PacifiCorp builds new gas capacity, looks at coal shutdown options

Capital spending during the first nine months of this year by PacifiCorp includes money spent on the new Lake Side 2, gas-fired power plant and a number of emissions control projects for coal-fired capacity.

PacifiCorp, a unit of Berkshire Hathaway (NYSE: BRK.A and BRK.B), said in a Nov. 2 third quarter financial statement that spending in the first nine months of this year included:

  • Transmission system investments totaling $250m, including construction costs for the 100-mile high-voltage transmission line being built between the Mona substation in central Utah and the Oquirrh substation in the Salt Lake Valley. A 65-mile segment of the Mona-Oquirrh project will be a single-circuit 500-kV transmission line, while the remaining 35-mile segment will be a double-circuit 345-kV transmission line. The transmission line is expected to be placed in service in 2013;
  • The development and construction of the Lake Side 2 637-MW combined-cycle combustion turbine natural gas facility totaling $177m, which is expected to be placed in service in 2014;
  • Emissions control equipment on unspecified existing generating facilities totaling $66m for installation or upgrade of SO2 scrubbers, low NOx burners and particulate matter control systems; and
  • Distribution, generation, mining and other infrastructure needed to serve existing and expected demand totaling $544 million.

Forecasted capital expenditures, which exclude amounts for non-cash equity allowance for funds used during construction (AFUDC) and other non-cash items, are about $1.3bn for 2012. PacifiCorp currently estimates that the least-cost alternative for meeting air quality and visibility requirements for the coal-fired Naughton Unit 3 in Wyoming is to convert it to a natural gas-fueled unit rather than install selective catalytic reduction and baghouse environmental projects. As a result, PacifiCorp has cuts its forecasted environmental capital expenditures by $68m in 2012, $110m in 2013 and $82m in 2014.

Carbon coal plant shutdown approved in various states

In other points of interest from the Form 10-Q:

  • In September 2012, PacifiCorp terminated its All Source request for proposals (RFP) for a 2016 resource with the Utah Public Service Commission and Oregon Public Utility Commission as a result of lower forecasted retail load growth. The All Source RFP sought up to 600 MW of new baseload, intermediate or summer-peaking energy on a system-wide basis from projects to be placed in service by June 2016.  
  • In February 2012, PacifiCorp filed a general rate case with the Utah PSC requesting a rate increase of $172m. In July 2012, PacifiCorp filed rebuttal testimony that reduced the requested increase to $156m. In September 2012, the Utah PSC approved a multi-year settlement that provides for an annual increase of $100m, effective October 2012, to be followed by an additional annual increase of $54m effective September 2013. As part of the settlement, PacifiCorp indicated that it anticipates retiring the 172-MW Carbon coal-fueled plant in Utah in early 2015.
  • In March 2012, PacifiCorp filed a general rate case with the Oregon PUC requesting an annual increase of $41m. In July 2012, a multiparty partial stipulation was filed with the Oregon PUC resolving most components of the general rate case, including PacifiCorp’s requests to include in rates the accelerated depreciation and decommissioning costs for the early retirement of the Carbon plant. The issues that were not settled include the prudence of PacifiCorp’s investments in environmental controls at its thermal facilities, its request for a power cost adjustment mechanism and its proposal to add the Mona-Oquirrh transmission line to its rate base through a separate tariff rider when the line goes into service in 2013. A hearing on the issues not resolved in the stipulation was held in October 2012. Post-hearing briefs and oral arguments are scheduled for November 2012 with a decision from the Oregon PUC expected in December 2012.
  • In July 2012, the Wyoming PSC approved a stipulation that consolidated and resolved the December 2011 general rate case and the March 2012 Energy Cost Adjustment Mechanism (ECAM) filing. The stipulation resulted in a $50m general rate increase that will be effective in two stages. The first increase of $32m was effective in October 2012 and the second increase of $18m will be effective in October 2013. The stipulation authorizes PacifiCorp to recover the remaining depreciation expense and decommissioning costs for the early retirement of the Carbon facility through 2020.
  • In September 2011, PacifiCorp filed with the Wyoming PSC an application for a certificate of public convenience and necessity (CPCN) for pollution control facilities at Naughton Unit 3 in Wyoming. In April 2012, PacifiCorp modified its original CPCN application to reflect its current plan to convert Naughton Unit 3 to natural gas. In May 2012, PacifiCorp asked to withdraw the CPCN application, which was approved by the Wyoming PSC.

