Other than the Obama Administration’s plans for greenhouse gas regulations, NorthWestern Energy sees no major environmental threat to the continued operation of its share of the coal-fired Colstrip power plant in Montana.
In a resource plan filed Dec. 23 at the Montana Public Service Commission, NorthWestern said it plans to rely heavily on non-carbon emitting capacity represented by its planned buy of 11 hydroelectric facilities from PPL Montana LLC. “NorthWestern is placing significant positive value on resources such as hydroelectric facilities, that do not emit carbon and that, therefore, eliminates the risks and costs associated with the regulation of carbon,” the company said.
It noted that in “The President’s Climate Action Plan” issued in June 2013, President Obama issued a Presidential Memorandum directing the Environmental Protection Agency to “work expeditiously to complete carbon pollution standards for both new and existing power plants.” In September 2013, the EPA proposed new source performance standards, setting aggressive greenhouse gas emission reduction requirements for new fossil-fired plants. These standards are expected to be finalized in mid-2014.
The proposed CO2 emissions limit for new coal-fired units is 1,100 lb CO2/MWh based on implementation of partial carbon capture and sequestration (CCS). “Significant disagreement exists between EPA and industry about the availability of CCS for coal, with EPA contending that it has been adequately demonstrated and industry claiming that it has not,” NorthWestern added. “Litigation over the new source standards is expected to focus largely on this dispute. The proposed CO2 emissions limit for new larger natural gas-fired stationary turbines is 1,000 lb CO2/MWh and for new smaller natural gas-fired stationary turbines is 1,100 lb CO2/MWh. The EPA is not proposing to require CCS for gas-fired units, on the grounds that CCS has not been adequately demonstrated for gas units and because emissions from gas units are already ‘acceptably low.’”
The EPA is also preparing to publish proposed emission guidelines for existing power plants by June 2014, with final guidelines expected by June 2015. According to the Climate Change Action Plan and the Clean Air Act, individual States must then submit plans to implement those guidelines by July 2016. “Based on public comments made by the EPA, CCS is not expected to be required for existing power plants,” NorthWestern noted. “Instead the guidelines are likely to focus on alternatives such as incentives to reduce demand for electricity and promote the development of renewable energy capacity, and possibly a banking, averaging, and trading program for emission reduction credits.”
Based on these regulatory developments, NorthWestern’s planning includes a cost imposed on carbon emissions within the 2013 planning horizon. NorthWestern said it recognizes that the ultimate resolution of carbon emissions regulation may take the form of alternative carbon mitigation schemes but believes the carbon tax approach employed in this and previous plans is an adequate surrogate for now. NorthWestern’s modeling of carbon costs has been modified from the 2011 resource plan, incorporating Montana PSC comments. The 2013 plan uses the Energy Information Administration’s 2013 Annual Energy Outlook greenhouse gas case of $15 per metric ton (GHG15 case), which begins in 2014 and escalates at 5%. NorthWestern’s price forecast includes the GHG15 case beginning in 2021 when the carbon penalty has escalated to $21.11/metric ton.
“Aside from potential greenhouse gas regulations, few of the environmental regulations under consideration are likely to materially impact Colstrip 3 & 4 operation, which supplies 27% of NorthWestern’s energy portfolio (based on nameplate capacity),” the plan said.
MATS, even if it survives court challenges, not considered a major Colstrip issue
One of the EPA regulatory regimes affecting Colstrip are the EPA’s Mercury and Air Toxics Standards (MATS), due to take effect in April 2015, with two one-year extensions of that deadline available under certain circumstances (like grid reliability issues if a generating unit is shut).
NorthWestern noted that MATS is presently under review at the U.S. Court of Appeals for the District of Columbia Circuit, and it remains a possibility that the MATS could be vacated in whole or in part. A decision from the court is expected in the first half of 2014. “However, assuming MATS is upheld, the operation of Colstrip 3 & 4 will not be affected by this regulation as emission standards can be met at Colstrip 3 & 4 without installation of additional emission control equipment, aside from some increased monitoring requirements,” the company added.
