CUB Asks PUC to Reject PacifiCorp Coal Investment

CUB has tirelessly fought to keep rates low by ensuring that utilities stick to the legal mandate to implement least-cost/least-risk decisions as they make their investments and run their companies. Unfortunately, CUB’s analysis in the current Pacific Power rate case (UE 246) demonstrates that the company is investing billions of dollars in its coal power plants without first properly considering whether those investments are actually least-cost/least-risk. In particular, CUB found that investments in three plants—Naughton 1, Naughton 2 and Jim Bridger 3—should not have been made, and the company should have considered phasing out those plants, as PGE is doing with Boardman.

Our argument rests on the idea that some of the Company’s expenditures have proven to be imprudent. Prudent in this case is a regulatory term that essentially means that the soundness of a utility’s investment decisions is judged by what the utility knew or should have known at the time it made its investment decisions. CUB is arguing that PacifiCorp’s analysis was flawed when it invested in a series of environmental upgrades at its fleet of coal-fired generation plants. As a result, some of these investments did not honor the least-cost/least-risk mandate that utilities are required to follow. While no one is making an argument against environmental investments in general, CUB is arguing that PacifiCorp should have looked at more cost-effective alternatives, such as phasing out the coal plants altogether.

CUB’s reasoning is similar to what we argued over PGE’s Boardman plant in 2009, namely that EPA rules for Regional Haze at coal plants allow a utility to run the plant with limited pollution control if there is a commitment to shut the plant down in a few years. This reduces the cost of pollution control, and by phasing out the plant, total pollution is also reduced. In the case of PGE’s Boardman plant, the Oregon Public Utility Commission recognized that phasing out the plant would save ratepayers $200 million. For PacifiCorp’s plants, CUB looked at alternative shutdown dates ranging from 2020 to 2025 and discovered that PacifiCorp could have found a more cost-effective way to produce power through gradually phasing out three of the seven coal plants analyzed, namely Naughton Unit 1, Naughton Unit 2, and Jim Bridger Unit 3, all of which are located in Wyoming.

PacifiCorp is legally required to prove that its investments are prudent, and in this case the Company’s analysis was flawed. The Company assumed the alternative to investment in pollution control was immediate shut down of the plants—even though pollution controls were not required for several years. In addition, the Company has stubbornly refused to even consider a Boardman-style phase out of the plant.

Apart from this, PacifiCorp should have updated its analysis as new information about future electricity prices changed. These investments have become less economic over the last few years, but PacifiCorp never revisited its analysis. PacifiCorp also could have considered the impact of falling natural gas prices; it should be noted that PacifiCorp has already decided to convert one of its coal plants, Naughton Unit 3, to be fueled by natural gas. Had PacifiCorp implemented a more concentrated effort in expanding its options for cost-effective decision-making, it could have avoided making unnecessary environmental investments and could have saved itself and ratepayers millions of dollars.

CUB is recommending that the Public Utility Commission either find that the investments at the three coal plants were not prudently made and therefore should be disallowed completely, or that PacifiCorp’s analysis was so flawed that the Commission should disallow 25% of the investments in all seven coal plants. CUB will continue to fight to make certain that ratepayers are not left holding the bag when it comes to utility investments.

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