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Attention PSE: coal plant in need of analysis

Puget Sound Energy customers may soon be paying for the costs of upgrading a coal power plant in Montana they've never heard of. Is it worth it?

Attention PSE: coal plant in need of analysis

by

Eric de Place

Puget Sound Energy customers may soon be paying for the costs of upgrading a coal power plant in Montana they've never heard of. Is it worth it?

Puget Sound Energy is the biggest electric utility in Washington,  supplying power to more than a million homes and businesses. PSE has a  well-deserved reputation for supporting clean energy: it is the second-largest generator of wind power among privately-held US utilities, and it runs an award-winning Green Power Program.

Less well known is that PSE also has a large ownership stake in a  huge coal-fired power plant that is too old and dirty to meet modern  health standards. The Colstrip Generating Station in eastern Montana is  facing an overhang of liabilities so severe that PSE's Washington  ratepayers are at risk of exposure to tens of millions, if not hundreds  of millions, of dollars in upgrades.

Coal plants like Colstrip are facing potentially costly liabilities that stem from EPA regulations to protect public health: Regional Haze rules to protect air quality in scenic areas; National Ambient Air Quality Standards (NAAQS) rules that may apply to several types of dangerous pollution from Colstrip; compliance with new rules governing mercury and air toxics; and coal ash treatment.  In addition, there are at least two additional liabilities the utility  should account for publicly: increasingly expensive coal extraction from  the nearby mine and carbon pricing.

When faced with these costs, the utility will inevitably attempt to  pass on the costs of these upgrades to its customers in the form of  higher rates. But do state ratepayers really want their next energy  dollars spent on retrofitting a coal plant?

To answer that question, we need to know more. A lot more.

Regional Haze

In March, the Environmental Protection Agency shed some light on one  of the liabilities facing PSE when the government announced that Colstrip's owners would need to spend $82 million up front, and pay more than $14 million in annual costs, to meet haze  standards that protect visibility in national parks and scenic areas.  Since PSE owns half of the two coal-fired burners that need upgrades  under the haze rules, it's likely that the utility will be liable for  half the costs.

The new rules are only draft standards, however, and some public health officials, environmental groups, and air quality experts argue that more robust pollution control is in order. They argue that selective catalytic reduction should be required by the final rule, which would provide greater pollution reductions with additional costs.

NAAQS

Under the US Clean Air Act, the EPA regulates six pollutants,  sometimes called "criteria pollutants," several of which may be  problematic for Colstrip, especially fine particulate matter, NO2, SO2, and ozone.  Depending on the stringency of regulatory enforcement, the plant owners  could be looking at several hundred million dollars in new  pollution-preventing technology to bring the plant up to today's health  standards.

PSE should calculate the range of possible costs associated with retrofitting the plant to control its air pollution.

Mercury and Air Toxics

The December 2012 federal rule for  mercury and air toxics may have an effect on Colstrip. Although the  plant does have some mercury controls in place, it's not entirely clear  that they are adequate, especially for acid gases.

The plant owners should calculate the costs of further controls on its mercury and other emissions.

Coal Ash

New rules to regulate toxic coal ash could well pose a problem for Colstrip's owners. A faulty waste pond  next to the plant allegedly leaked hazardous substances into neighboring  communities, resulting in a flurry of lawsuits, one of which was  settled in 2008 for $25 million.

Yet the coal ash disposal problem at Colstrip has not been fully  resolved, leaving the plant vulnerable to new lawsuits if problems  persist. If the EPA moves forward with its proposed regulations, it is  likely that the plant will be subject to substantial costs to continue  operating.

In public testimony to the Washington Utilities and Transportation Commission, Synapse Energy Economics vice president Ezra Hausman pointed out that PSE's own documents  indicated that the company's share of costs could amount to $30 to $35  million in one-time clean up expenses, plus $3 to $5 million more  annually in operation and maintenance costs. And if Colstrip owners are  required to move the coal waste off-site, annual costs for disposal  could be as much as $100 million.

Many of the coal ash costs will be unavoidable because the plant's  existing coal ash will have to be cleaned up. So PSE will face many of  the costs of addressing coal ash whether or not it divests or retires  the plant in the near term. Yet prolonging operations at the plant will  only increase those costs, perhaps substantially.

