Old plants, new ideas: Who might buy a retired coal power plant?


Where utility giant PacifiCorp sees escalating costs and regulatory liability, Wyoming leaders see an opportunity — albeit temporary — to help ailing coal communities.

The Legislature is tweaking public utility regulations to encourage new buyers to prolong the life of aging Wyoming coal-fired power units that PacifiCorp has slated for early retirement.

While the legislation’s potential impacts on utilities and communities has been a major point of discussion since it passed earlier this year, less has been made about who, exactly, would be lined up to purchase the units in question.

The players who have shown interest include some newcomers to the power generation world, and their ideas for how to utilize the plants veer from traditional uses in Wyoming. These would-be buyers might do so in partnership with cryptocurrency miners seeking direct access to large amounts of power. A Casper oil and gas company claims that a new buyer could apply carbon capture technology to an acquired unit and make money providing CO2 to a lucrative enhanced oil recovery market.

Another influential group, Wyoming Industrial Energy Consumers — which accounts for half of all the electricity PacifiCorp provides the state — is also a proponent of the state’s efforts. Although its members are not interested in taking ownership of a coal unit, the group sees an opportunity to benefit if coal units are sold to a third-party buyer and the electrical power is dedicated to industrial consumers.

Proponents of Wyoming’s public utility regulatory reform efforts envision several scenarios to give a second life to aging coal plants. But how does their vision for coal power stack up in a quickly shifting power market in the West?

Wyoming lawmakers are eagerly building a pathway for a new generation of prospectors in a global digital gold rush, exploiting two of the state’s distinct advantages — cheap electrical power and the ability to nimbly outpace the federal government in enacting laws and regulations to attract the fast-growing blockchain and cryptocurrency industry.

In just two years, the Legislature passed 13 new laws in an effort to convince the industry to set up shop in Wyoming. To complement the legal certainty that Wyoming’s new blockchain laws might provide, lawmakers are also paving the way to allow cryptocurrency miners to plug directly into the coal-fired generation units that PacifiCorp, which operates as Rocky Mountain Power in Wyoming, wants to power down in the state.

Caitlin Long is a member of the Wyoming Blockchain Coalition, a grassroots advocacy organization. The Wyoming native and University of Wyoming graduate is a 22-year veteran of Wall Street who shifted her focus to blockchain and cryptocurrency in 2012. In recent years, Long has turned her attention back to her home state, where she lobbies on behalf of the industry, and where she served on the Wyoming Blockchain Task Force.

Long explained that cryptocurrency miners use massive computing power to perform energy-intensive computations to process financial transactions. “What they [cryptocurrency miners] are doing is racing to compute very hard math problems,” Long told WyoFile, “and the one who computes the math problem the fastest gets what’s called the block reward, and that’s how they get paid.”

By far, the biggest expense for a cryptocurrency miner is electrical power, she said. The amount of electricity consumed by the global industry is enough to power 6.7 million U.S. homes, according to the industry watchdog website Digiconomist.

In Wyoming, the best electrical rate that a utility has been able to offer cryptocurrency miners is about 5 cents per kilowatt hour, Long said. That’s competitive, but not quite enticing enough to spur a significant movement to the state. If a company, or consortium of companies, were allowed to purchase a coal unit otherwise slated for “early retirement,” they could plug directly into a massive electricity source, and potentially cut costs.

Long, and several proponents, envision a regulatory framework where PacifiCorp sells a coal unit and the power generated by the unit is detached from the utility’s broader ratepayer network, cutting out the expense of transmission and other network costs built into electricity rates. Further, the new coal unit owner would have the expressed legal authority to sell excess power back to the original plant owner, PacifiCorp.

Long said that’s the genesis of Senate File 159 — the controversial law passed by the Wyoming Legislature earlier this year. Although the bill currently does not fully accommodate the proponents’ vision, lawmakers are amending the law and considering additional measures that might enable such a structure.

“The thought process was the coal plants are going to be abandoned by the utility, so they’re going to be outside of the utility’s pricing model anyway,” Long said. “So the ‘aha’ is that they [the new owners] will be able to [acquire] much cheaper power because they’re not having to pay that transmission cost.”

For example, if the cheapest rate a Wyoming utility can offer cryptocurrency miners today is 5 cents per kwh, then without the external transmission and related network expenses, the cost might be only 2.5 cents per kwh, according to Long’s rough estimates. They also stand to earn money by selling power back to PacifiCorp.

“All of the sudden, Wyoming becomes really competitive for the big players who have the ability to come in and buy the units that are being retired, and keep them open,” Long said.

