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PacifiCorp to Add Gas-Fired Generation

A PacifiCorp plan to retain a fleet of coal-fired generation plants during the next decade while increasing substantially both its natural gas-fired and renewable energy-based power generation is stirring controversy.

In response to a recent Portland Oregonian report, a Portland-based spokesperson for the MidAmerican Energy Holdings Co. utility told NGI on Tuesday that it is accurate to say the multi-state utility plans to spend more than $1.3 billion for upgrades of the emissions controls on its coal-fired plants. The spokesperson also said PacifiCorp has plans for "massive investments" in the renewable, energy conservation and gas-fired generation areas.

As part of an updated integrated resources plan (IRP) that PacifiCorp has filed with regulators in Oregon and five other western states, the utility said its power generation mix at the end of last year was dominated by its 26 coal-fired units at 11 locations (62.5% of the power), with the other sources being natural gas (11.7%), hydroelectric (10%) and renewables (7.4%). With greater emphasis on gas and renewables, the mix in 2020 is supposed to change dramatically (36.3% from coal; 25.5% from gas; 10.7% from renewables; and about 10% from hydroelectric).

"We're assessing the lifespans and liability of all coal-fired units," the spokesperson said. "In some cases the cost of making upgrades and repairs for units (coal, hydro, etc.) would cost more than simply removing the plant."

Even with the policymaking emphasis on renewables and conservation, PacifiCorp is operating with the understanding that for baseload generation it only has three choices: gas, coal and nuclear. The utility's senior executives reiterated this mindset to the Oregonian in its report, which quoted the PacifiCorp management as saying retrofitting existing coal-fired units is its "most economical option" for its retail customers in Oregon, Washington, California, Idaho, Wyoming and Utah.

Since closing the acquisition of PacifiCorp five years ago (see Daily GPI, March 22, 2006), MidAmerican Energy has pumped more than $1 billion for capital expenditures into the western utility, including nearly $750 million for coal plant upgrades the past two years. As the newspaper report pointed out, the coal plant cleanups were the primary reason for retail utility rate increases of 4.4% and 8.4% in 2010 and this year, respectively.

PacifiCorp's plans to keep its coal-fired units and retrofit more controls comes at a time when some independent power provides that are heavily invested in coal-fired plants are not doing too well. Moody's Investors Services on Wednesday downgraded the long-term ratings of Edison International's independent generator, Edison Mission Energy (EME) and its subsidiary Midwest Generation Co., both of which have considerable coal-fired capacity in Illinois and Pennsylvania.

Along with switching the Edison International companies to a negative credit outlook, Moody's lowered EME senior unsecured notes to "Caa1" from "B3" and its corporate family rating to "B3" from "B2."

"The downgrade recognizes the continuing, multi-year challenge that EME faces in satisfying state and federal environmental requirements across its generation fleet," Moody's said.

Plans for more than 150 coal-fired plants have been canceled and the prospect for retirements of existing plants are quite high, according to reports. Boston-based consultant The Brattle Group last year found that 20% of the U.S. coal-fired generation capacity was at risk to be retired if currently proposed environmental mandates are enacted. Brattle's study estimated that the potential environmental compliance costs for the nation's coal-fired fleet is about $180 billion.

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