TransAlta runs Centralia coal plant a bit less in 2012

TransAlta Corp. (TSX:TA) has been running its Centralia coal plant, called Centralia Thermal, in Washington state a bit less in 2012 as it buys cheaper replacement power off the grid.

That was among the points made about TransAlta in an Oct. 26 financial report for the third quarter that it filed with Canadian regulators. Centralia Thermal is a 1,340-MW coal plant, while Centralia Gas, located at the same site, is a 248-MW gas-fired facility.

On July 25, TransAlta announced that it had entered into an 11-year agreement to provide electricity from the Centralia Thermal to Puget Sound Energy (PSE). The contract begins in 2014 and runs until 2025 when the plant is scheduled to be shut down under a greenhouse gas-reduction deal with the state of Washington. Under the agreement, PSE will buy 180 MW of firm, baseload power starting in December 2014. In December 2015, the contract increases to 280 MW, and from December 2016 to December 2024 the contract is for 380 MW. In the last year of the contract, the contracted volume is 300 MW. The agreement is subject to approval by the Washington Utilities and Transportation Commission, TransAlta noted.

In 2011, the TransAlta Energy Bill was signed into law in the state of Washington. The bill, and a memorandum of agreement signed on Dec. 23, 2011, which is part of the bill, provide a framework to transition from coal-fired energy produced at Centralia Thermal by 2025. The bill and memorandum of agreement include key elements regarding, among other things, the timing of the shut down of the units and the removal of restrictions on the terms of power contracts that TransAlta can enter into.

Since late 2011, a dedicated commercial team has been in place to pursue long-term contracts for the remaining life of the Centralia Thermal plant. That resulted in the PSE contract. As a result of the team’s work, TransAlta was able to complete an assessment of whether the carrying amount of the Centralia Thermal plant was recoverable based on an estimate of fair value less costs to sell.

TransAlta takes big writeoff with Centralia Thermal impairment

The fair value of Centralia Thermal was determined based on the future cash flows expected to be derived from the plant’s operations, determined by prices evidenced in the PSE agreement and in the marketplace. A pre-tax impairment charge of C$347m resulted. In addition to the impairment charge, the company has written off C$169m of deferred income tax assets as it is no longer probable that sufficient taxable income will be available from U.S. operations to allow the benefit associated with the deferred income tax assets to be utilized.

Outages at Centralia Thermal did not negatively impact gross margins for the three and nine months ended Sept. 30, 2012, as TransAlta said it was able to extend a planned outage to take advantage of lower market prices to purchase replacement power on the market to fulfill power contracts.

In December 2011, the U.S. Environmental Protection Agency issued national standards for mercury emissions from power plants. Existing sources will have up to four years to comply. “We have already voluntarily installed mercury capture technology at our Centralia coal-fired plant, and began full capture operations in early 2012,” TransAlta noted. “We are also installing additional technology to further reduce NOx, consistent with the Washington State Bill passed in April 2011 requiring TransAlta to begin operating such technology by Jan. 1, 2013.”

The California Air Resource Board has not finalized its rules regarding imported power, but electricity imports into California from Centralia and TransAlta’s proprietary trading will begin to incur a liability under California’s Cap and Trade Program as of Jan. 1, 2013. “TransAlta and other entities are meeting with regulators to advocate for regulatory clarity on issues such as resource shuffling,” said the company. “The annual impact of compliance will be dependent on actual electricity imports into California, the established fee rate, final regulations on resource shuffling, and our trading within the cap and trade program.”

Although TransAlta owns the Centralia strip mine at the power plant, the mine has been shut for years. 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 about 4% due to higher diesel and commodity costs, and coal dust mitigation expenses, the company noted.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.