Decision on Kinder Morgan plant expected this August

Sunday, June 16, 2002

ST. LOUIS -- By summer's end, Kinder Morgan Power Co. will either be preparing to start construction on a $250 million power plant in Cape Girardeau County or re-evaluating whether the project is still feasible in light of an expensive requirement sought by state officials that could potentially prompt the company to look elsewhere.

Since December 2000, the Colorado-based company has been wrestling with the Missouri Department of Natural Resources over issuance of a permit to operate a 530-megawatt facility south of Crump along Route U.

The disagreement centers on whether installation of equipment to control air pollution would be cost prohibitive. Kinder Morgan says it would, increasing the plant's operating expenses by $916,000 a year. DNR questions the company's cost estimates and says Kinder Morgan hasn't met its burden of proving the equipment isn't economically feasible.

After months of fruitless negotiations aimed at compromise, DNR rejected the permit application in September 2001. The company appealed and a four-day, trial-like hearing on the dispute was held in May.

St. Louis lawyer John K. Springborn, the hearing officer assigned to the case, is expected to present his findings to the Missouri Clean Air Commission on July 25 during a meeting closed to the public.

Sarah McMichel, a spokeswoman for DNR's air pollution control program, said the commission typically endorses the judgment of the hearing officer but isn't bound by his conclusions.

A final ruling by the commission on whether to grant of deny the permit likely would come no sooner than the panel's Aug. 29 meeting, McMichel said.

Rick Rainey, a Kinder Morgan spokesman, said the company isn't ready to go public with its options should the appeal fail.

"That is not to say there isn't a plan B, but it is purely hypothetical, where we go from here, until the judge rules," Rainey said.

The 850-page transcript of the appeal hearing, reviewed by the Southeast Missourian, reveals the issues and arguments Springborn will weigh in formulating his recommendation.

DNR's failures

During the proceedings, company officials, paid consultants and even a former DNR employee once assigned to the case testified that DNR failed to comply with federal and state standards in evaluating the company's permit application. They also charged that DNR's rejection of the permit wasn't consistent with past department decisions.

"The only reasonable conclusion from this is that MDNR didn't play by the rules," John F. Cowling, the company's lead attorney for the appeal, said during the hearing.

DNR officials countered that established guidelines were followed but that each permit application stands on its own. Judging Kinder Morgan's proposal against agency action on other facilities, they said, was an apples-to-oranges comparison.

"You can't just say the number from Application A compared to the number from Application B is too high, therefore, case closed," said Kyra L. Moore, a unit chief with DNR's air pollution control program.

The facility design Kinder Morgan proposes for the Crump area is a combined cycle natural gas-fired combustion turbine power plant. It would consist of one large turbine that could run around the clock, plus six smaller turbines that would come on line as needed to meet demand.

The company touts its plant design, which has been approved in three other states, as unique to the industry. Kinder Morgan's intent with this type of plant is to serve a niche market in the electricity-generating industry. It already has a buyer secured for the plant's output.

Typically, there are two types of power plants -- base load and peaking. Base load plants run constantly, while peaking facilities, which have less efficient -- though quicker to start and stop -- turbines, are brought on line at times when there is a high demand for power, usually between 7 a.m. and 11 p.m. Kinder Morgan views its facility as a hybrid of the two.

The plant would operate at maximum capacity for 18 hours a day, six days a week. To keep down pollution emissions, the rest of the time it would run at only 60 percent capacity.

If the facility were to be built in what the Environmental Protection Agency calls a "non-attainment area," additional pollution controls wouldn't be an issue. The equipment would have to be installed regardless of cost as such areas, including the St. Louis metropolitan region, have recognized air quality problems.

Cape Girardeau County is an "attainment area," meaning the extra equipment is required only if cost effective.

To determine what type of equipment is appropriate for a given facility, a process known as BACT, for best available control technology, is used. In this case, a technology called selective catalytic reduction, or SCR, was selected as the best option for reducing nitrous oxide emissions.

With SCR, an exhaust stream of nitrous oxide comes through a catalyst. Ammonia, under the catalyst conditions, reacts with the nitrous oxide to create harmless nitrogen and water.

