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Beginning of the End for Colstrip? Washington UTC Rejects Puget Sound Energy's Analysis of Coal Plant Economics

February 07, 2014 posted by Eric Christensen

The Washington Utilities & Transportation Commission ("UTC") yesterday rejected Puget Sound Energy's ("PSE") economic justification for continued operation of its Colstrip coal plant. The UTC's action, while not sealing the fate of Colstrip, sends PSE back to the drawing board and casts doubt on the future of the plant, which is already the subject of legal action brought by a coalition of environmental groups. The UTC's findings were made in the context of PSE's 2013 Integrated Resource Plan. Under Washington law, the state's investor-owned utilities are required to develop and submit an Integrated Resource Plan to the UTC, which must be updated every two years. The Integrated Resource Plan is intended to analyze the alternatives available to meet the utility's anticipated load, and to identify the least-cost alternatives. In this case, the UTC's actions are based on comments filed by the Sierra Club in response to PSE's 2011 Integrated Resource Plan arguing that PSE should be required to "conduct a broad examination" of the costs of continuing to operate Colstrip in light of increasingly strict regulations, especially of air emissions from coal plants. In response, the UTC directed PSE to undertake such an analysis as part of its 2013 Integrated Resource Plan. In an order issued yesterday, the UTC concluded that the analysis provided by PSE failed to support PSE's conclusion that continued operation of the Colstrip plant is the least-cost option for PSE's ratepayers. In particular, the UTC is concerned that relatively small changes in assumptions about future natural gas prices, load growth, carbon pricing, and environmental compliance costs all could invalidate PSE's conclusion that Colstrip remains economically viable. In light of these uncertainties, the UTC was "unable to conclude that continued operations of Colstrip Units 1 and 2 should or should not be a component" of the resources selected for future operation by PSE. Further, investing in new pollution control equipment and other upgrades at Colstrip in the face of such uncertainty "could be harmful to PSE, its ratepayers and the broader public interest." Of particular note, the UTC concluded that the standard regulatory treatment of utility investment decisions -- the disallowance of cost recovery for investments found to be imprudent on ex post facto review -- may be inadequate in this situation because it would not protect PSE's ratepayers "from all the environmental externalities" that might arise from a decision keep Colstrip operating. The UTC therefore "suggest[ed]" that PSE "consider a Colstrip Proceeding to determine the prudency of any new investment in Colstrip before it is made or, in the alternative, a closure or post-closure plan." The UTC's decision places a heavy burden on PSE to justify further investments in Colstrip and suggests that investments made without the UTC's prior approval are likely to be disallowed. If you have any questions about the UTC, integrated resource planning, air quality regulation, or other matters related to energy, natural resources, or the environment, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. We're proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and practice group members Don Cohen, Bill Lynn, and Brad Jones were all named among Seattle's Best Lawyers.