A Coal-Fired Future for the Electric City?

Cleanest in the Country? Highwood and Pollution

Simply stated, coal-fired power plants are the most polluting way to generate a kilowatt-hour of electricity across a wide spectrum of environmental contaminants. And the Highwood plant is no exception. Each year, this plant would generate literally thousands of tons of regulated air pollutants and millions of tons of yet-to-be-regulated global warming pollutants (see chart below). In addition, the plant would release significant quantities of mercury and other hazardous air toxics. SME has tried to characterize the plant as the “cleanest in the country,” but the facts tell a very different story.

When it comes to greenhouse gases, the proposed “circulating fluidized bed” (CFB) combustion method is the worst available technology. CFB plants not only have all of the carbon emissions of a traditional pulverized coal plant, but also produce significant emissions of nitrous oxide (a greenhouse gas 310 times more harmful than carbon dioxide, on a molecule-for-molecule basis). And the Highwood developers currently have no plan to mitigate their carbon emissions in any way. In the draft EIS there is a vague suggestion that trees might be planted to “sequester” some of the carbon. [The accompanying statistic, that a single tree can absorb 0.82 tons of carbon dioxide each year, overstates the case by a factor of one hundred.] The draft EIS also suggests that the 20 MW of hydroelectric power that SME currently purchases from the Western Area Power Administration (WAPA) might somehow count as a carbon offset credit against Highwood’s emissions. But it is entirely inappropriate to try to claim credit for an existing long-term contract. Groups like the National Carbon Offset Coaltion and The Climate Trust emphasize the principle of “additionality”—i.e., that carbon credits should only be awarded to new, clean energy projects that move us away from the “business as usual” path.

The plant also would release sizable quantities of mercury, a potent neurotoxin that accumulates in the environment and concentrates as it moves up the food chain. Montana already has a statewide advisory for fish consumption due to mercury contamination. In the last eight months, Montana wildlife officials have documented ten bald eagles with mercury poisoning—a fact that was conveniently left out of the EIS. While it has been widely reported that the Highwood plant would control 90% of its mercury emissions, this standard is not imposed as a firm requirement in the draft air quality permit. In reality, the plant could control as little as 26% of its mercury emissions and still be in compliance.

Great Falls wind pattern. The wind is calm only 1.2% of the time, and blows predominantly from the southwest. The Highwood smokestack plume would travel in the direction of Fort Benton, Big Sandy, Rocky Boy, and Havre.

When comparing the environmental impacts of Highwood to those associated with truly clean alternatives such as wind, solar, or hydro, there is simply no contest. Even natural gas-fired power plants (such as the 260 MW Montana First Megawatts plant that was proposed for Great Falls back in 2001—see chart below) release substantially less pollution. Integrated gasification combined cycle (IGCC) is a coal-based technology with much greater operating efficiency than CFB and much lower emissions. IGCC also has lower water requirements, produces less waste, and is capable of capturing carbon dioxide for potential storage.

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A Question of Need

But the most fundamental question (another one that the draft EIS utterly fails to address in an objective and independent fashion) is whether this plant is even needed. Traditionally, projects like Highwood underwent a thorough analysis of need as part of the certification process under Montana’s Major Facility Siting Act (MFSA). But that act was gutted during the 1997 and 2001 legislative sessions. Unbelievably, a massive new coal-fired power plant like this one is no longer regarded as a “facility” in the definitions section of the Act, although an 8 MW geothermal plant still is. (In a lawsuit that is currently pending before the Montana Supreme Court, MEIC has asserted that the repeal of MFSA for these projects was unlawful.)

There are two ways to look at need—one is total energy consumption (the total number of megawatt-hours needed in a year) and the other is peak power demand (the greatest number of megawatts needed on an instantaneous basis, i.e., for short periods of time). BOTH of these must be considered. The draft EIS does a very poor job of making the distinction clear.

Based upon the electricity requirements of SME’s member co-ops, a plant of this size clearly is NOT needed. The five member co-ops of SME (Beartooth Electric, Fergus Electric, Mid-Yellowstone Electric, Tongue River Electric, and Yellowstone Electric) point to the impending expiration of a power supply contract with Bonneville Power Administration as the primary rationale for the plant. But this project is out of all proportion to the quantities of electricity actually supplied by BPA.