MATS and regional haze rule to have unknown impacts

The EPA this year issued the final Mercury and Air Toxics Standards (MATS), with an effective date of April 16, 2012. Existing sources are required to comply with the new standards by April 16, 2015. Individual sources may be granted up to one extra year, at the discretion of the Title V permitting authority, to complete installation of controls or for transmission system reliability reasons.

“While the final MATS continues to be reviewed by PacifiCorp, PacifiCorp believes that its emissions reduction projects completed to date or currently permitted or planned for installation, including scrubbers, baghouses and electrostatic precipitators, are consistent with the EPA’s MATS and will support PacifiCorp’s ability to comply with the final rule’s standards for acid gases and non-mercury metallic hazardous air pollutants,” said the Form 10-Q. “PacifiCorp will be required to take additional actions to reduce mercury emissions through the installation of controls or use of sorbent injection at certain of its coal-fueled generating facilities and otherwise comply with the final rule’s standards. PacifiCorp is evaluating whether or not to close certain units. As a result of recent testing and evaluation, PacifiCorp currently anticipates that retiring the Carbon Facility in early 2015 will be the least-cost alternative to comply with the MATS and other environmental regulations. PacifiCorp continues to assess compliance alternatives and potential transmission system impacts that could otherwise impact PacifiCorp’s ultimate decision with respect to the Carbon Facility, including timing of retirement and decommissioning.”

It added about the MATS impact: “Incremental costs to install and maintain emissions control equipment at PacifiCorp’s coal-fueled generating facilities and any requirement to shut down what have traditionally been low cost coal-fueled generating facilities will likely increase the cost of providing service to customers. In addition, numerous lawsuits are pending against the MATS in the D.C. Circuit, which may have an impact on PacifiCorp’s compliance obligations and the timing of those obligations.

In May 2012, the EPA published in the Federal Register a proposal to partially approve and partially disapprove the Utah regional haze state implementation plan (SIP). The EPA’s partial approval of the SO2 portion of the SIP is based on an SO2 milestone and backstop trading program to reduce emissions. The partial disapproval is based on the EPA’s assertion that the Utah Department of Environmental Quality failed to conduct the appropriate five-factor best available retrofit technology analysis for NOx and particulates. The EPA did not propose to issue a Federal Implementation Plan (FIP), but acknowledged the state’s ongoing efforts to conduct the required analysis. The public comment period closed on the EPA’s proposed action in July 2012, and PacifiCorp expects a final decision in the fourth quarter of 2012.

In May 2012, the EPA published in the Federal Register a proposal to approve the Wyoming regional haze SIP for SO2. The Wyoming SIP utilizes the same trading program used by Utah. The EPA’s public comment period closed in July 2012. In addition, the EPA published in the Federal Register a proposal to partially approve and partially disapprove the Wyoming regional haze SIP for NOx and particulate matter and issue a FIP for those portions proposed to be disapproved.

“The EPA action proposed to accelerate the installation of selective catalytic reduction equipment at PacifiCorp’s Jim Bridger Units 1 and 2 to 2017 from 2021 and 2022, but agreed to accept comment on maintaining the original schedule as the state proposed,” PacifiCorp noted about the Wyoming case. “In addition, the EPA proposed to reject the SIP for the Wyodak facility and Dave Johnston Unit 3 and require the installation of selective non-catalytic reduction equipment within five years, as well as requiring the installation of low-nitrogen oxides burners and overfire air systems at Dave Johnston Units 1 and 2. The EPA held public hearings on its proposed disapproval on June 26 and 28, 2012, and the written comment period closed August 3, 2012. Until the EPA takes final action on the SIP or FIP and the appropriate appeal period passes, PacifiCorp cannot fully determine the impacts of the EPA’s proposal.”

In July 2012, the EPA published in the Federal Register a proposal to partially approve and partially disapprove the Arizona regional haze SIP addressing, among others, the coal-fired Cholla facility. PacifiCorp owns 100% of Cholla Unit 4. The Arizona SIP provided for low-NOx burners, while the proposed FIP would require installation of selective catalytic reduction equipment within five years after final action. The written comment period closed Sept. 18, 2012.

On Oct. 12, 2012, the state of Arizona provided notice of its intent to file a citizen suit against EPA under Section 304 of the Clean Air Act for failing to timely act on the SIP for regional haze and for bifurcating its decision on Arizona’s statewide plan into two parts. “Until the EPA takes final action on the SIP or FIP or otherwise addresses the potential citizens’ suit, PacifiCorp cannot fully determine the impacts of the EPA’s proposal,” PacifiCorp wrote. 

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.