Colstrip 3 & 4 are subject to “reasonable progress” requirements under EPA’s regional haze rule. During the first review period (2012 review process, with 2017 control implementation), EPA did not mandate further reductions at Colstrip 3 & 4. As reviews are conducted every five years with control required within five years following a review, Colstrip 3 & 4 will be reviewed again in 2017. Thus, the earliest any controls could be required for Colstrip 3 & 4 would be in 2022. “However, at this time NorthWestern does not have any basis for assuming there will be additional controls,” the company noted.
Coal combustion residuals (CCRs) are another potential issue. CCRs, including coal ash, are a byproduct of combustion of coal in power plants. CCRs are currently exempted wastes under the Resource Conservation and Recovery Act (RCRA). However, in 2010, the EPA proposed to regulate CCRs under two possible options. Under the first option, EPA would list these residual materials as special wastes (a category of hazardous wastes) subject to regulation under Subtitle C of RCRA. Under the second option, EPA would regulate coal combustion residuals as nonhazardous waste under Subtitle D of RCRA. Under either option, surface impoundments utilized for coal combustion byproducts such as the fly ash and bottom ash ponds at Colstrip would have to be closed unless they could meet more stringent regulatory requirements. NorthWestern said any likely rule should have minimal impact at Colstrip.
“While there are environmental risks, we do not expect that the MATS, regional haze requirements, and coal ash regulations individually or in the aggregate will negatively affect Colstrip 3 & 4 operations within the planning horizon,” the company said. “However, the next phase of environmental regulations, such as the Regional Haze regulations, will need to be closely monitored.”
Colstrip Unit 4 is the fourth unit of a 2,094 MW four-unit baseload coal-fired plant located about 120 miles southeast of Billings, Montana. NorthWestern has 30% ownership of the 740-MW Colstrip 4, or 222 MW. NorthWestern also participates in a reciprocal sharing agreement with PPL Montana, which owns a similar share (30%) of the 740-MW Colstrip Unit 3. Under the Joint Ownership and Operation Agreement, PPL Montana and NorthWestern operate both of their shares of Colstrip Unit 3 and 4 as a single project, effectively providing an equivalent 15% of two separate units at the same net total of 222 MW.
The variable cost of Colstrip 4 is relatively low so it is generally dispatched at its full capacity. Occasionally, market prices drop below Colstrip 4 variable cost. In these instances, NorthWestern has the ability to operate Colstrip 4 between the minimum operating level of 60 MW (NorthWestern’s share of the minimum) and 222 MW (NorthWestern’s share at full capacity). During spring runoff when the Pacific Northwest hydro system is operating at full capacity, it is common for NorthWestern to operate Colstrip 4 at maximum output during the day when loads and prices are high, and back the output down to minimum output at night when loads and prices are low. Occasionally, the Colstrip owners may agree to take the unit offline if low market prices are expected to persist for a week or more.
Colstrip is a minemouth facility that gets its coal supply for an adjacent mine of Westmoreland Coal.
Prospective coal plant shutdowns contribute to regional uncertainty
NorthWestern noted that regional grid and market planners are looking at the long-term impacts of coal-fired shutdowns in the region, putting more of an emphasis on the company’s desire to buy the 11 hydro facilities from PPL Montana. The planned elimination of the Boardman and Centralia coal-fired plants and PPL Montana’s announcement that the 153-MW J.E. Corette coal-fired plant will be placed in reserve status beginning in April 2015 contribute to regional resource adequacy concerns, NorthWestern added.
- Boardman – Portland General Electric (PGE) has announced that it will close the 650-MW Boardman coal-fired plant in Oregon in 2020 under a clean-air agreement. PGE plans to replace it with new natural gas-fired generation.
- Centralia – TransAlta’s 670-MW Centralia Unit 1 in Washington state is scheduled to be shut down in 2020 and the 670-MW Centralia Unit 2 is scheduled to shut down in 2025, under a separate clean-air agreement.
- J.E. Corette – PPL Montana has announced that it will place J.E. Corette, a 153-MW coal plant, in reserve status beginning in April 2015, when MATS takes effect (reserve status is also commonly called “mothballing,” NorthWestern noted).
“At present, NorthWestern relies heavily on purchases in the wholesale electricity market to meet peak demand at variable market rates,” the company wrote. “This has proven to be a sound near-term strategy, but as the region’s surplus diminishes NorthWestern’s ability to rely on the market to meet peak demand will become more costly and the risk to physical reliability will become greater. Additionally, the market may become tighter as other changes to the resource mix in northwest unfold.”