In 2004, these five co-ops used approximately 500,000 megawatt-hours of electricity, or 57 average megawatts (aMW). [To convert “megawatt-hours (MWH)” to “average megawatts (aMW)” simply divide by 8760—the number of hours in a year.] In contrast, this plant would generate about 2.2 million megawatt-hours (250 aMW) each year—more than four times the amount currently being consumed by the co-ops. Of that 57 aMW, 20 aMW is currently coming from WAPA, which means that no more than 37 aMW is coming from BPA. So, from an energy standpoint, we have a 250 aMW solution to a 37 aMW problem. These numbers mean that SME will have to find a market for up to 213 aMW of electricity. With so much electricity being sold off system, this plant begins to look more and more like a “merchant” facility. It also becomes more and more inappropriate for the plant to receive its primary project financing through the Rural Utility Service.

When confronted with this issue, SME responds that its members do not use electricity at a constant rate and that, like all utilities, it has periods of peak power demand that must be met. While this is true, the strategy of meeting peak demand with a baseload generating facility is both unusual and unwise. Coal-fired power plants such as this one are designed to run at a constant level near their full capacity. Meeting peak load with a baseload generator puts the utility in the situation of having to sell excess power during all but a few hours each year. A better approach is to use a mix of resources, both baseload and peaking, to avoid producing so much excess electricity. Peaking plants, such as some natural gas-fired units, can “ramp up” and then back down again quickly and efficiently.

But even if this were the right strategy, the proposed plant would still be oversized. In February of this year, SME’s customers had an all-time-high peak demand of 141 MW. This is still only 56% of the 250 MW output of the proposed plant. SME is now in the process of trying to acquire additional customers in order to make this project work. Part of that strategy is to try to line up Great Falls area residential and commercial customers.

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A Power Plant in Search of a Market

Currently, SME is supplying a relatively small amount of electricity to Great Falls for municipal and industrial needs. During the last legislative session, SME and the City supported a bill to allow the transfer of NorthWestern Energy’s Great Falls-area “default supply” customers to Electric City Power, the new municipal utility. The legislature wisely rejected the bill (HB 642) on a bipartisan basis. As Montana law now stands, Electric City Power would have to convince customers to proactively switch suppliers under the rubric of Montana’s deregulation law. Based on the lessons learned in Montana and other states, it is safe to predict that very few small customers would agree to switch. (Many of those who have chosen alternative electricity suppliers around the country have done so for environmental reasons, i.e., in order to purchase “green” power. It is doubtful that Electric City Power could convince large numbers of people to switch only to be served by a highly-polluting coal-fired power plant.)

It is worth re-emphasizing that there is no need for the City of Great Falls to participate in this enterprise. Nearly all of the city’s residences and businesses are already being served by NorthWestern Energy. The municipal government and any remaining “choice” customers (those who elected to leave the default supply after the deregulation bill passed) can rejoin the default supply at any time. NorthWestern’s current electricity portfolio is far superior to what SME is offering, with greater diversity of resources, better risk management, and strong efficiency and renewable energy programs. Furthermore, the default supply is regulated by the Montana Public Service Commission (PSC), and is governed by rules that are regarded as a model of consumer and environmental protection. Finally, customers also have representation by the Montana Consumer Counsel, an office that was created by the 1972 Constitution to advocate consumer interests before the PSC.

In Montana, there is now overwhelming agreement that the state’s experiment with electric deregulation has failed miserably. It is now all but certain that the next legislature will repeal most of what’s left of this misguided law. In fact, the legislature has already put limits on the numbers of customers that can leave the system each year, recognizing that “small customer choice” is a flawed concept that carried more risk than benefit. (Incidentally, four of the five SME co-ops supported the now infamous deregulation bill in 1997, as did SME’s general manager, Tim Gregori, who was representing Big Horn Electric Co-op at the time. MEIC was a strong opponent of that bill.)

It is unfortunate, given these facts about the Great Falls customer base, that the Highwood developers persist in suggesting the plant will serve 120,000 Montanans. In reality, SME serves about 65,000 people, but the number is often incorrectly inflated to include the 57,000 residents of Great Falls. The draft EIS adopts this larger figure without question or qualification (including it on the very first of its 725 pages).

So the question remains, “where does SME plan on selling all of this excess electricity?” According to both the developers and the draft EIS, part of the answer is “load growth.” SME is forecasting an ambitious 86% increase in its electricity usage by the year 2018. Much of this increase is attributed to residential growth. SME projects a 3.4% annual growth rate in residential electricity use for the years 2003-2016, a figure that pushes the boundaries of plausibility and conflicts with other forecasts.

