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Consumer Advocate: Ratepayers shouldn’t have to pay for carbon capture ‘speculative research’

Black Hills Power wants to tap its Wyoming ratepayers for $1.1 million annually to cover study costs of complying with state law aimed at extending life of coal plants.

A lacquered chunk of Powder River Basin coal. (Dustin Bleizeffer/WyoFile)

by Dustin Bleizeffer, WyoFile

State authorities are weighing a request by Black Hills Energy to establish a “low-carbon” surcharge that would tap its electric customers for the costs of complying with a state mandate aimed at extending the life of old coal-fired power plants.

If approved, the utility would charge its customers an extra 0.67%, which amounts to $1.1 million annually. But that’s just for the first of two phases to analyze the technical and economic viability of adding carbon capture to two of the company’s coal-fired power units that are subject to the mandate. 

The second phase of analysis could cost between $8 million and $12 million, according to filings with the state. Actually retrofitting the facilities with carbon capture technology, according to the company’s initial reports, could come with a price tag of $505.9 million for Wygen II near Gillette — more than double the cost of building the plant in 2008 — and $474.8 million for the nearby Neil Simpson II, triple the cost to build the plant in 1995.

Wyoming’s Office of Consumer Advocate says those initial estimates are proof enough that the costs — both to study the feasibility and to implement the carbon capture retrofits — are not “just and reasonable” to pass on to captive ratepayers, particularly for one Black Hills Energy affiliate utility that serves only 2,600 customers. The cost estimates to-date, according to the agency, should prompt the state to deny Black Hills Energy the ability to impose a compliance surcharge and exempt at least one of the utility’s coal plants from the mandate. 

“One of the things that [the state’s mandate] was not intended to do was [for Wyoming ratepayers] to pay for the development of new carbon capture, utilization and sequestration technologies that do not currently exist,” Office of Consumer Advocate attorney Shelby Hamilton told the Wyoming Public Service Commission last week.

Ceremonial shovels mark the future location of the Innovation Center coal refinery field demonstration project north of Gillette on Sept. 2, 2022. It will be co-located with Atlas Carbon’s facility that produces activated carbon products. (Dustin Bleizeffer/WyoFile)

Instead, Hamilton added, the law describes the implementation of carbon capture, utilization and sequestration technologies that are “viable and cost effective.” Even passing on the cost of analyzing the viability, Hamilton said, amounts to a subsidy to transform electric utilities into “research and development” firms for technologies “that do not currently exist” at commercial scale.

“What the OCA does not support is public utilities becoming research and development firms,” Hamilton said. “This is best left to other agencies, programs and companies.”

The Public Service Commission is expected to rule on Black Hills Energy’s $1.1 million surcharge proposal by Feb. 13. It will again contemplate the company’s ongoing carbon capture analysis when Black Hills Energy files a progress report at the end of March.

How we got here

The Wyoming Legislature passed House Bill 200 – Reliable and dispatchable low-carbon energy standards in 2020, hoping to extend the life of coal-fired power plants in the state.

The action came in response to news from multiple providers that they intended to close numerous coal-fired units ahead of schedule, in part to comply with federal air-quality standards and other regulations in a cost effective manner. The law requires regulated utilities to instead study the feasibility of retrofitting their coal-fueled power units in the state with carbon capture capabilities. If a utility opts to not retrofit a coal unit and instead decommission it ahead of schedule, the company would not be allowed to tap Wyoming ratepayers for any replacement power generation — for example, a 200-megawatt wind farm and battery storage facility to replace a 200-megawatt coal unit. 

To win an exemption from the mandate, a utility must prove that applying carbon capture to any given existing coal unit would be too costly for Wyoming ratepayers or would result in less reliable power. That cost-of-proof — or “compliance” — is already adding up to millions of dollars in consulting and engineering fees for something that might not result in a material addition to power facilities or greenhouse gas reductions.

There are five coal units in Wyoming that are subject to the law and currently under analysis for carbon capture retrofits; Wygen II and Neil Simpson II at the Wyodak Complex near Gillette, one at the Dave Johnston plant near Glenrock and two at the Jim Bridger plant east of Rock Springs.

The plants’ operators, Black Hills Energy and Rocky Mountain Power, serve customers in Wyoming and in other states. However, it’s unlikely those other states would allow their residents to be tapped for the Wyoming-imposed mandate, which means the entire burden of the cost will fall on Wyoming ratepayers.

Further adding to the potential financial burden on Wyoming ratepayers is the fact that the law exempts cities that rely on the utilities to power municipal facilities.

Divvying up mandate costs

The Public Service Commission earlier this year granted Rocky Mountain Power permission to tap its Wyoming ratepayers for a 0.3% “carbon capture compliance” surcharge to generate an estimated annual $2 million related to the same carbon capture mandate, according to filings with the agency.

Now the commission is struggling with whether and how to grant the same type of surcharge for Black Hills Power’s customers.

Rocky Mountain Power taps its ratepayers for a “carbon capture compliance” surcharge for the cost of meeting a Wyoming-Legislature-imposed mandate. Black Hills Energy may soon follow suit, pending approval of the Wyoming Public Service Commission. (Dustin Bleizeffer/WyoFile)

The task is particularly daunting for the utility because it operates two coal plants subject to the mandate, each dedicated to a different affiliated utility under the Black Hills Power umbrella. One of those, Black Hills Power, Inc., has a tiny customer base to shoulder the expense; only 2,600. The other, Cheyenne Light, Fuel and Power Company, has a ratepayer base of 46,000, which includes a handful of large customers with special arrangements with the utility.

For example, Microsoft, which operates a growing datacenter complex in Cheyenne, uses so much electricity that the utility would have had to build a new power plant to serve it, creating an expense for others on the system. Instead, Microsoft agreed to rely on electricity that Cheyenne Light, Fuel and Power purchases on the open market. Microsoft says it doesn’t rely on either of the coal-fired power plants and shouldn’t have to help pay.

Explosives manufacturer Dyno Nobel and refinery Cheyenne Renewable Diesel Company are also customers of Cheyenne Light, Fuel and Power. They want Microsoft to share in the cost. And before it taps any ratepayer for the cost of complying with the mandate, they said, Black Hills Power should tap the state’s Energy Matching Funds program, which was established to leverage more federal and private dollars for such energy innovation efforts.

Lawmakers have acknowledged the financial burden that the mandate poses for utilities with a small customer base, such as Black Hills Power and its 2,600 ratepayers in northeast Wyoming.

The Joint Minerals, Business and Economic Development Committee in November passed a draft measure, Low-carbon reliable energy standards-amendments, that would exempt regulated utilities with fewer than 10,000 customers. It would also push back the deadline to install coal plant carbon capture retrofits from 2030 to 2038, and set a minimum standard of capturing 75% of the greenhouse gas that would otherwise be emitted into the atmosphere.

That bill is set to be considered when the Legislature convenes for a budget session in February.

This article was originally published by WyoFile and is republished here with permission. WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.


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