Puget Sound Energy sees a continued need for its stake in the coal-fired Colstrip power plant in Montana and little need for new generation resources in the near term.
Puget Sound Energy (PSE), in a final 2013 integrated resource plan (IRP) filed May 31 with the Washington Utilities and Transportation Commission, said that the best strategy for meeting customers’ long-range electricity demand is for it to continue promoting energy efficiency, acquiring additional power supply for periods of peak customer usage, and securing enough renewable-power resources, over time, to stay in compliance with state law.
Washington state’s oldest local energy utility, PSE serves 1.1 million electric customers and more than 760,000 natural gas customers in 10 counties. The IRP, which covers the next 20 years, was released in draft form in April.
In the IRP, the utility noted that the region’s electric “surplus” has kept market prices low and made transmission contracts plus short-term power purchases a more cost-effective alternative for filling peak capacity need than building new generation. This has been true not just for PSE, but for other regional utilities as well.
“The strategy remains sound for now, but as regional resource adequacy reaches load-resource balance and moves toward capacity deficits, physical reliability risks will grow and costs will increase,” the IRP said. “The action plan for this IRP makes a number of recommendations directed at developing a strategy for reducing reliance on market.”
Colstrip coal plant, despite environmental cost pressures, remains economic
There is long-term uncertainty for coal generation in general, but Colstrip reduces cost and market risk in most likely scenarios, PSE said. For this analysis, PSE developed four environmental compliance cost cases to test the economic viability of Colstrip under a variety of potential regulatory requirements. Overall, the analysis found that Colstrip reduces cost and market risk for customers. Three key risk factors have the greatest effect on Colstrip’s performance as an economic, least-cost resource: very high CO2 costs, very high disposal costs for coal combustion residuals, and very low natural gas prices for a very long time.
“At this time, the analysis indicates that continuing current operations at Colstrip saves PSE customers about $131 million per year,” the IRP said. “Put a different way, replacing Colstrip with another resource would result in approximately a 5 percent annual rate increase, apart from any other rate pressures. Conditions may change in the future, but for this planning cycle, it does not appear PSE should begin developing resources to replace Colstrip.”
Shale gas production production has increased natural gas supplies and lowered prices, but it is not realistic to expect natural gas prices to remain this low over the long term, the IRP said. “The very affordability of this fuel means that usage is also increasing, especially in the transportation and utility sectors,” it added. “Along with the possibility of exports of gas from North America, increased usage will create upward pressure on prices over time. Of greater concern, perhaps, is that as greater volumes of gas move through the system, physical reliability risks will increase as capacity of existing infrastructure strains to keep up.”
The IRP relies on continued acquisition of demand-side resources, adds renewable resources as needed to meet statutory requirements and recommends adding peaking resources. Renewing transmission contracts to support additional generating units or to facilitate market power purchases makes sense in the near term, but long-term reliance on short-term markets clearly requires further study and action given the expected retirements of coal plants in the region and concerns about the availability of resources from Southwestern markets, the IRP pointed out.
The company’s electric resource outlook indicates the need for an additional 12 MW of peak hour capacity by 2017, assuming that about 1,600 MW of PSE’s capacity need is met by short-term purchases over firm transmission. The need grows to 100 MW by 2020 after acquisition of all cost-effective demand-side resources identified in the analysis – again, assuming 1,600 MW of short-term purchases on firm transmission. This includes the resources required to meet peak hour customer demand events, and the planning margin and operating reserves that must be maintained to meet reliability needs.
Renewable energy needs met through 2022
Washington State’s Energy Independence Act (EIA) establishes three targets for qualifying renewable energy. These are commonly referred to as the state’s renewable portfolio standard (RPS). Sufficient “qualifying renewable energy” must equal at least 3% of retail sales in 2012, 9% in 2016, and 15% in 2020. PSE has acquired enough eligible renewable resources and renewable energy credits (RECs) to meet the requirements of the law through 2022. The need in 2022 amounts to 693,550 RECs, assuming a 30% capacity factor and the 1.2 multiplier allowed for certain construction practices; this translates to 2,011 MW of wind resources.
Peakers appear more cost effective than combined-cycle plants in this analysis. This finding holds as long as the peakers are equipped with oil back-up and a enough interruptible natural gas pipeline capacity is available for fuel delivery. This should certainly be the case for the first few additions, but adding several hundred MW of new peakers may over-tax the natural gas infrastructure, the IRP added. Should peakers require firm pipeline capacity, some level of combined-cycle combustion turbine (CCCT) plants may be found to be cost effective.
In the short to intermediate term, transmission contract renewals do appear least cost. These contracts only need to be renewed for five-year terms to preserve PSE’s unilateral roll-over rights in the future. When Unit 1 of TransAlta’s Centralia coal plant in Washington state retires, which is due by the end of 2020, regional resource adequacy is expected to decline abruptly. Unless replacement generation is developed, it is unlikely that heavy reliance on short-term markets over firm transmission will continue to be a viable resource strategy, the IRP pointed out. The second Centralia coal unit is due to retire by the end of 2025.
There also may be concerns about longer-term generation plant closures in the California market, which could reduce the Northwest region’s ability to import power from that region, as has been done traditionally for decades, the IRP noted. PSE will file an update to the 2013 IRP later this year to focus specifically on this issue.
A number of Washington state laws address carbon emissions.
- RCW 70.235 adopts a state goal for reducing emissions.
- RCW 80.80 sets an emissions performance standard (EPS) that prevents utilities from entering into long-term financial commitments for baseload generation unless the source complies with the greenhouse gas emissions standard set by the state, effectively banning purchases from additional coal plants or older gas-fired CCCT plants.
- In 2011, the legislature amended the EPS to achieve permanent reduction of certain CO2 emissions by retiring Centralia. Utilities are allowed to enter into long-term contracts for “coal transition power” from TransAlta, and TransAlta will shut down one generating boiler at the Centralia coal plant by the end of 2020 and the other by the end of 2025.
- RCW 19.285, the Energy Independence Act, requires electric utilities to reach certain targets for renewable resources and acquire all cost-effective achievable conservation. Meanwhile, according to WAC 480-100-238, “Each electric utility regulated by the commission has the responsibility to meet its system demand with a least cost mix of energy supply resources and conservation.”
The IRP’s action plan for electricity is to:
- Pursue cost-effective demand-side resources based on IRP guidance. Work with external stakeholders to establish targets and tariff filings, using this IRP as a starting point. Issue requests for proposals (RFPs) as appropriate to assist with efficient acquisition of demand-side resources.
- Develop a strategy to reduce reliance on market in the intermediate to long-term, including coordination with others in the region as appropriate. File an update or addendum to the 2013 IRP early in the fourth quarter of 2013 to address concerns about relying on market to meet capacity needs.
- Ensure that the timeline for resource acquisitions is long enough to accommodate the type of infrastructure development that may be required due to expected changes in regional resource adequacy.
- Pursue the prudent acquisition of gas storage for generation.
- Develop a robust work plan for the 2015 IRP to clarify the roles and expectations of the public participation process and to provide greater transparency regarding PSE’s analytical processes.
PSE’s supply-side resources are diversified geographically and by fuel type. Most of the company’s gas-fueled resources are in western Washington. The major hydroelectric contracted resources are in central Washington, outside the utility’s service area. Wind facilities (773 MW total) are located in central and eastern Washington. Coal-fired generation (677 MW of net capacity) at Colstrip is located in eastern Montana.