AES Indiana standing firm on plan to convert Petersburg power plant from coal to natural gas

Only two of the Petersburg plant’s four original generating units still receive coal from the shipments that arrive by rail. Those two units produce enough electricity to power more than 170,000 homes. (IBJ photos/Eric Learned)

AES Indiana says it remains committed to ending the use of coal at its massive Petersburg Generating Station, despite growing opposition from Republican elected officials and the coal lobby.

Officials with the Indianapolis-based utility said in an interview with IBJ this week they have no interest in delaying the conversion from coal to natural gas at the two remaining units at the Petersburg plant, tentatively scheduled for the end of 2026.

The utility’s application to make the change is now pending before the Indiana Utility Regulatory Commission, which could hand down a decision this month.

“We have no intention of withdrawing our petition or delaying the transition,” Brandi Davis-Handy, the utility’s president, told IBJ. “This will allow us to extend the life of the plant and save money for our customers over the next 20 years.”

The Petersburg power plant, located about 120 miles southwest of Indianapolis on the White River, is the largest of the utility’s three generating stations, and the only one that still burns coal.

Transitioning Petersburg to natural gas would make AES Indiana the first large utility in Indiana to abandon coal as a fuel source.

“I feel wholeheartedly [that] the path AES Indiana has headed down for the past 10 years is the one that was developed to align with the state’s all-of-the-above energy policy while also maintain affordability and reliability for our customers,” Davis-Handy wrote separately in an email to IBJ.

She said that by transitioning from coal to natural gas, the utility is making energy generation more efficient and less harmful to the environment, with lower costs and cleaner energy for customers.

The company said its plan will save customers an estimated $281 million over the next 20 years.

In August, AES Indiana announced plans to spend $1.1 billion in Pike County as part of its transition from coal to natural gas at Petersburg.

Of that sum, $300 million would go to converting the coal-burning units to natural gas. Another $300 million would go to a battery storage facility to deliver energy during peak hours. And $500 million would go to solar operations.

But the utility and state regulators are now under pressure to change or drop the plans. Last week, U.S. Sen. Mike Braun sent a letter to the five-member IURC, asking it to deny AES Indiana’s petition. He said the utility’s plans to transition its two coal-fire units at Petersburg to natural gas might be “premature.”

“The demand for energy in Indiana and across the country is growing and is expected to grow significantly in the upcoming decade, following more than a decade of remaining relatively flat,” he wrote on Oct. 10. “The demand increase, combined with the changing supply landscape, has concerned those who hold responsibility of making sure we have the power necessary to meet timely energy needs.”

Braun, who is the Republican nominee for governor, said he supports an “all of the above” energy approach, including coal, natural gas, nuclear and renewables. But he added Indiana needs more energy to support the grid.

“While new energy will almost certainly need to come from non-coal sources, I am concerned that taking offline legacy sources of energy too quickly will have lasting implications that cannot be reversed,” he wrote.

AES Indiana was not scheduled to retire Petersburg’s two coal-fired units until 2042. They began operating in 1977 and 1986. The average operating coal-fired generating unit in the United States is 45 years old, according to the U.S. Energy Information Administration.

Braun added that the U.S. Environmental Protection Agency’s rules on carbon emissions are now under review by courts. “While the final outcome is unknown, if these rules prevail as written, coal-generated plants would not be forced into retirement or co-generation until 2032.”

On Wednesday, the U.S. Supreme Court let the EPA move ahead with stringent new emissions limits for power plants, rebuffing businesses and Republican-run states that complained the rules will impose exorbitant compliance costs.

Braun’s letter also quoted a senior official at the Carmel-based Midcontinent Independent System Operator, which manages the power grid across Indiana, 14 other states and the Canadian province of Manitoba. The official, senior vice president Todd Hillman, stated in August that the expected load growth is going to “exacerbate our already tight reserve margins.”

“We need resources that are available today to stay  online as long as humanly possible,” Hillman said.

In July, Indiana Attorney General Todd Rokita wrote in a memorandum of legal guidance that the IURC can legally regulate the retirement of coal-burning power plants.

“The loss of baseload power and exposure to higher wholesale market prices is leading to significant rate increases by utilities that service Indiana,” wrote Rokita, a Republican who is running for reelection. “Hoosiers pay more for out-of-state generation. Indiana is not producing enough power to meet demand and is regularly buying energy in the MISO wholesale. All these factors harm Hoosier consumers directly through their pocketbooks.”

Kerwin Olson, executive director of Citizens Action Coalition, a consumer group, said political candidates should refrain from getting involved in utility regulatory cases.

“It’s unfortunate, and a bit troubling, that political candidates are using their platforms and visibility to interfere in the regulatory process,” Olson wrote IBJ in an email. “This process is intended to protect customers from the excesses of monopolies and other monied interests, not to bend the knee to a desperate coal industry fighting for their very existence.”

In a related move, last week, Reliable Energy Inc., an Indiana company representing coal interests, asked the IURC to reopen AES Indiana’s hearing, stating that “material changes of fact” have occurred.

The group said that last month, AES Indiana issued information in a request for proposals, stating it needs an additional 3,000 megawatts of capacity as soon as 18 months. That amount, Reliable Energy stated, is substantially different from the sworn testimony of an expert witness for AES Indiana, who stated that AES Indiana would need 200 megawatts of additional capacity starting in 2025.

The RFP shows that AES Indiana’s request to repower the Petersburg units takes a “shortsighted, premature, and now inaccurate view of AES Indiana’s energy and capacity needs,” Reliable Energy wrote in its petition to state regulators.

Davis-Handy told IBJ that the utility issued the request for proposals “to gain understanding of generation and distribution energy resources available in the market” that will enable it to serve potential large-scale customers entering its service territory. AES Indiana serves about 520,000 customers in central Indiana.

And the utility told regulators that Reliable Energy’s petition mainly seeks to stop or delay the regulatory proceeding.

“REI is a coal industry advocate supporting the coal industry’s effort to sell coal for use at Petersburg Units 3 and 4,” AES Indiana said in its filing on Tuesday. “This collateral interest should not be permitted to disrupt this proceeding.”

In response, REI issued the following statement: “AES proudly states on its website that it aims to achieve ‘net zero carbon emissions’ by 2040. However, AES Indiana’s repowering plan would require Hoosier ratepayers to cover the costs of transitioning from coal to gas beyond 2040.”

It continued: “This raises significant concerns about whether the investor-owned utility prioritizes the best interests of its ratepayers or shareholders and executive compensation. The only energy source that could help the company meet its target is nuclear power, which the company indicated during the IURC hearing is not on its agenda.  Despite MISO’s clear warnings about the escalating concerns regarding grid reliability, AES is willfully ignoring the crucial entity responsible for maintaining a steady power supply. AES is failing to add any additional generation to address these pressing issues.”