Boardman Closure Update

Late last year we posted a summary of the long process that led to PGE’s agreement to close the Boardman coal plant by 2020. While that post did a good job of explaining the journey, there are enough remaining details left in the story that we felt it deserved another post. After all, this agreement is one of the biggest developments in the realm of Oregon utilities in quite some time.

The idea for closing Boardman early came about when the plant began to face federal Best Alternative Retrofit Technology (BART) rules to reduce haze and mercury pollution. These rules would have required PGE to invest roughly $500 million in the plant over the next few years to meet clean air standards. Early in the BART process, PGE had asked the Oregon Department of Environmental Quality (DEQ) to consider a rule that would have included options to close the plant in 2017, 2020, and 2027. In the early stages of its 2009 Integrated Resource Plan (IRP) process, PGE made preliminary estimates of the costs and risks of these scenarios, which showed that closing the plant in 2020 would be the least-cost option for customers. Aside from these off-ramp scenarios, which were all rejected by DEQ, PGE conducted all of its other modeling under the assumption that Boardman would remain online until at least 2040.

CUB could not get on board with extending the plant’s life to 2040. While the current political climate may prevent immediate action on climate change, it is highly likely that some form of climate regulations will emerge in the next 30 years that will make a coal-fired power plant an unprofitable enterprise. This is the argument CUB made in 2007 when PacifiCorp proposed the construction of three new coal plants. We won that argument, and frankly we don’t see much difference in building a new plant from the ground up and investing half a billion dollars in an existing plant. Nor could we get behind the proposals to shut the plant in 2011 or 2014. The Public Utility Commission (PUC) must approve an IRP based on which option is least-cost to customers. CUB believed that we could make a good case that a 2020 closure was least-cost, but we were skeptical that we could win an argument that a 2011 or 2014 closure was least-cost. So, CUB found another way.

CUB, along with the Renewable Northwest Project and the Northwest Energy Coalition, asked PGE to analyze a planning model that included shutting Boardman down completely in 2020. We were surprised but pleased when PGE agreed to do the analysis. We were even more surprised when PGE came back and stated in January 2010 that a 2020 closure appeared to be the least-cost, least risk option for customers. Of course, PGE still wanted a “backstop” of operating the plant until 2040 – the expected life of the plant – if things didn’t go as expected.

CUB and our allies were not willing to accept a 2040 closure date remaining on the table, and pressured PGE to petition DEQ to grant it a waiver for some air quality regulations in exchange for closing the plant early. PGE was reluctant, as DEQ had initially laid down guidelines that would call for a plant closure in either 2015 or 2040. CUB’s Executive Director, Bob Jenks, met with PGE’s Board of Directors in late 2009 and convinced them that continuing to make long-term investments in a coal plant would be a significant financial risk to both customers and shareholders in the face of eventual regulations on carbon emissions and other pressures to address climate change. At least in part due to Bob’s persuasion, PGE negotiated a deal with DEQ to operate Boardman until 2020 at the latest.

One of the most remarkable aspects of this victory is that, while it is certainly a huge environmental victory, its negotiation was couched in purely economic terms. The two authorities in Oregon to which PGE ultimately answers, the DEQ and the PUC, are not the arbiters of any sort of climate action. The PUC is charged with ensuring that utilities adopt least-cost, least-risk plans for the long-term provision of their services, while the DEQ was concerned with the most cost effective method to control haze producing air pollution, not carbon emissions. Nevertheless, CUB and other parties were able to demonstrate (and PGE’s own analysis confirmed) that the risk of costly carbon regulations, combined with avoiding costly air quality investments, created an economic benefit to PGE’s customers and shareholders.

While Boardman will still be generating power for up to another nine years, PGE and other interested parties are working towards developing a replacement resource for the plant, which is the company’s largest single generation resource. PGE has agreed to work with us on replacement power resources that have lower carbon emissions than a natural gas-fired plant. What that means exactly is yet to be determined, but it will likely be a mix of various types of renewable resources. PGE has a good history of investing in wind generation, and has also proposed an interesting plan to convert Boardman to a biomass facility and grow cane grass on thousands of acres in eastern Oregon to fuel it. Regardless of what the replacement ends up being, it will certainly be cleaner, cheaper, and less risky than extending the life of a coal plant for another 30 years.

Finally, we note that this is the first time there has been an agreement to close a modern coal plant in the United States. As such, this agreement is being watched by electric utilities and coal companies around the country. For utilities, it suggests that there may be a way to work with regulators and customers to reduce coal generation and eliminate clean air compliance costs. For coal companies, it is more troubling. It means that Oregon has determined that it is cheaper and less risky to close a modern coal plant than to make the investments necessary to keep burning coal. CUB is confident that this decision will ensure that Oregonians have a clean, stable, and affordable energy supply long into the future.

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