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Coal Outlook 2012

Haul trucks transport coal in the Peabody Energy North Antelope Rochelle Mine in the Powder River Basin in 2012. The group Wyoming Industrial Energy Consumers argues that a regional market could reverse the trend of increasing electricity costs in Wyoming.

If Wyoming’s largest utility had joined the California Independent Operator System’s grid, which it considered a few years ago, the merger would have revolutionized the western power sector. A study commissioned by the grid operators estimated $9 billion in cost savings for customers over two decades.

Then the plan fell apart. Californians were worried about coal-generated power making it into their homes, while Wyoming and the utility, PacifiCorp, and were concerned about the control California would exert over the marriage of convenience.

But, the idea of free market, regional operation of electricity hasn’t lost its glamour in the Cowboy State.

The Wyoming Industrial Energy Consumers — a group of 20 companies from oil firms to trona mines – argues that a regional market could reverse the trend of increasing electricity costs in Wyoming.

In a technical conference Monday, the group will make its case before the Wyoming Public Service Commission, ground work for a day coming soon when state regulators will have to decide whether a Wyoming utility can join a bigger market.

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The potential benefits to regional markets aren’t really up for debate anymore, said Bill Russell, chairman of the Wyoming Public Service Commission. Markets can make electricity cheaper for customers in some cases and increase efficiency by employing a greater number of resources, spread over a wider domain.

“What we don’t know is at what cost,” he said. “We do know the cost is high, but we don’t know if once you weigh the benefits against the costs, whether or not it’s worth it and whether or not it will cause rates to go up.”

It’s something the commission will likely have to figure out soon.

The Mountain West Transmission Group, which includes the utility company Black Hills, is trying to join the Southwest Power Pool. The pool, a regional transmission organization, covers states like Nebraska, Kansas and parts of New Mexico. Until late April, it appeared that Black Hills would be asking Wyoming regulators to approve its move to the regional marketplace. But the largest utility in Mountain West stepped out, worried about how much expansion was offered by the merger and its potential risks.

The fate of the Mountain West’s bid to join Southwest is uncertain.

But that’s not the only regional initiative going on. The entity that coordinates grid reliability across the 14 western states, part of Canada and northern Mexico, Peak Reliability, is proposing its own regional services. California is, too.

The question isn’t if a regional market will draw Wyoming utilities, but if the state will let them go.

“All these things are happening all at once and that’s why these topics are coming up,” said Russell of the Public Service Commission.

Wyoming regulators could stand in the way of a utility joining one of these markets, but aren’t sure if they should, he said.

“What if Wyoming does carve itself out and says ‘We’re never going to do this,’” Russell said. “Will we be harming our long-term future in the energy markets? That’s a question I can’t answer right now, because we don’t have enough information yet.”

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While regulators ponder the implications of a regional market, some utilities are obviously considering what it could do for them.

“The transmission system wasn’t really built to be the wholesale market but it kind of turned into one,” said David Eskelsen, spokesman for Rocky Mountain Power, a subsidiary of PacifiCorp.

The national grid began piecemeal, built almost entirely by individual utilities to serve their customers. Those lines gradually linked into others to increase reliability.

“(The grid) has some problems associated with it because in some places there are plentiful paths for electricity to flow back and forth. In other places there are much narrower paths,” he said. “So it’s not a truly functional market because it has some pinch points.”

A single operator system like the California ISO, the Southwest Power Pool, or the most successful, the Electric Reliability Council of Texas, smooths out some of the kinks of power operation that exist now.

Across the western grid, more than two dozen balancing authorities control supply and demand across their area.

“It works okay, but as other utilities have found in other areas of North America, a single operator does have some advantages,” Eskelsen said.

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For the Wyoming industries approaching regulators Monday, markets may offer a solution to a growing problem.

“We’ve (become) increasingly concerned with the relative rise of Wyoming electricity rates as compared to other parts of the country,” said Thor Nelson, a lawyer with Holland & Hart, representing the Industrial Energy Consumers. The rise in electricity costs has affected residential and commercial consumers, but it has hit industry particularly hard, Nelson said.

The 20-member group collectively burns through half of the electricity Rocky Mountain Power produces for Wyoming.

The commission will also hear from the Wyoming Industrial Energy Consumers on whether electric utilities should engage in a customer choice program similar to the gas options that Casper residents are offered every year. Customers may be able to choose, hypothetically, to buy from a predominately coal-powered provider over one with more wind electricity.

Combined with a well-developed regional market, customer preference in Wyoming could be a boon for electricity rates, the group argues.

“if you do it right, we believe that competitive pressure will … help keep electric rates as reasonable and affordable as possible, and if not restore Wyoming’s competitive advantage, at least stop the bleeding,” Nelson said.

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In all of these discussions about reliability and free market, there could be a stumbling block from Wyoming’s perspective: coal.

“Both retail choice and regionalization are a danger to coal,” said Russell, of the Wyoming Public Service Commission.

When coal competes in a market it loses to cheap natural gas and it loses to renewables like wind and solar. This phenomenon has played out Texas, where a number of coal-fired power plants retired early last year because they couldn’t offer customers the lowest rates anymore.

For Russell, this is a troubling trend. Aside from the fact that coal is an important sector of Wyoming’s economy, the black rock has long provided the minimum demand of power, he said.

“My job when I’m making decisions is more about the reliability of the grid and the cost to customers,” he said. “My concern (is that) we are going to force out all the coal plants before we realize what we have done to ourselves.”

***

The meeting in Cheyenne will not result in a decision for or against markets and retail choice. For the Wyoming Industrial Energy consumers, the conference will get the ball rolling on the issue. The group hopes to repeat its presentation later this year before state lawmakers.

“In going through this and having this conversation, the purpose is not to assign blame or impugn the commission or the utilities,” said Nelson of Holland & Hart. “We think by and large everyone is doing the best they can to manage a difficult situation.”

But from the group’s perspective it’s time for Wyoming to make some decisions, hopefully, in favor of regional markets.

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Energy Reporter

Heather Richards writes about energy and the environment. A native of the Blue Ridge Mountains in Virginia, she moved to Wyoming in 2015 to cover natural resources and government in Buffalo. Heather joined the Star Tribune later that year.

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