SME’s service area includes portions of 21 Montana counties. According to the U.S. Census Bureau, the combined population of these counties is expected to grow at an average annual rate of only 0.6% for the period 2000-2020. And according to the draft EIS, “The average amount of electricity used per residential customer is expected to remain relatively constant to increasing slightly over the course of the next 20 years,” so the disparity cannot be explained away by an expected increase in per capita energy usage.

Supposing (as seems reasonable) that SME’s load growth falls short of its projections, large amounts of electricity would have to be sold “off system” and during “off peak” times when it has less value. SME is assuming it would be paid 85% of the on-peak value for this electricity. Considering that other Montana utilities would be experiencing “off peak” hours at the same time, and that Montana has limited transmission capacity to reach out-of-state markets, this might prove a dangerous assumption. Any such miscalculation could seriously affect the plant’s economics.

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Risky Business: Carbon Regulation and Fuel Price

The Highwood plant poses other financial risks that have not been adequately considered.

First, is the probability that CO2 will become a regulated pollutant. In its Fifth Regional Power Plan (released in 2005), the Northwest Power and Conservation Council estimated a 67% likelihood of a “carbon tax” being imposed in the near future that could be as high as $30 per ton by the year 2016. Closer to home, NorthWestern Energy assumed a figure of $11 per ton as its “expected” tax in its latest default supply plan. An $11 per ton CO2 tax would increase Highwood’s annual operating costs by more than $25 million. By ignoring carbon risk, SME has unfairly biased its analysis in favor of a specific coal technology with extremely high greenhouse gas emissions.

A second source of risk arises from the plant’s dependence on large quanitites of coal, which represent a significant portion of the plant’s annual operating costs. Consequently, any financial projections (such as the expected cost of electricity to the consumer) are heavily dependent on the assumed cost of buying and transporting coal. SME predicts it will supply electricity at an attractive price of $46 per MWH, but has given no indication how sensitive this price is to changing market conditions. Because the plant is not located at the “mine mouth,” it will be profoundly affected by any variability in the transport cost of coal. Each year, 104 trainloads of coal will be shipped to the plant from southeast Montana, pulled by diesel locomotives. The “expected cost” should include “error bars” that indicate the possible range of costs around that number due to carbon risk, fuel-price risk, and other factors. NorthWestern and many other utilities employ a comparatively sophisticated modeling process that produces a “risk adjusted expected cost,” a figure that more meaningfully conveys the cost of competing portfolios. Wind, solar, and other renewable energy sources, of course, carry no carbon risk and no fuel costs.

Finally, as every investor knows, there is considerable risk that comes from “putting all your eggs in one basket.” SME’s overdependence on a single fuel type (coal) and a single power plant (Highwood) amplifies the risks described above. Responsible portfolio planning emphasizes both fuel and resource diversity, a principle which is central to the PSC procurement rules that direct NorthWestern’s planning process. The only other sources of electricity that SME anticipates using are the 20 MW WAPA contract and a 6 MW wind project. In other words, the Highwood project will produce over 90% the electricity consumed by SME’s customers. If something were to go wrong with the plant, SME would be almost entirely at the whim of the notoriously volatile spot-market.

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A Better Way: Efficiency and Renewables

The draft EIS unfairly discriminates against renewable energy and energy efficiency in a number of different ways. First, the document starts with the false assumption that 250 MW of baseload capacity is needed. Second, the EIS fails to consider the full range of costs and risks associated with the proposed plant. Third, it stacks the deck against wind by using incorrect and outdated information, and contains no utility-specific analysis of efficiency potential. And fourth, it evaluates each alternative according to its ability to meet the alleged “need” entirely on its own, in isolation from all other resources, setting each of them up for failure:

• “. . . conservation and increased efficiency alone will not eliminate the need for additional generation capacity within the SME service area by 2009.” (page 2-5, emphasis added)
• “. . . wind power alone cannot realistically fulfill the need for 250 MW of highly reliable base load capacity.” (page 2-11, emphasis added)
• “Solar power alone could not reasonably fulfill the need for 250 MW of a reliable base load capacity within the SME service territory . . .” (page 2-14, emphasis added)

Responsible portfolio planning produces an optimal and diverse mix of resources that complement one another to minimize price, risk, and impact to the natural environment. No one resource should be relied upon to the exclusion of all others. Starting with the real needs of the five co-ops, SME could easily have constructed a balanced, clean energy package that would better protect both its customers and the environment. Instead, the only options the draft EIS studied in detail were the Highwood project built in one location, the Highwood project built in another location, and the “no action” alternative.

Now that the public comment period has ended, the agencies will now have an opportunity to revise the draft to correct its many deficiencies.