TransAlta Corp. (TSX: TA) (NYSE: TAC) said Jan. 23 that Puget Sound Energy (PSE) has filed a petition for reconsideration of certain conditions within the Jan. 9 decision issued by the Washington Utilities and Transportation Commission approving a proposed long-term power purchase agreement (PPA) between PSE and TransAlta Centralia Generation LLC.
That PPA covers power out of the coal-fired Centralia plant in Washington State. The proposed agreement approved by the WUTC would permit PSE to purchase an average 346 MW of coal “transition” power from the plant.
“PSE’s decision to file for reconsideration provides PSE and the WUTC a process to resolve any concerns with the conditions adopted by the WUTC in its approval of the proposed agreement,” said Dawn Farrell, President and CEO, TransAlta Corp. “TransAlta, along with other stakeholders, is closely monitoring the progress of this agreement and cooperating as required to support implementing an acceptable solution for all parties involved.”
The PPA sets the stage for closing the state’s remaining coal-fired electric generating units by 2025. PSE would purchase an average 346 MW of coal transition power from the Centralia coal plant, which will cease coal operations in one of its two units by 2020, and the other by 2025. Washington Gov. Chris Gregoire signed the Coal-Transition Energy Bill in 2011. This bill provides certain deferrals of greenhouse gas emissions performance standards to encourage the early closure of coal plants in Washington. The PSE/TransAlta contract, if PSE can work out its issues with the commission approval, is effective from Dec. 1, 2014, through Dec. 31, 2025.
Puget raises return on equity and other issues
PSE said in its Jan. 22 motion for reconsideration that the commission should reconsider its decisions because the order fails to carry out the requirements and intent of the Coal Transition Energy Bill for the following reasons:
- The equity component allowed by the commission fails to comply with the letter or spirit of the Coal Transition Energy Bill. The commission’s decision does not allow PSE to “earn the equity component of its authorized rate of return in the same manner as if it had purchased or built an equivalent plant.” By slashing the equity return PSE can recover for the Coal Transition PPA, the commission has gutted the incentive to enter into a coal transition PPA that the Coal Transition Energy Bill is intended to provide.
- The commission order fails to constitute approval of the Coal Transition PPA, as anticipated under the law, said PSE. It imposes as a condition of approval an ongoing reporting requirement, which is problematic to the extent that the commission would use such reports, at any time during the term of the Coal Transition PPA and after PSE is contractually obligated to purchase power under the agreement: to determine that the Coal Transition PPA is no longer a coal transition power purchase agreement; to reconsider whether the Coal Transition PPA is prudent; and to prohibit PSE from earning an equity return on the Coal Transition PPA. “The uncertainty and potential consequences that flow from this condition eviscerate the approval Order 03 purports to grant,” the utility wrote. “PSE is left with such a level of uncertainty—regarding future events over which it has no control—that it cannot enter into the Coal Transition PPA. PSE can accept the obligation to file reports but respectfully requests that the Commission eliminate the provisions for retained authority to reconsider whether it remains prudent for PSE to continue taking deliveries under the Coal Transition PPA. PSE believes the Amendment provides a more direct way of addressing the Commission’s concerns in these areas.”
- The commission’s decision to wait to determine whether PSE may defer the incremental costs it incurs as volume and price terms vary during the life of the Coal Transition PPA fails to ensure that PSE will be able to fully recover its prudently incurred costs. The commission’s failure to authorize PSE to defer these costs is inconsistent with the statutory requirement that “[u]pon commission approval of an electrical company’s [Coal Transition PPA], the electrical company is allowed to…recover the cost of the coal transition power under the power purchase agreement.” PSE said it respectfully requests that the commission reconsider its decision and authorize now the deferral methodology requested by PSE.
“PSE stands at a crossroads,” the utility added. ‘It must decide whether to accept or reject the Coal Transition PPA based on the new terms imposed by the Commission in Order 03. Once PSE accepts the Coal Transition PPA, it has no termination right other than for Events of Default, certain Force Majeure Events, for a change in the greenhouse gases law, or TransAlta Centralia’s termination of the [memorandum of agreement]. Under the current conditions imposed by the Commission in Order 03, the uncertainty PSE faces in moving forward with the Coal Transition PPA is too great, and PSE has no incentive to enter into the Coal Transition PPA, which is contrary to the intent and plain language of the Coal Transition Energy Bill. Absent reconsideration of these conditions by the Commission, PSE must reject the agreement.”
TransAlta Centralia owns and operates a baseload coal-fired plant of approximately 1,340 MW that consists of two units and two boilers. A coal strip mine at the site was shut several years ago and the plant now gets all of its coal from the Powder River Basin. U.S. Energy Information Administration data shows the plant taking coal last year from the Rawhide mine in Wyoming of Peabody Energy (NYSE: BTU) and the Spring Creek mine in Montana of Cloud Peak Energy (NYSE: CLD).