PacifiCorp clears way for shutdown of Deer Creek coal mine in Utah

Due to quality issues with the coal reserves at PacifiCorp‘s Deer Creek mine in Utah and rising costs at PacifiCorp’s unit, Energy West Mining, PacifiCorp believes the Deer Creek coal reserves are no longer able to be economically mined, said PacifiCorp parent Berkshire Hathaway Energy in its Aug. 7 quarterly Form 10-Q report.

As a result, in December 2014, PacifiCorp filed applications with the Utah Public Service Commission, the Oregon Public Utility Commission, the Wyoming Public Service Commission and the Idaho Public Utilities Commission seeking certain approvals, prudence determinations and accounting orders to close its Deer Creek mining operations, sell certain Utah mining assets, enter into a replacement coal supply agreement, amend an existing coal supply agreement, withdraw from the United Mine Workers of America 1974 Pension Plan and settle PacifiCorp’s other postretirement benefit obligation for UMWA participants (collectively called the “Utah Mine Disposition”). PacifiCorp also filed an advice letter with the California Public Utilities Commission.

In April, PacifiCorp filed all-party settlement stipulations with the UPSC and the WPSC finding that the decision to enter into the Utah Mine Disposition is prudent and in the public interest. The UPSC approved the stipulation in April and the WPSC approved it in May. In May, the OPUC issued its final order concluding that the Utah Mine Disposition produces net benefits for customers and is in the public interest.

The IPUC also issued an order in May, approving the Utah Mine Disposition and ruling that the decision to enter into the transaction is prudent and in the public interest. In June, PacifiCorp sold the specified Utah mining assets and the replacement and amended coal supply agreements became effective. The Deer Creek mine is currently idled and closure activities have begun, said the Form 10-Q.

In conjunction with the Utah Mine Disposition, in December 2014 Energy West Mining reached a labor settlement with the UMWA covering union employees at Deer Creek. As a result of the settlement, the UMWA agreed to assume PacifiCorp’s other postretirement benefit obligation associated with UMWA plan participants in exchange for PacifiCorp transferring $150 million to a fund managed by the UMWA.

Transfer of the assets and settlement of this obligation occurred in May and resulted in a re-measurement of the other postretirement plan assets and benefit obligation. As a result of the re-measurement, PacifiCorp recognized a $9 million settlement loss, with the portion that is probable of recovery deferred as a regulatory asset.

Also as a result of the Utah Mine Disposition, PacifiCorp’s replacement coal supply agreement for one of its generating facilities became effective in June. Also during the three-month period ended June 30, 2015, PacifiCorp entered into several purchased electricity contracts from facilities that have not yet achieved commercial operation. These coal supply and purchased electricity contracts result in minimum future purchases of $70 million in 2016, $112 million in 2017, $127 million in 2018, $127 million in 2019 and $1.601 billion in 2020 and thereafter.

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Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy's Coal Report. He was formerly with Coal Outlook for 15 years as the publication's editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor's degree from Central Michigan University.

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