Western U.S. Coal-Fired Power Plants Face Mixed Outlook

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The political and economic forces driving the U.S. Power industry are evident in a spate of Western power plant announcements over the summer. In Utah, the largest coal-fired power plant in the state announced it will stop burning coal by 2025 and convert to gas-fired generation. In Nevada, one of the owners of the last coal-fired plant in the state, North Valmy, wants to end coal burning there years ahead of schedule.

But the news out West isn't all bad for coal-fired power. The owner of the Naughton Power Station in Wyoming said a planned closure of one unit has been deferred for at least one year. And the operator of the four-unit Colstrip Power Station has apparently changed its mind about the wisdom of continuing to operate the two larger units at that plant, reversing its earlier decision to withdraw from operating the plant's two 740-megawatt (MW) units.

The owners of the Intermountain Power Plant (IPP), a two-unit, 1,800-MW facility in western Utah, have decided to stop burning coal at that facility in 2025 because a California law prohibits the importation of power generated by coal. That law, passed several years ago, becomes effective when power sales agreements with out-of-state entities expire. IPP's contracts with California utilities expire in 2027, but the utilities plan to stop taking power from IPP by 2025, two years sooner than the law requires, John Ward, an IPP spokesman, said in an interview.

Six Southern California municipal power agencies, led by the plant's operator, the Los Angeles Department of Power & Water (LADWP) (Los Angeles, California), purchase about 75% of the plant's generation. The plant, located in Delta, Utah, began operating in 1986.

At its peak, IPP burned about 5 million tons of coal per year, but that number is now closer to 4 million tons per year, Ward said. He added the coal is sourced from a variety of mines in Utah. When asked if IPP has had any luck finding other buyers for its power, Ward said the plant exists only for the benefit of owners and power purchasers who decided to create the plant.

Instead of burning coal, IPP's owners are moving forward with plans to build two gas-fired generators totaling 1,200 MW on IPP's site. Repowering is expected to cost about $1.2 billion. Construction is scheduled to kick off in 2019 or 2020, according to Ward, and the repowered plant is scheduled to be operating by 2025. "The original plan was to build four units on the IPP site. Since only two were built, we can start building the gas-powered units before ceasing operations at the coal units," Ward told Industrial Info.

He said Babcock & Wilcox Enterprises Incorporated (NYSE:BW) (Charlotte, North Carolina) has been selected as the owner's engineer, adding a request for proposal (RFP) to provide engineering, procurement and construction (EPC) services for the gas-fired units would most likely be issued next year.

In neighboring Nevada, the 50% owner of the 522-MW North Valmy Power Station, Idaho Power Company (Boise, Idaho), this summer filed documents with its utility regulators saying it wants to shut down North Valmy Unit 1 by yearend 2019 and Unit 2 by yearend 2025, years ahead of schedule. The regulators approved the plan.

"Our long-term plans do not include any generation from North Valmy after 2019 for Unit 1 and 2025 for Unit 2," Brad Bowlin, an Idaho Power spokesman, told Industrial Info. "This was an economic decision. Gas prices have been declining." Idaho Power is a unit of IDACORP Incorporated (NYSE:IDA) (Boise, Idaho).

NV Energy is the 50% owner of both North Valmy units, as well as the plant's operator. NV Energy planned to shut both units by yearend 2025, according to Mark Severts, an NV Energy spokesman. He said NV Energy and Idaho Power would soon begin negotiating the future of North Valmy. He said it was too early to say what options could be on the table, but he noted North Valmy has been designated as a "must run" plant for reliability purposes in northeastern Nevada. NV Energy is scheduled to file a lifespan analysis report on North Valmy with Nevada regulatory by early next year.

NV Energy is a unit of Berkshire Hathaway (NYSE:BRKA) (Omaha, Nebraska). North Valmy is the last utility-owned coal-fired plant operating in Nevada. Earlier this year, NV Energy closed the fourth and last unit of the Reid Gardner Generating Station. The other three coal-fired units at the Gardner station were closed at the end of 2014.

The Valmy and IPP moves come as operators of coal-fired generation across the West are closing their facilities, driven either by state mandates or economics. The Salt River Project (SRP) (Tempe, Arizona), earlier this year decided to close the West's largest coal-fired power plant, the Navajo Generating Station (NGS) when the coal lease expires in 2019. NGS is a three-unit, 2,250-MW facility that began operating in the 1970s. For more on that, see April 3, 2017, article - Coal-Fired Power Takes Another Hit as Owners Decide to Close Navajo Generating Station. SRP said low natural gas prices have made it uneconomic to generate electricity at NGS with coal.

