TransAlta Corp. (TSX: TA) (NYSE: TAC) said in a Feb. 18 financial report that its Centralia coal plant in Washington state had a reduced level of dispatch in 2015 due to low prices in the regional power markets.
“Our capacity in the U.S. Pacific Northwest is comprised of our 1,340 MW Centralia coal plant,” the report said. “Half of the plant capacity is set to retire at the end of 2020, and the other half at the end of 2025. System capacity in the region is primarily comprised of hydro and gas generation, with some wind additions over the last few years in response to government programs favouring renewable generation. Demand growth in the region has been limited, and further constrained by emphasis on energy efficiency.
“Our coal plant can effectively compete against gas generation, although depressed gas prices following the expansion of shale gas production in North America has added to the downward pressure on power prices. Our competitiveness is enhanced by our long-term contract with Puget Sound Energy for up to 380 MW over the remaining life of the facility. The contract and our hedges allow us to satisfy power requirements from the market when prices fall below our marginal costs of production. We maintain an opportunity to redevelop Centralia as a gas plant after coal capacity retires, with permitting provided by our agreement for coal transition established with the State of Washington in 2011.”
In December 2014, Washington Gov. Jay Inslee released a carbon-emissions reduction program for the state. Included in this program are a cap-and-trade plan and a low-carbon fuels standard. The proposed emissions cap will become more stringent over time, providing emitters time to transition their operations. “These additional regulations for existing power plants are not expected to significantly affect our U.S. operations,” said TransAlta. “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 GHG regulatory burden on U.S. Coal given these commitments.”
At the Centralia coal plant, said the report: “Production decreased 1,661 GWh in 2015 compared to 2014, as a result of a reduction in our generation to supply our contractual obligation by buying cheaper power in the market. In December 2014, we commenced supplying power to Puget Sound Energy under a 10-year contract. Initial contracted capacity was 180 MW. Contract volumes escalated to 280 MW in December 2015, and will escalate again by 100 MW in December 2016. We can also re-supply the contract by buying power from the market when economical to do so and further improve our margin.”
It added about Centralia: “EBITDA for the year ended Dec. 31, 2015 was comparable to 2014. The appreciation of the US dollar was offset by the impacts of lower prices on our merchant sales. Depreciation and amortization for 2015 increased by $9 million compared to 2014 due to the strengthening of the US dollar. For the year ended Dec. 31, 2015, sustaining capital expenditures increased by [C]$3 million compared to last year as a result of the coal fines recovery finance lease. This operation allows us to recover fuel as part of mine decommissioning activities.”
The adjacent Centralia coal mine has been shut for several years, but is still in reclamation. Since the mine production shutdown, the Centralia plant has been fully supplied with Powder River Basin coal that is railed to the plant. U.S. Energy Information Administration data shows that coal suppliers to the plant last year, besides the recovered fines from the Centralia mine, were the Absaloka mine of Westmoreland Coal and the Spring Creek mine of Cloud Peak Energy, both in the Montana end of the PRB, and Peabody Energy‘s Rawhide mine in the Wyoming PRB.
The TransAlta report noted about the gas-fired capacity at Centralia: “During 2014 we sold a portion of the assets of the Centralia gas facility to external counterparties and transferred other assets to other TransAlta facilities. The plant had been fully impaired and idled since 2010. As a result of the transaction, we recognized impairment reversals of [C]$5 million and the plant’s generating capacity has been removed from TransAlta’s total owned capacity. In 2015, we reversed [C]$2 million of previously impaired change as a result of additional recoveries.”