Given the significance of the contracting assumptions, it is possible that actual outcomes could differ from recent assumptions made about the remaining life of the coal-fired Centralia power plant and that a material adjustment to the C$786m carrying amount of the plant could arise within the next fiscal year.
Canada-listed TransAlta Corp. offered that warning in a March 2 financial filing related to its 2011 results. In 2011, a bill restricting the future of the Centralia coal plant was signed into law in the state of Washington. The bill, and a memorandum of agreement signed in December 2011 that is part of the bill, provide a framework to transition from coal-fired energy produced at Centralia by 2025. They include key elements regarding, among other things, the timing of the shutdown of the coal units and the removal of restrictions on the terms of power contracts that TransAlta can enter into.
As of the end of 2011, TransAlta completed an assessment of whether the carrying amount of the Centralia coal plant was recoverable from the future cash flows expected to be derived from the plant’s operations. Based on this assessment, which included assumptions regarding the company’s ability to enter into power contracts longer than five years as permitted in the bill and memorandum, the company concluded that the plant was not impaired. But, TransAlta said that given the significance of the contracting assumptions, it is possible that actual outcomes could differ from these assumptions.
“We have established a dedicated commercial team to pursue long-term contracts for the plant, and as a result, we expect to be able to more clearly determine the impact of this uncertainty on the future cash flows of the plant in 2012,” the filing said. “If we achieve our long-term contracting targets for the plant in 2012, we do not expect that an impairment loss will result.”
The financial report noted about coal supply for the plant: “Although we own the Centralia mine in the state of Washington, it currently is not operational. Fuel at Centralia Thermal is purchased from external suppliers in the Powder River Basin and delivered by rail. The delivered cost of fuel per MWh for 2012 is expected to increase by approximately nine per cent due to higher diesel, commodity costs, and coal dust mitigation expenses.”
Centralia has 1,340 MW of coal-fired capacity and 248-MW of gas-fired generation.