The Transformer: Update – November 19, 2007

Volume 4, Number 7.5 – Special Update

OPUC staff follows Coalition advice,

gives resounding ‘No’ to new coal plants

Background

A recent Transformer (“PacifiCorp’s Dilemma,” Oct. 29, 2007) described multi-state utility PacifiCorp’s proposed integrated resource plan (IRP) and detailed clean-energy advocates’ critique of the plan’s call for two new coal-fired power plants. Now, Oregon Public Utility Commission staff have released their “Initial Comments and Recommendations” on the IRP (Download PDF Version).

Oregon Public Utility Commissioners rarely make decisions counter to staff’s recommendation, and have done so only when confronted with overwhelming contrary evidence and testimony from other parties. In this case, however, almost all interveners have panned the utility’s plan.

This Transformer Update offers a brief overview of the Oregon Utility Commission staff’s positions.

Nobody’s buying it

PacifiCorp’s additional power needs are driven mainly by load growth (mostly for air conditioning) in Utah. The accompanying graph projects PacifiCorp’s expected load/resource balance and illustrates the company’s problem if no more resources are acquired. The shaded portion shows, absent acquisition of new resources, PacifiCorp gradually sliding into deficit — on average.  But the graph’s downward-spiking line shows that more than 1,000 megawatts (the difference between the bottom of the spikes and the gray area) of its need is strictly to cover summer demand.

Energy Balance

Chart shows annual and monthly average energy
assuming median hydro conditions
The company proposes to build baseload coal plants (baseload plants are designed to run 24/7, and cannot be ramped up or down economically) to deal with these narrow peaks. But coal plants are expensive; turning them on for just a few weeks each summer makes no economic sense. So PacifiCorp proposes selling the coal plants’ surplus power into the market at a profit the rest of the year when they are not needed to serve loads, making the plants pencil out as a low-cost choice.

OPUC staff doesn’t buy it. First, it notes, this strategy doubles the company’s energy surplus, thus putting PacifiCorp customers at the mercy of surplus power sales markets. Staff expressed concern “about customers paying for new coal plants whose economics rely on sales of CO2-heavy electricity into the market.” (p.31)

The staff notes concerns raised by NW Energy Coalition and other parties that the utility will have difficulty finding

. . . buyers willing and able to take the carbon burden associated with sales from PacifiCorp’s unsequestered coal plants — with no consequences for the sale price.  Because of these assumptions, the models produce results that appear unlikely in the real world . . . . (p. 32)

In the earlier Transformer and in official comments to OPUC, NW Energy Coalition labeled the process “carbon laundering.” PacifiCorp’s model assumes it can sell its dirtier power for the same price as cleaner power, then turn around and purchase market power – which has a cleaner system average — at the same price as well.  Staff confirmed the Coalition’s characterization of the scheme.

Staff finds it unlikely that the market — including price — will be the same for power with widely differing CO2 content.  However, this dubious assumption helps make portfolios with coal plants appear to have favorable cost and risk metrics. (p. 33)

CO2 risk is real

The staff report notes several of the company’s modeling errors. Staff, for example:

  • “is skeptical of the high energy growth rates the company is projecting” (p. 32)
  • “is not convinced that the amount of [purchased power] in the preferred portfolio represents the best cost/risk trade-off” (p.7) and
  • “does not agree with PacifiCorp that [its] ‘Risk Exposure’ [metric] constitutes the best risk measure” (p. 18)

OPUC’s staff argues that PacifiCorp seems not to share its concerns and those of other interveners about the risk to ratepayers of adding pulverized coal resources in an era of increasing carbon regulation — especially considering the company’s existing carbon exposure.

Staff concludes:

It is clear … that PacifiCorp’s preferred portfolio — which the company estimates would increase its CO2 emissions by about 8 percent by 2018 compared to today — does not meet the goals for reducing greenhouse gas emissions in HB 3545 [the 2007 law establishing state goals for greenhouse-gas reductions]. (p. 12)

Some slight modifications are in order

In summary, the PUC staff recommends that the Oregon Commission not acknowledge PacifiCorp’s plan without key modifications.  Basically, it says, the company should seek more flexible plants — specifically “other than coal plants” — by the summer of 2012, but only after refining the need (baseload versus peaking) after updating conservation and renewable resource analyses, accounting for changes in resources, and refining load forecasts.

Then, when it comes to doing its next IRP, the company must:  (a) model forced retirements of existing coal plants, or retrofits needed to reduce CO2 emissions, under stringent carbon regulation scenarios; and (b) refine its CO2 modeling to reflect various regulatory schemes such as those being proposed by the Western governors and Congress.

In essence, the Staff is telling the company it must redo much of its analysis, procure no more coal-fired generation and start thinking seriously about how to reduce CO2 drastically.

It’s hard to argue with that.

What’s next

The parties, including PacifiCorp, will file reply comments Nov. 21. A meeting and public-comment session will be held Dec. 19 in Salem. The Commission is expected to issue its final decision by the end of January.

The Commission previously rejected the company’s 2004 IRP proposal to build new coal plants.  PacifiCorp issued a request for bid proposal for all kinds of resources to see what developers would offer.  Everyone wondered what would happen if the best bid were a coal plant.

The company’s first choice was InterMountain Power Project No. 3 (IPP3), a coal plant a number of utilities – including several from California — were considering as a joint project.  However, the California utilities pulled out after that state prohibited power purchases from pulverized coal plants, essentially dooming the IPP3 project.

Now PacifiCorp is moving toward natural gas-fueled generation.  Clean-energy advocates anticipate Oregon Commission endorsement of staff’s perspective on the coal in PacifiCorp’s current IRP, and hope the utility finally abandons its misguided pursuit of coal.

What do you think?

We are interested in your reactions to these articles. We will print as many responses as possible in future editions of The Transformer. Please email comments to ma**@nw******.org.