That could also mean an extension of jobs and tax revenue for the remaining life of a coal unit slated for early retirement, estimated at anywhere from four to 15 years, if all goes as planned.

Carbon capture and enhanced oil recovery

Terrence Manning, CEO of Casper-based Glenrock Petroleum, dreams of tapping into the power-producing and CO2-emitting juggernaut of PacifiCorp’s Dave Johnston coal-fired power plant, about a country-music song drive away from his company’s Big Muddy oilfield.

The driving force behind the idea is to simultaneously produce oil and extend the life of not only the Dave Johnston power plant, but perhaps all coal-fired power plants slated for retirement in the state. Proponents say there’s an under-served enhanced oil recovery market in the Rockies, and applying carbon capture to Wyoming’s aging coal fleet would help to preserve jobs, support new ones and keep tax revenues flowing for the entire state, Manning told WyoFile.

The Big Muddy oilfield is among many in Wyoming where primary oil recovery — simply drilling and pumping oil — only sweeps a small portion of the total oil reserve. Tertiary, or enhanced oil recovery, typically involves injecting water into oil formations to “sweep” harder-to-get oil. Those efforts were initiated in the Big Muddy beginning in the 1950s. Australian firm Linc Energy began CO2 injections in 2011 for a more efficient sweep, but had to truck in the CO2.

Manning’s Glenrock Petroleum acquired the field when Linc Energy went bankrupt in 2016. Today’s efforts to develop a carbon capture and enhanced oil recovery project are conducted under a sister company, Glenrock Energy, co-founded by principal investor Ari Bernstein of Green Street Capital.

In recent years, Manning and Bernstein — bolstered by support among elected officials in Glenrock and Converse County — have championed a carbon capture and enhanced oil recovery plan to revitalize the century-old Big Muddy while simultaneously extending the life of the Dave Johnston power plant, where the first of four coal units went into service in 1959.

Proponents are pinning their hopes on three factors that favor such a project:

First, Wyoming’s leadership in pushing enhanced oil recovery technologies, including the buildout of an extensive CO2 pipeline network connecting anthropogenic sources of CO2 to oilfields. Second, the “45Q” tax credit that was revised under the Trump administration to boost such projects. Third, Wyoming’s SF159, which could force public utilities such as PacifiCorp to sell coal units that are slated for retirement.

“I believe there is an economic case to be made,” for carbon capture and enhanced oil recovery in Wyoming, Deepika Nagabhushan told WyoFile.

Nagabhushan develops policy strategies for carbon capture and utilization for the Clean Air Task Force. CATF’s mission is to develop strategies to reduce global greenhouse gas emissions. Nagabhushan said she’s familiar with Wyoming’s successful efforts in aiding the buildout of a CO2 pipeline network, and said she believes the state is well-positioned to help encourage a connection to more enhanced oil recovery prospects, such as the Big Muddy.

However, the biggest driving force behind making the economic case is the 45Q tax credit, Nagabhushan said. It allows for a $35-per-metric-ton tax credit for CO2 captured and sequestered via enhanced oil recovery. To qualify, a project must commence construction before January 1, 2024.

“The 45Q tax credit is definitely going to be a big piece of the puzzle,” Nagabhushan said. “You can’t do it without that tax credit. I think that’s vital.”

Manning and Bernstein insist that their efforts go well beyond promoting the Dave Johnston/Big Muddy proposal. The same model could be used to extend the life of all Wyoming coal-fired power plants slated for retirement, boosting a massive CO2 for enhanced oil recovery market in the region, they say.

“This plan eliminates a state budget crisis,” Bernstein told WyoFile via a phone interview, “and it’s going to put a lot of money into state coffers — from the enhanced oil recovery portion — and prolong the life of these coal power plants and all the jobs and tax revenue associated with that.

“There are no losers here,” Bernstein continued. “It’s better for the environment, better for the electricity customers and better for the people who are working in all the jobs supported by these current enterprises.”

It takes a tremendous amount of electricity to mine coal and trona, and to produce, deliver and refine oil and gas in Wyoming. Members of the Wyoming Industrial Energy Consumers association in southwest Wyoming consume half of all the electricity that PacifiCorp supplies in the state.

That dependence is what drove a couple dozen Wyoming industrial consumers to form the WIEC association. For 25 years, WIEC has wielded considerable clout, meticulously scrutinizing every rate case and Integrated Resource Management Plan that PacifiCorp has brought before the Wyoming Public Service Commission.

The group is represented by the legal firm Holland & Hart.

