Centralia Station to Close, Moving Washington State Closer to "Coal-Free" Status

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When Washington Governor Chris Gregoire signs legislation closing the Centralia Power Station on Friday, April 29, the state will move one step closer to the "coal-free" status its leaders seek. Earlier this year, the Washington state legislature, environmental and community groups, labor organizations and TransAlta Corporation (NYSE:TAC) (Calgary, Alberta), the owner of the 1,340-megawatt (MW) facility, hammered out an agreement to retire the plant 10 years ahead of its scheduled shutdown date in return for a package of incentives that include exempting the plant from further state environmental regulation.

Centralia Unit 1 will be retired by December 31, 2020, while Unit 2 will be closed by December 31, 2025. The two-unit plant came online in the early 1970s. Each unit has a generating capacity of 670 MW. The plant, located in Lewis County in southwestern Washington, operates as a merchant facility, meaning its output is sold into the market without the benefit of a guaranteed off-take or profit. Centralia is Washington's largest base-load power source, accounting for an estimated 10% of the state's electricity. It burns low-sulfur coal from the Powder River Basin.

The new law comes as TransAlta is installing pollution-control equipment at Centralia, and this work will continue. It is spending about $10 million to install selective non-catalytic reduction (SNCR) equipment to lower emissions of oxides of nitrogen (NOx). The project is expected to be complete by the end of next year. TransAlta also is spending $30 million to install sorbent injection equipment to reduce mercury emissions by about 50%. That project should finish by the end of this year.

The mercury-reduction equipment is being installed to comply with the recent "utility boiler MACT" draft rule from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.). For more on that draft rule, see March 18, 2011, article - EPA Releases Draft Rule on Mercury Emissions, New Source Performance Standards and the April 13, 2011, "Navigating the Currents of Change" webcast - Regulatory Certainty Still Elusive for Utilities, Despite Recent Flurry of EPA Draft Rules.

Aside from these two environmental projects, TransAlta said it has installed more than $300 million of pollution-reduction equipment at Centralia, including flue gas desulfurization (FGD) equipment at both units, since the company acquired the plant in 1999 from PacifiCorp.

"We supported the bill and helped negotiate it because it preempted the plant from additional state environmental regulation and provided us with certainty about the closure of the facility," TransAlta spokesperson Angela Mallow told Industrial Info. The law, dubbed the "TransAlta Energy Transition Bill," passed both houses of the state legislature by lopsided margins.

Mallow also said that the legislation freed Centralia from a longtime ban on selling power under long-term contracts, which are defined as five years or more in duration. So when the governor signs the bill as expected this Friday, Centralia will be able to enter into long-term contracts lasting until the end of 2020 for Unit 1's generation, and 2025 for Unit 2.

TransAlta plans to build an 800-MW natural gas generator at the Centralia site to replace the lost output from the twin coal generators. The plant, informally named Centralia Unit 3, will come online by 2021, Mallow said. The gas-fired generator would receive expedited permitting from state environmental officials, she said, and planning for the unit's construction has already begun. TransAlta also operates a 248-MW natural gas-fired generator at the Centralia site.

The new law also requires TransAlta to invest $25 million to research clean energy technology, and an additional $30 million in economic development, energy-efficiency and weatherization projects.

The law, expected to be signed by the governor this Friday, also provides for an orderly retirement process for the estimated 300 workers that work at Centralia, Mallow said in an interview. Many of the plant's employees are eligible to retire around 2020, when the first unit will be closed. Setting a firm closure date for the plant will allow TransAlta to trim employees by attrition, rather than an involuntary severance program.

Closing Centralia, the last coal-fired generator operating in Washington state, is an important step to making Washington a "coal-free" state, a longtime goal of Gov. Gregoire (D), who was elected in 2004 and re-elected in 2008.

It is unclear how the governor's goal to make Washington "coal free" will apply to two proposed coal-export terminals planned for the state. Both have run into fierce opposition from environmentalists, who argue that if coal is too dirty to be burned in Washington, then Washington should not facilitate its export either.

One proposed export terminal--the Longview Columbia River Coal Terminal--has been shelved, at least temporarily, following a flap over the size of the terminal planned for the site. The Longview terminal, with a total investment value (TIV) of $100 million, is a joint venture between units of Ambre Energy Limited (Brisbane, Australia) and Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri). In public statements, the owners had committed to a 5 million-ton-per-year export facility, but internal company documents obtained by The Seattle Times show the owners ultimately planned to build a second berth at the Longview terminal to bring export levels to 60 million tons of coal per year. Following the disclosure, the owners withdrew their permit application.

The other planned coal-export terminal in Washington, the Gateway Pacific Terminal, would be operated by SSA Marine, a unit of Carrix Incorporated (Seattle, Washington). The Gateway Terminal, planned for Whatcom County with a TIV of $655 million, could be operational by 2015.

In late February, Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri) signed a contract to export up to 24 million tons per year of Powder River Basin coal through the Gateway Terminal. A deepwater terminal, Gateway could accommodate the world's largest ships--even ships too large for the Panama Canal, the company said.

"We're opening the door to a new era of U.S. exports from the nation's largest and most productive coal region to the world's best market for coal," Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce said in a statement. "Asian nations are leading the world in economic growth and industrial production. Exporting Powder River Basin coal delivers sustainable clean coal, creates U.S. jobs and offers a unique way for America to benefit from major Asian economic growth."

Seaborne coal demand is projected to exceed 1 billion metric tons for the first time in 2011, with the Asia-Pacific region comprising the vast majority of demand growth, according to the Peabody statement. The market for sub-bituminous coal in the Pacific Rim is expected to grow from about 140 million metric tons per year to approximately 250 million metric tons by 2015. While this market is served primarily by Indonesia, Powder River Basin coal offers a competitive and reliable alternative for customers in China, South Korea, Japan, India and other Asian nations.

Peabody estimated that development of the Gateway Pacific Terminal would create more than 8,400 direct, indirect and induced jobs, and would generate nearly $900 million in economic benefits.

Readers can track the development of projects in the Power and the Metals & Minerals industries, including coal export terminals, using IIR's databases, which are updated daily by hundreds of researchers working on five continents around the world.

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