Washington commission approves revised Centralia power deal

TransAlta (TSX: TA) (NYSE: TAC) said June 26 that the prior day, regulatory approval was confirmed for the Centralia power purchase agreement (PPA) with Puget Sound Energy (PSE) for so-called “coal transition power.”

Under a deal with the state of Washington, one coal unit at the Centralia plant will shut in 2020, and the second coal unit in 2025, with the state allowing PSE to buy “transition power” from the plant in the meantime. The plant fires low-sulfur Powder River Basin coal from both Montana and Wyoming.

“With the confirmation of this coal transition PPA by Washington’s utility regulator, we look forward to delivering affordable base-load electricity from our Centralia plant to PSE, all the while advancing the state’s goal of replacing coal-fired power,” stated TransAlta USA President Paul Taylor. “In addition, our Centralia operation provides significant economic and financial value to the Pacific Northwest and this anchor agreement supports our ongoing role as a key community partner.”

The state legislature in 2011 passed a landmark bill confirming a collaborative multi-party agreement among TransAlta, lawmakers, environmental organizations and labor representatives. The parties agreed to a timeline for the state’s transition to cleaner fuels, while preserving the economic benefits of the low cost, reliable power generated by Centralia. The legislation allows long-term contracts, through 2025, for sales of coal transition power from the 1,340-MW Centralia facility.

In July 2012, TransAlta and PSE announced they had entered into a long-term agreement that would see power deliveries beginning in December 2014 and running through to December 2025. The coal transition PPA was subject to review and approval by the Washington Utilities and Transportation Commission.

Under the PPA, PSE will buy 180 MW of firm, baseload coal transition power starting in December 2014. In the following 12 months the contract increases to 280 MW. From December 2016 to December 2024, the contract is for 380 MW, and in the last year the contract volume drops to 300 MW.

PSE had protested aspects of the commission’s approval of that agreement, delaying resolution of the matter until now.

TransAlta said it continues to work with other potential customers in the region regarding medium and long-term coal transition power agreements that support the company’s plan to contract the facility and secure cash flows. TransAlta is also restructuring its Centralia operations to lower costs and improve the plant’s competiveness.

Commission tweaks certain aspects of its prior contract approval

The Washington commission said in a June 25 statement that it found that the long-term contract for 346 average megawatts from the Centralia plant was the least-cost option for the acquisition of power the utility needs to meet demand, and that the contract would not result in higher costs to PSE’s customers than if the company had purchased power from other sources. In its June 25 order, the commission clarified that PSE may recover its costs for coal transition power starting in 2014. The order authorizes PSE to request annual rate adjustments to account for coal transition power costs beginning Dec. 1, 2014.

The commission also approved amendments to the contract that, among other things, will allow the company to alert the commission if TransAlta does not follow through on its commitment to make payments for local economic assistance. Under a separate memorandum of agreement between TransAlta and the state, TransAlta must contribute at least $13.8m in local economic development in Lewis County, $6.9m in energy efficiency and weatherization, and $17.3m in clean energy technologies once the power purchase agreement goes into effect.

Bellevue-based Puget Sound Energy serves about 1.1 million electric customers and nearly 760,000 natural gas customers in parts of Snohomish, King, Pierce, Lewis, Thurston and Kittitas counties.

Canada-based TransAlta is a power generation and wholesale marketing company focused on creating long-term shareholder value. TransAlta maintains a low-to-moderate risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia.

TransAlta USA currently employees over 300 employees in the U.S. TransAlta began operations in the United States in 2000, with the purchase of the Centralia facility in Washington State. Since then, it has invested in generation assets primarily located in the western US. It has 17 U.S. plants that have the capacity to produce more than 2,400 MW of reliable energy from sources including coal, hydro, natural gas and geothermal.

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.