“Our organization is fuel agnostic,” Holland & Hart attorney Thor Nelson told WyoFile. “We don’t care whether it’s a coal resource, a gas resource, a solar resource, a wind resource. What we want is reliable, least-cost power. So whatever fits that bill is what we’re looking for.”

PacifiCorp’s industrial customers in Wyoming pay a rate of about 6.25 cents per kwh, according to company documents. That’s 17% below the average rate that other utilities charge their industrial customers in Wyoming, according to PacifiCorp. Even so, Nelson said, industrial rates in Wyoming have crept upward over the past 15 years, mostly due to rising costs related to coal markets and coal policies.

Nelson said he’d be “surprised” if any WIEC member is interested in acquiring a coal unit in Wyoming under the state’s SF159 provisions. However, the group was one of the main proponents of the legislation, albeit with the nuance that ratepayers be held harmless. “One of the things that we believe is the utilities don’t necessarily have the monopoly on creativity,” Nelson said. “I think there is an interest on the part of the membership to have the opportunity to buy power from whoever purchases the plant.”

WIEC’s position is unsurprisingly opportunistic. If a coal unit purchase were to work out much the same way that blockchain and cryptocurrency miners envision — direct access to a Wyoming coal unit, minus the larger utility network-related costs — then WIEC members might stand to benefit. Again, SF159 currently does not fully allow for such a scenario, but lawmakers are amending the law and considering additional measures that could allow for this type of structure.

“From WIEC’s perspective,” Nelson said, “we think creating the market opportunity is advantageous. But whether that opportunity would come to fruition, of course, cannot be predicted with any certainty.”

But WIEC might also prove to be a formidable opponent if any power plant purchase results in rates higher than realized under PacifiCorp’s proposed plan to retire Wyoming coal units before their depreciable life.

“We think there are ways that maybe somebody has a better mousetrap,” Nelson said, “that they can figure out ways they can utilize that resource more efficiently and figure out a way to still deliver power economically for customers. And we want to avail ourselves to every opportunity for that to happen. And if it does, great. If it doesn’t, at least we can say we tried.”

What if the Legislature’s efforts actually result in a sale? Whether the life of a coal unit is extended by four years or 15 years, even proponents agree there’s a relatively short expiration date for coal-fired power in Wyoming. The plants will eventually close, and when they do, the communities that have relied on these industrial facilities for jobs and tax revenue will suffer.

Is it better to instead focus on preparing for the transition away from coal-fired power now?

Michael Wara is director of the energy and climate program at the Stanford Woods Institute. He said if Wyoming chooses to go the route of enabling the sale of a coal unit, it should do so very cautiously, because the same economic trends that are turning large utilities away from coal are only going to intensify.

“This is not a stationary problem. It’s a problem that’s just going to get worse,” Wara told WyoFile. “It is not the smartest decision to operate coal plants at this point. It just isn’t. The operators that do are really struggling, and there’s a reason that they’re struggling.”

Renewables are getting cheaper and cheaper, even comparing new wind to existing coal, Wara said. “I think it makes a lot more sense to think about a future that’s much more sustainable — and not in an environmental sense, but in an economic sense — than it does to try to put good money after bad.”

Wara said blockchain and cryptocurrency companies are “rational economic actors,” and they’ll take the best deal on electrical rates where they can find it. The industry’s mobility means players can easily walk away and follow the economic trends to the best deals they can find. Market energy purchases from renewables will only become more competitive against coal.

Carbon capture is a worthwhile innovation, and may be attractive to young professionals, Wara said. But there are huge regulatory and operational risks when it comes to attaching the technology to coal-fired power units that are 50 and 60 years old.

“Old coal plants are like old cars,” Wara said. “They break down all the time, so you’ve got to constantly be plowing money in to keep them running well. It’s not inexpensive to operate them, particularly where it’s a situation where it’s a private actor and not someone who can just go to ratepayers and recover whatever costs are required.”

The biggest potential for coal plants approaching end of life, particularly in Wyoming, may be the transmission infrastructure they’re tied to, he said. In decommissioning a coal plant, the remaining infrastructure could be used to house industrial batteries connected to wind farms. “I don’t understand why that wouldn’t pencil out as more cost effective than the operating costs — not even capital — but operating costs of an old coal plant.

“I think the focus really needs to be on long-term economic viability,” Wara continued, “because what Wyoming residents need are good stable jobs that are not going to go away in the middle of the night at some point in the not too distant future. And I think the reality is those jobs don’t come with coal anymore.”

 

WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.

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