Wyoming and it’s over-regulated Coal Power Plants

by Philip Baron

The State of Wyoming has a new law on the books that will obligate electric, public utilities who are not cooperatives, to purchase coal-generated electricity. The law also limits the rate of recovery costs for the purchaser of the retired plant. Cost recovery is the costs to regain the value of an expense, usually done as the depreciated cost of the capital equipment. Each month a business would set aside some portion of the replacement costs of the equipment, so that at the end of its working life they will have enough money to replace that capital equipment.

The regulation of cost recovery is an attempt by the state government to prevent the replacement of these coal-fired power plants by not allowing the purchaser to save more for the replacement costs than the regulatory commission deems is necessary. There are two major things that are going on here. One the government is trying to force demand for a product, in this case, electricity that is generated by coal. The second is that they are trying to prevent some turn over in the market by regulating the ability of the owner to replace the coal-fired power plant with whatever the owner sees fit.

The State of Wyoming receives a significant portion of its tax revenue from the mineral industry. For them it is in their best interest to keep a steady demand for coal so that their tax revenues keep coming in. The state legislature has sold this as a way to save jobs in the state. This all comes at the expense of the jobs that might be created when turnover is allowed in the market as new industry surpasses the old.

Pacific Power, the owner of the coal-fired power plants that would be shut down, issued a cost-benefit analysis of their power plants — showing the costs of replacing the plant or the benefit (money saved) from closing the plant. The report also looks at what the replacement for that plant would be. In many of the cases, natural gas, along with wind, and solar generation was listed to would make up the replacement generation. The assessment of the power plants is likely a result of the Obama era EPA emission standards starting in 2012 that have made it costly to operate coal-fired power plants.

As a result of the Obama era regulations, that interfered in the market, the utility companies are forced to do what makes good business sense, by closing the costly plants and replacing them with something else. Much of the replacement generation could be natural gas. This follows a national trend of increasing natural gas generation due to its competitive price compared to coal and the efficiency of the generators. Natural gas has surpassed coal for electric generation while remaining price competitive with coal. From a business perspective, it makes sense to replace your equipment with new more efficient equipment to try to increase the profit margin.

The State of Wyoming's regulations add to the issues that are faced with coal generation. Forcing these plants to remain open, contrary to good business sense, makes Wyoming's problems worse by not allowing for turnover in the market. The regulations federal and state, are more government meddling in the market. Without the regulations there would have been more natural gas generation because of the price and advances in the technology. Market turnover is a natural process in a capitalistic society, and it needs to be allowed to happen so that markets can grow and not be stunted.