A proposed settlement that PacifiCorp recently worked out includes a couple of accounting items related to the planned shutdown of the coal-fired Carbon plant and the planned coal-to-gas conversion of Naughton Unit 3.
The Aug. 7 proposed settlement, which is due for a public witness hearing at the Utah Public Service Commission on Aug. 21, covers issues in a pending general rate case and also two other pending cases related to Carbon, which is located in Utah, and Naughton Unit 3, located in southwest Wyoming.
In this stipulated agreement, the parties agreed that the company’s pending application for a deferred accounting order for the Carbon plant should be granted and that two accounting orders should be entered, one to authorize the company to transfer the remaining Carbon plant balances upon retirement from electric plant in service and accumulated depreciation, and one to authorize the company to book to a deferred account removal costs associated with the Carbon plant. The original accounting for the plant covered a possible shutdown in 2020.
Due to new U.S. Environmental Protection Agency air regulations, Rocky Mountain Power, a division of PacifiCorp, anticipates retiring the Carbon plant in early 2015. The costs associated with emissions control alternatives to comply with the EPA’s recently-finalized Mercury and Air Toxics Standards (MATS) are not expected to be cost effective. The company told the commission it assessed converting the Carbon plant to natural gas as a fuel resource. However, doing so would not achieve an acceptable emissions profile for long-term environmental compliance. Moreover, the company’s economic analysis showed it was not a viable least cost option, after accounting for risk and uncertainty.
Carbon was commissioned in 1954 after Unit 1 was built into the side of a 100-foot rock formation near Helper, Utah. Unit 2 was added in 1956 and the two units produce a combined 172 MW. Electrostatic precipitators were added to both units between 1974 and 1976, and other modifications have been added during the years to reduce emissions and increase operating efficiency. Carbon burns about 657,000 tons of sub-bituminous coal per year that is delivered to the plant by truck from local mines.
Naughton Unit 3 deal covers Utah’s share of certain costs
Also in the Aug. 7 agreement now up for Utah commission approval is accounting for the Naughton Unit 3 coal-to-gas conversion. PacifiCorp earlier this year dropped an effort to add new emissions controls on the 330-MW unit and keep it on coal, and has since then been pursuing approval for pass-through of development costs for the abandoned emissions-control plan. The jettisoned controls were new selective catalytic reduction and pulse jet fabric filter systems, plus SO2 scrubber upgrades.
The parties agreed that the pending Naughton Unit 3 development costs application should be approved. The parties also agreed that Utah’s allocated share of the Naughton Unit 3 development costs of $7.9m incurred prior to the company’s decision to convert the unit to natural gas will be deferred and fully amortized by Sept. 1, 2014.
PacifiCorp has said there are no plans to fuel switch the 210-MW Unit 2 and 160-MW Unit 1 at Naughton, both of which also currently fire coal. The Naughton plant can burn as much as 2.8 million tons of sub-bituminous coal per year. That coal comes from the adjacent Kemmerer strip mine of Westmoreland Coal (NASDAQ: WLB).
One point of note is that PacifiCorp recently told Wyoming regulators that it could in the future ease the cost of the Naughton Unit 3 coal-to-gas conversion by diverting contracted coal from Naughton to the Jim Bridger power plant, also located in Wyoming. That would save it from eating the cost of any contracted coal it could no longer burn in Naughton Unit 3.