More recently, Public Service Company of New Mexico (PNM) (Albuquerque, New Mexico), a unit of PNM Resources Incorporated (NYSE:PNM) (Albuquerque), concluded that exiting coal-fired generation would save its customers money in the long run. For more on that, see September 11, 2017, article - PNM: Going Coal-free Will Save Money for Customers.

Asset owners and operators in the West are facing the same forces--tougher environmental regulation, low-cost natural gas, declining costs for renewable energy and flat or decreasing customer demand for electricity--that have scrambled the Power Industry in the East and Midwest regions. Even though President Trump is rolling back environmental regulations like the Clean Power Plan (CPP), his support has not been enough to overcome market forces. Dozens of utilities, surveyed earlier this year, said rolling back the CPP would not change their long-term resource plans, which are built around gas-fired generation, renewable generation and stepped-up energy efficiency programs. For more on that, see April 20, 2017, article - Trump, Utilities Disagree Over the Future of Coal-Fired Generation.

But not all operators in the region are closing their coal-fired plants. Pacific Power (Portland, Oregon), also owned by Berkshire Hathaway, said it will keep its Naughton Power Station in Wyoming open at least another year following changes in a federal proceeding on regional haze. One of the three generating units at the 707-MW plant had been scheduled to close by the end of 2017, but the utility was granted another year to complete its assessments for the plant's future. PacifiCorp spokesman David Eskelsen told the Associated Press the utility is still assessing whether it was more economic to install pollution-control equipment at the plant, convert it to burn natural gas or close it altogether.

In a separate move earlier this year, the utility asked regulators in three Western states for approval to invest about $3.5 billion to build about 1,100 MW of new windpower, repower the utility's existing wind generation fleet and add 140 miles of new transmission.

And an ownership change might be the factor that convinced the operator of the Colstrip Power Station to continue operating the power plant for the foreseeable future. Colstrip, a four-unit, 2,094-MW power plant, is owned by six power companies and operated by Talen Energy Corporation (Allentown, Pennsylvania). In mid-2016, Talen reportedly informed Colstrip's other five owners it planned to end its role in the plant by mid-2018, possibly because it believed continuing to operate the plant was not economically viable. But a few weeks after that notice, Talen was acquired by Riverstone Holdings LLC, a private investment fund. Then, this past summer, Talen reversed course and told the plant's owners it wanted to remain as Colstrip's operator.

The owners still plan to shut units 1 and 2 within six years, pursuant to a settlement of environmental litigation. That didn't change with the ownership shift at Talen. Those units came online in the mid-1970s. At 307-MW each, units 1 and 2 are significantly smaller than units 3 and 4, which are about 740 MW each.

But what changed over this past summer is Talen's view about units 3 and 4. Though details are still sketchy, Talen informed the other five owners it had changed its mind and wants to keep operating those units for the foreseeable future. The Billings Gazette quoted Grant Ringel, a spokesman at Puget Sound Energy, as saying, "The new management at Talen sent a request to the other Colstrip owners asking to rescind their notice." In an interview with Industrial Info, a second Colstrip owner confirmed Talen's new owners reversed course, but declined to provide any specifics. Efforts to reach Talen were unsuccessful.

Steve Corson, a spokesman at Portland General Electric Company (NYSE:POR) (PGE) (Portland, Oregon), was the third source to confirm Talen's change of heart regarding operating Colstrip. But he also told Industrial Info that since Colstrip is a participation plant, with six owners but no majority owner, collaborative decision-making is required. PGE owns 20% of units 3 and 4. Corson said any further comment on operating Colstrip would have to come from Talen.

A law passed by the Oregon legislature in 2016 required PGE and Pacific Power to stop charging customers for coal-fired power after a specific date. For PGE, that date is 2035. Aside from its ownership in Colstrip, PGE has only one other coal plant, the Boardman Power Station, and years earlier it had committed to stop burning coal there by 2020. Corson said PGE is assessing the potential for converting Boardman to burn 100% biomass. "A 100% test burn was completed at Boardman earlier this year. We concluded it could be done, operationally, but there were questions about the economics and fuel supply," he said in an interview. PGE owns 90% of Boardman, a 600-MW plant located in Morrow County, Oregon. For more on fuel conversions at coal-fired power stations, see April 7, 2017, article - Fuel Conversion is Key to Rescuing Plants from Closure. For more on the Oregon legislation, see March 23, 2016, article - Oregon Bans Coal, Doubles its Renewables Mandate.

"Like their peers in the East and Midwest, operators of coal-fired generation in the West are making some dramatic changes in how they plan to meet the electric needs of their customers," said Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "Coal is out while gas and renewables are in. As electric storage grows more commercially viable, I expect we'll see resource plans reflect that as well."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.