TransAlta Corp.‘s (TSX: TA) (NYSE: TAC) 1,340-MW Centralia coal plant in Washington state didn’t fare well financially in the third quarter of this year, since comparable EBITDA this past quarter was C$10 million, compared to C$13 million for the same period in 2014 and C$44 million on a year-to-date basis compared to $46 million in 2014.
“Quarterly results were negatively impacted by coal inventory writedowns and reduced generation resulting from low power prices, which were partially offset by mark-to-market gains on financial contracts put in place to hedge our future generation and the stronger US dollar,” said TransAlta in an Oct. 30 earnings report about Centralia, which is called “U.S. Coal” in the report. “On a year-to-date basis, limited merchant sales and mark-to-market losses were partially offset by the appreciation of the US dollar. We anticipate the effects of coal inventory writedowns to reverse during the fourth quarter as coal is used for production.”
On July 30, TransAlta announced that it is moving ahead with plans to invest US$55 million over 10 years to support energy efficiency, economic and community development, and education and retraining initiatives in Washington state. The US$55 million community investment is part of the TransAlta Energy Transition Bill, passed in 2011. This bill was a historic agreement between policymakers, environmentalists, labor leaders and TransAlta to transition away from coal in Washington state, closing the Centralia facility’s two units, one in 2020 and the other in 2025. “Although we did not secure additional long-term contracts totaling 500 MW as planned in the original agreement as a condition of the investment, we are following through on our funding pledge and securing mutual benefits agreed with the state for orderly transition,” said TransAlta.
At Centralia, production decreased 378 GWh and 1,592 GWh, respectively, for the three and nine months ended Sept. 30, 2015, compared to the same periods in 2014 due mainly to the lower power prices in the first and third quarters of 2015. These lower prices provided the company with the opportunity to shut down or dial down generation and supply contractual obligations by buying cheaper power in the market.
In December 2014, the company commenced supplying power to Puget Sound Energy under a 10-year contract. Contracted capacity under that deal currently is 180 MW, escalating to 280 MW in December, and the contract price is currently higher than prevailing market prices in the Pacific Northwest. TransAlta also noted that it can re-supply the contract by buying power from the market when economical to do so and further improve its margins.
Fuel at Centralia/U.S. Coal is purchased primarily from external suppliers in the Powder River Basin and delivered by rail. The delivered cost of fuel per MWh for 2015 is expected to increase by 1%-2% as a result of inflation and a coal recovery program.