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The state’s utilities regulator has asked Puget Sound Energy to reconsider the way it looks at the economics of its aging Colstrip coal-fired power plants in Montana, which provide 17 percent of the utility’s electricity.

The Washington Utilities and Transportation Commission said Thursday the 20-year resource plan that PSE is required to submit every two years fails to make a convincing case for the financial viability of the Colstrip facility.

The Colstrip complex consists of four vintage units. PSE owns 50 percent of the two older units built in the 1970s, and 25 percent of two units built in the 1980s.

In the next few years PSE will have to decide whether it invests more in keeping the plants running or whether to switch to more environmentally friendly alternatives such as natural gas and wind power.

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The WUTC’s comments come in the midst of increasing pressure on coal-fired electricity, both from environmentalists who lambaste it as a major source of greenhouse gases, and from the bounty of cheap natural gas unleashed in recent years by hydraulic fracturing or fracking. Natural gas produces about half as much carbon dioxide as coal.

But PSE projects that natural gas won’t stay cheap forever: Increased domestic usage and the likelihood that liquefied natural gas will be exported are both likely to push the price up.

According to PSE’s estimates, keeping Colstrip running will save ratepayers about $131 million per year. Replacing Colstrip could increase average rates by about 1 to 6 percent in 2018, the utility said in its report.

The WUTC is not so sure. In a letter to the utility, it said the natural-gas price PSE used in its base scenario — $6.05 per million British thermal units — is at the higher end of the possible range. Currently natural-gas futures hover around $4.78 per million British thermal units.

The regulator also says PSE should account for the likelihood of higher costs for carbon emissions and stricter environmental laws. It added that PSE didn’t account for the potential cost of decommissioning the plant and the subsequent environmental remediation in its economic calculation.

In the report, PSE had said it hadn’t included the potential remediation costs because the state of Montana has not yet defined what conditions it might impose.

“We simply could not determine whether Colstrip power generation should or should not be part of PSE’s portfolio,” WUTC Chairman David Danner said in a statement. The commission says a more formal process for evaluating the coal plants’ cost effectiveness might be appropriate.

PSE spokesman Grant Ringel said the utility
met all the legal requirements imposed by the state regulator for its 20-year plan, which it submitted last May. The utility looks forward to discussing the Colstrip plants further with regulators, he said.

The Sierra Club, an environmental nonprofit, said the regulators’ comments highlight the financial risk of continuing to use coal power and should constitute a “turning point.”

“Once you do a full financial accounting of the damage from Colstrip’s operation, it is clear that there is a strong economic case, and not just an environmental case, against Colstrip,” Sierra Club representative Doug Howell said in a news release.

PSE provides electricity to 1.1 million customers and natural gas to 760,000 customers, mostly in the Puget Sound region, according to the WUTC.

Ángel González: 206-464-2250 or On Twitter: @gonzalezseattle

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