TransAlta signs deal w/ PSE to convert Centralia to NG

Executive Summary

• TransAlta Corp. has signed a long-term tolling agreement with Puget Sound Energy Inc. (PSE) to convert its Centralia Unit 2 facility in Washington from coal to natural gas-fired generation.
• The agreement secures a 16-year fixed-price contract through December 31, 2044, granting PSE exclusive rights to the capacity, energy, ancillary services, and dispatch rights of the 700-megawatt facility.
• The project requires approximately $600 million (U.S.) in capital expenditures and is projected to deliver a build multiple of approximately 5.5 times, with a target commercial operation date in late 2028.

Key Details

• Counterparty: Puget Sound Energy Inc. (PSE).
• Facility: Centralia Unit 2, located in Washington state.
• Capacity: 700 megawatts (MW).
• Contract Term: 16 years, ending December 31, 2044.
• Contract Structure: Long-term tolling agreement with a fixed-price capacity payment.
• Capital Expenditures: Approximately $600 million (U.S.).
• Financial Return: Projected build multiple of approximately 5.5 times; expected to earn a full return on and of capital within the contract term.
• Operational Timeline:
  • Coal-fired generation ceases: End of 2025.
  • Final Investment Decision (FID) anticipated: Early 2027 (subject to regulatory approvals).
  • Target Commercial Operation Date: Late 2028.
• Environmental Impact: Conversion is expected to lower the emission intensity profile of the facility by approximately 50 percent.
• Regulatory Status: Agreement is subject to customary regulatory approvals, including satisfactory approval from the Washington Utilities and Transportation Commission for PSE.

Notable Quotes

• "Our Centralia facility has a long history of providing reliable and affordable power in the Pacific Northwest region. We are pleased to extend the useful life of this asset and support the ongoing reliability needs of PSE and, by extension, its customers," said John Kousinioris, president and chief executive officer.
• "The facility is scheduled to cease coal-fired generation at the end of 2025, and the conversion to natural gas will lower the emission intensity profile of the facility by approximately 50 per cent. We are grateful for the constructive and solution-oriented engagement we have received from the Department of Ecology and other state and local regulatory bodies through the development of this project and we are well positioned to receive required regulatory approvals in a timely manner." — John Kousinioris
• "When the facility re-enters operations, it will generate long-term contracted cash flow for TransAlta, earning a full return on and of capital within the contract term. The company is well positioned to execute this project given our deep technical, operational and engineering experience gained in previous coal-to-gas conversions," concluded Mr. Kousinioris.