PSE should calculate, and disclose publicly, its assessment of coal ash risk, for both regulatory costs and legal liabilities.

Dwindling Coal Supply

Located next door to the Colstrip power plant, the Rosebud Coal Mine supplies all the coal used at the plant. Some well-informed observers  believe that the Rosebud coal is increasingly expensive to obtain,  raising questions about whether Colstrip can rely on the mine to provide  low-cost coal over the long term. If Rosebud plays out — or if the costs  of removing large quantities of "overburden"  become prohibitive — Colstrip will need to find new coal supplies in the  Powder River Basin plus pay transportation costs. What's more, a new  coal supply might also require new rail infrastructure, as well as  modifications to the plant's boilers.

PSE should assess the long-term viability of the Rosebud Mine and  quantify the risk that it will not be able to continue to supply  sufficient volumes of coal to Colstrip.

Carbon Pricing

Colstrip is especially vulnerable to carbon pricing mechanisms such  as cap and trade or carbon taxes. Coal is an extremely carbon-intensive  fuel source, so it is particularly susceptible to carbon pricing  arrangements. A $30 per ton carbon tax, for example, would raise the  cost of coal-fired power by about 3 cents per kilowatt-hour. (PSE  currently charges 8.5 cents per kilowatt-hour for "first tier" residential power.)

Although carbon taxes appear unlikely in the near term, many committed interests support it, including—at least purportedly—PSE itself.

PSE should assess the probability that a carbon price will apply to  the coal it burns at the plant or the electricity it sends to Washington  from the plant. In the past PSE has  performed some forecast modeling with carbon prices included, but it  would be helpful to have a clearer understanding of how the carbon taxes  that PSE says it favors would affect its coal plant operations. It would be reasonable to model the likelihood and effect of carbon  prices ranging up to $30 per ton of coal prior to 2020, with higher  prices in the future. (The Northwest Power and Conservation Council used prices above and below this average in its Sixth Power Plan.)

Planning for the Future

Every few years utilities like PSE are required to prepare integrated resource plans, often called IRPs. Although the general  public rarely hears about them, they are important in the energy sector  because they provide regulators with key information about how the  utility plans to operate, meet demand for power, and manage risk. IRPs  help officials set rates, plan infrastructure, and manage environmental  performance.

Some utility planners argue that coal provides cheap "baseload" power  and, by extension, keeps rates low. But given the liabilities looming  over coal plants, it's hard to accept that argument at face value.  (Moreover, the hidden cost of coal power — the damage foisted on the  public in the form of pollution and health impairments — runs to staggering figures: up to $500 billion annually according to Harvard Medical School researchers.) Given all the  downsides of coal, can it really be cheaper over the long-term than  renewable energy facilities that do not require ongoing fuel inputs and  that do not incur pollution liabilities?

Given what we know now, it's hard to see why PSE would want to  continue operating Colstrip. There appear to be strong economic reasons  to abandon coal power in favor of energy efficiency, renewable power,  and perhaps even inexpensive natural gas.

Curiously, even PSE seems to share this belief, or did until a few  years ago. In its 2009 Integrated Resource Plan, PSE set forth a plan to  retire the Colstrip plant in stages; the two older units would go  offline in 2019, while the two newer units would phase out in 2024 and  2026. In fact, PSE detailed a technologically feasible and economically  responsible plan to grow into a coal-free utility.

But then in its 2011 resource plan, PSE re-instated the Colstrip  plant in its long term plans. It was an alteration little-noticed  outside of energy circles, but one that could bode ill for Washington  ratepayers.

The public deserves a full accounting of Colstrip's numerous  liabilities and risks. At present, we don't know what the price tag is  for most of these liabilities. We don't know when the bills are likely  to come due. And we don't know what the risk is that any of the  liabilities could be "worst case scenario" costs.

PSE should live up to its reputation as a forward-thinking utility by  sharing its payment plan for Colstrip's liabilities, and by mapping a  path away from coal. If there are  cost-effective alternatives to coal power, PSE should analyze them.  Washington ratepayers deserve an assurance that their energy dollars are  wisely spent.

Thanks to Jennifer Langston whose research on Colstrip informed this post.

Those interested in learning more can visit Sierra Club's new website Coal Free PSE.

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