In its initial application, Kinder Morgan said SCR would cost $10,000 per ton of pollutant. With the plant expected to emit 91.6 tons of nitrous oxide a year, using SCR would cost the company $916,000 annually following Kinder Morgan's cost estimate.

One step in the BACT process is to eliminate any technologies that have unacceptable energy, environmental or economic impacts. The company said its calculated cost for SCR fell under the last category.

DNR officials, however, almost immediately questioned the $10,000 figure as inflated.

Both sides agree that cost effectiveness estimates are open to a great deal of interpretation. By using different methodologies, different results can be achieved.

DNR engineers and private consultants hired by both sides did dozens of analyses using various methodologies. The results ranged as low as $4,000 per ton to the high of Kinder Morgan's original estimate.

Whatever the actual cost of installing SCR, the key contention is at what amount does the cost become too expensive to be economically feasible?

Gary McCutchen, a former EPA engineer who is now a private consultant in Raleigh, N.C., said the accepted benchmark figure under federal and state guidelines is $5,000 per ton. If the cost effectiveness estimate is below that figure, a facility is required have the equipment.

But McCutchen, whom Kinder Morgan paid $240 an hour for his testimony, said the EPA has recently been ignoring its own guidelines and pushing states to require SCR at new facilities regardless of cost.

"In fact, EPA has been very aggressive in trying to force states to change their minds about a determination that the cost effectiveness number is too high and, therefore, SCR is not justified," McCutchen said.

But while the guidelines say that a cost under $5,000 per ton is considered feasible, they don't say that costs above that amount are presumed not feasible.

Refaat Mefrakis, a DNR engineer who had been involved with the Kinder Morgan permit, said "there's no bright line" that the agency sets to determine cost effectiveness. That determination is made on a case-by-case basis. Under the guidelines, it was up to the company to justify elimination of SCR -- something it never did, Mefrakis said.

"We don't believe they addressed our issues, and they basically refused to do anything," Mefrakis said. "And based on the information they've submitted, we felt that really there's no justifications or documentation that leads us to eliminate SCR from the top control."

David A. Randall was the lead DNR engineer handling the Kinder Morgan permit throughout most of the process. Now with a private environmental consulting firm in Jefferson City, Randall testified on behalf of Kinder Morgan.

Creating scenarios

After a respected private firm hired by DNR to provide a neutral, third-party opinion came up with an estimate of $7,000 per ton, Randall received an e-mail from Mefrakis that instructed him to "create as many ... scenarios as necessary" to come up with a lower figure. Mefrakis' note also told Randall to have no further communication with Kinder Morgan representatives unless directed to do so.

Randall said he did approximately 40 estimates, but could calculate no defensible number below the consultant's figure. He concluded that SCR wasn't cost effective.

When asked by a Kinder Morgan attorney if he was eventually convinced Kinder Morgan should be issued the permit without SCR, Randall said "Yes." He added that he expressed that opinion to his superiors.

With DNR unwilling to provide the bright line Kinder Morgan wanted, the company attempted to draw one itself. The consultant who drafted the original permit, Kevin Scott Lewis of Colorado-based Air Sciences Inc., decided to look at other permits DNR had handled in which SCR was an issue.

In July 2000, five months before Kinder Morgan submitted its application, DNR granted a permit to the University of Missouri-Columbia for new turbines at its power plant. With a cost effectiveness estimate of $6,600 per ton, SCR was found not to be feasible.

Since DNR questioned Kinder Morgan's methodology, Lewis plugged the company's numbers into the university's framework. His result was costs of $9,100 per ton for the larger turbine and $8,600 per ton for the others -- well above the amount DNR said was too expensive to require the university plant to have SCR.

However, Kyra Moore, who replaced Randall in handling the Kinder Morgan permit for DNR, said that wasn't the clear precedent the company portrayed it to be as there were many differences between the two facilities.

For example, whereas the Kinder Morgan plant would be capable of generating 530 megawatts of power, the much smaller university facility produces only 25 megawatts. Moore also said there were some minor concerns about SCR's use of ammonia at a plant located on a college campus in a densely populated area. The Kinder Morgan plant would be located in a rural area and not create the same concerns about ammonia.

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