State questions PSE's plan to keep coal plants operating

THE BELLINGHAM HERALDFebruary 9, 2014 

State regulators are questioning Puget Sound Energy's plan to remain reliant on a Montana coal plant to meet about 30 percent of the electricity demand in Whatcom County and the rest of PSE's service area of about 1.1 million customers.

On the surface, the difference in viewpoints between the Washington Utilities and Transportation Commission and Bellevue-based PSE is all about paper. It involves the assumptions that the electricity company uses to calculate the costs and benefits of keeping the four-unit Colstrip power plant operating, as part of a legally required 20-year plan.

But the 20-year plan and its assumptions may have real implications for the fate of Colstrip and coal-fired electricity in the Northwest.

The state commission acknowledges that replacing the coal-fired plant with environmentally friendly power sources would take many years and many millions of dollars. But modifying the coal plants to keep them in compliance with future environmental regulations also would be time-consuming and expensive. The commission wants more information to help determine which alternative makes the most economic sense.

PSE is a privately owned company that is heavily regulated by the state commission. Besides regulating the rates that PSE charges its customers, the commission also scrutinizes PSE's plans for meeting future electricity demand at a reasonable price.

In the latest update to its 20-year plan, PSE estimates that keeping Colstrip running would save its ratepayers between $119 million and $158 million in 2018, compared to the cost of other power sources.

"Right now, Colstrip plays an important role in the reliability of our system, keeping the lights on ... keeping bills reasonable," PSE spokesman Grant Ringel said.

On Feb. 6, 2014, the utilities commission issued 14 pages of comment on the latest update to PSE's 20-year plan. Among other things, the commission contends that PSE may be underestimating the cost of keeping Colstrip in compliance with ever-stricter federal regulations to control carbon dioxide and other pollution.

"At this juncture, the commission is not convinced that the dollar savings PSE identifies (from coal plant operation) outweigh the cumulative cost impact of the open-ended risks" of new regulations, the commission said.

The commission contends that the U.S. Environmental Protection Agency may impose stricter rules on a tighter deadline than PSE now expects.

Multimillion-dollar decisions will have to be made in the next few years.

"While PSE will not be facing a major investment decision in Colstrip in the next year, such investment decisions are likely only a few years away," the commission said. "Engineering work ... may need to commence even sooner. To embark on investments with so much uncertainty could be harmful to PSE, its ratepayers and the broader public interest."

In future years, refitting the coal plant may be more expensive than replacing it with natural-gas-fired turbines, if future gas prices are lower than PSE's estimates.

"Really, natural gas is the biggest driver," said Yochi Zakai, a policy advisor to the utilities commission.

Zakai also acknowledged the uncertainties that PSE and regulators are facing. In addition to the price of natural gas and the pace of federal regulation, there is a third major unknown: demand for power. How many megawatts will PSE need to meet demand in five, 10 or 20 years? The answer to that question will depend mostly on how fast the region's economy grows, and that too is impossible to know.

The higher the demand for power, the more difficult it might be for PSE to get by without the output from Colstrip.

For now, the commission wants PSE to cooperate on a deeper study of costs and benefits, before investing millions more trying to keep the Colstrip plant in step with environmental regulations.

PSE's Ringel said the company is glad to work with the state commission on the decision-making process.

"It's clear that the commission wants to develop a process to review in advance any major investments at Colstrip," Ringel said. "We are very eager and open to have that discussion with the commission ... there are going to be big decisions to make down the road. There are scenarios out there, absolutely, that change the viability of all our resources, for better or for worse."

The Sierra Club, the best-known nationwide environmental group, has been campaigning to phase out coal as a source of electric power. In a press release, club spokesman Doug Howell said the utilities commission's critique of PSE's plan "signals that we are no longer at a crossroads - our state is moving down the clean energy path."

Reach John Stark at 360-715-2274 or john.stark@bellinghamherald.com . Read the Politics Blog at bellinghamherald.com/politics-blog or get updates on Twitter at @bhampolitics.

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