April 13, 2000

Utah agency stalls sale of aging Centralia power plant

CENTRALIA, Wash. (AP) -- For the past year, seven utilities in Washington and Oregon have been working to unload a jointly owned white elephant: the 28-year-old, coal-fired Centralia Steam Plant.

The sale of the generating station to TransAlta Corp. of Calgary, Alberta, was to be completed in early May. Then, last month, the Utah Public Service Commission stepped up to claim 35 percent of the profits.

The commission reasons that Utah residents use 35 percent of the electricity produced by majority owner PacifiCorp of Portland, Ore., so that compensation would offset the higher cost of replacement electricity if the sale is completed.

"We are in a difficult situation," says Alex Miller, a PacifiCorp vice president.

PacifiCorp, a unit of Scottish Power PLC of Glasgow, has a 47.5 percent stake in Centralia and serves 635,000 customers in Utah. The other partners are Avista Corp. of Spokane, which owns 17.5 percent; Tacoma Power, Seattle City Light and Snohomish County Public Utility District, 8 percent each; Puget Sound Energy, 7 percent, and Grays Harbor Public Utility District, 4 percent.

TransAlta agreed last spring to buy the 1,340-megawatt generator and adjacent coal mine for $544 million in cash and to pay the $200 million bill for pollution control devices ordered by the Environmental Protection Agency.

But "at this point, we have not decided whether we can go ahead with the sale of the plant," Miller told The Wall Street Journal, in an article published in its Wednesday Northwest edition.

If the deal collapses, Miller said, "there is a possibility that the plant would be temporarily or permanently shut down" because the scrubber installation would be suspended while the owners decide what to do.

Not likely, said Roger Ball, administrative secretary to the Utah Committee of Consumer Services, an arm of the state Division of Utilities charged with protecting rate payers.

"This is a critical provider of electricity for the Portland-Seattle corridor," he said. "I think somebody can be found who will sell the electricity from there to willing buyers."

Miller said PacifiCorp was caught off guard by the Utah move.

PacifiCorp had proposed giving the state a bit less than 5 percent of the profits, the percentage of rates paid by Utah customers that went toward retiring construction debt. The same formula was used to figure shares for the other five states where PacifiCorp has customers.

Regulators in Salt Lake City say their claim is based on PacifiCorp's failure to make good on a promise to reduce rates in Utah after merging with Utah Power & Light Co. in 1989.

"PacifiCorp has created its own problem," says Ball says. "They just botched it."

PacifiCorp has until Friday to decide whether to appeal to the commission for a reconsideration. If the panel refuses to budge, the case goes before the Utah State Supreme Court.

TransAlta says it's willing to extend the sales agreement beyond the scheduled May 5 expiration date.

PacifiCorp and its partners are eager to get rid of the plant, blamed by some environmentalists for a haze that often obscures Mount Rainier.

The plant is also unusually complicated to operate, given its many owners -- both investor- and publicly owned -- and their sometimes competing interests.

If the Utah ruling is upheld, PacifiCorp may decide to scuttle the deal.

Regulators in the five other states where the company operates -- Washington, Oregon, Idaho, California, and Wyoming -- have accepted their proposed shares of the sale, which add up to 83 percent.

If Utah's 35 percent claim is added, PacifiCorp would have to give up 118 percent of the profit, resulting in a $10 million loss on the deal rather than the anticipated $50 million profit.

When they decided to sell, company executives figured most of the profits "should belong to our shareholders, since they took the financial risk to build the plant in the first place," Miller said.

The 1989 merger with was approved with the understanding that, over a 10-year period, PacifiCorp would gradually reduce electricity rates. Most of the company's power is produced by low-cost hydroelectric generators, while Utah Power & Light got most of its power from coal-fired plants.

Instead, Utah's electrical rates remain higher than in the Pacific Northwest.

"We've been waiting to see those rates come down," Ball says.

"We were hoping that the Utah commission would set aside its feelings about the rates in the sale of Centralia," says Miller.