TransAlta Corp. (TSX: TA) (NYSE: TAC) President and CEO Dawn Farrell said July 30 during an earnings call that the company is seeing mixed success in signing offtake power contracts for the coal-fired Centralia plant in Washington state.
Farrell referred to this as “transition” deals because the company is under a state mandate to shut one of the plant’s coal units in 2020, and the second coal unit in 2025, to reduce greenhouse gas emissions. The state, in the meantime, is encouraging the signing of power contracts for the plant’s output under so-called “transition” deals.
“We’ve got this continued ability to market Centralia Coal,” Farrell said. “It’s called transition coal but the governor’s office has been opening the doors for us with a number of large customers there. The team certainly has people they’re talking to, but I’m a closer, and I know what it feels like when you’re on the hunt for a close and right now, to me, everything we’re doing is more trying to create demand and get people thinking about it than it is closing.”
Some of the problems in closing those deals is the uncertainty of the power market in the region. “Now the power market’s been lifting and our theory has been that as it lifts it’ll start to give people more impetus to close deals,” said Farrell. “But so far I just haven’t seen the kind of strength that I would want to see to know that I could say, okay, I think we’re getting close to something.”
Farrell said TransAlta only really needs one or two medium size-ish contracts to run to the end of 2025 because it’s better to have a 10-year deal now to take a five-year one. “But we have that one unit that’s shutting down at the end of 2020 and we really only have the other unit to the end of 2025, so if you look at the size of that unit, we don’t want to be overhedged in that period, either and the forward curve looks not too bad at that back end,” Farrell noted. “It’s starting to life a little bit.”
The company noted in its July 30 earnings statement the companion Centralia gas-fired plant is currently not in operation. “We are currently assessing the generation needs of the region and the financial feasibility of bringing the plant back into operation,” said the company.
Production for the three and six months ended June 30 out of the Centralia coal facility increased 238 GWh and 676 GWh, respectively, compared to the same periods in 2013 due to lower economic dispatching as a result of certain months during the period in which higher prices made production economical. In periods of low market prices, such as during spring runoff, it can be more economical for TransAlta to not produce power at Centralia Thermal and purchase power in the market to satisfy contractual obligations.
TransAlta pointed out that the Obama Administration’s CO2 plan for existing power plants is no big issue for it. “The recently proposed EPA greenhouse gas regulations for existing power plants are not expected to significantly affect our US operations. Regarding our Centralia coal-fired plant, TransAlta has agreed with Washington State to retire units in 2020 and 2025. This agreement is formally part of the State’s climate change program. We believe that there will be no additional greenhouse gas regulatory burden on Centralia given these commitments.”
Fuel at Centralia Thermal is purchased from external suppliers in the Powder River Basin in Montana and Wyoming and delivered by rail. The delivered cost of fuel per MWh for 2014 is expected to increase by approximately 1%-3%.
The Centralia Coal Plant has a net capacity of 1,340 MW. Centralia Gas, also known as the Big Hanaford Plant, is a 248-MW natural gas combined-cycle facility.