johnson told the Tampa Bay Times in August.

Unanswered Questions Regarding Solar and Nuclear

What about solar in the Sunshine State? Duke in September announced it would build 3.8 MW of solar photovoltaic (PV) capacity in Osceola County, Fla., with an online date in 2016. The investor-owned utility said in a press release that the project "is the first in a strategic, long-range plan to install 35 MW of solar by 2018 and 500 MW of solar power in the state by 2024."

Would Seminole participate in that project? "We are looking at alternatives, and will certainly investigate renewables," Johnson said, without much enthusiasm. "We will take a look at solar." But the analyses Seminole has made to date, she said, don't make solar look like a first choice for new generation. "It is certainly something we will look at. It is a technology that is on the horizon."

Seminole last March issued a request for proposals (RFP) for 2 MW of solar PV energy. The RFP called for either a co-op plant at its Midulla gas-fired station or a Florida-based plant elsewhere to supply the co-op through a power purchase agreement. Both options should plan to be in operation by November 2016, according to the RFP. No word yet on the results of the solicitation.

What about nuclear? In a Tampa Bay Times interview recently, Johnson said, "I think nuclear certainly has the potential to be part of the conversation. As we have seen over the last decade, the challenges of cost and size still remain and must be addressed before nuclear comes back into the conversation."

Shifting Energy Policies

As the Seminole system confronts a still-murky EPA rule and an unknown future, Johnson noted that the G&T coop has no choice but to begin planning a transition now. "Part of the challenge is timing," she said, recalling the 1970s energy crisis and the plethora of policies that emerged, aimed at using America's most abundant resource, coal, to generate power. "We've been through this before," she said. Federal energy directive pushed generators in one direction, toward coal. It now aims energy policy in an opposite direction, away from coal, penalizing those who built under the terms of the old federal regime. "Those are the kinds of things that cause me to pause and look back over history."

-Kennedy Maize is an energy journalist and frequent contributor to POWER.

This article will appear in the December 2015 print issue of POWER. Minor typographical corrections and caption correction made 11/5/15.

The post Seminole Electric Cooperative Sees Big Challenges from Clean Power Plan appeared first on POWER Magazine.