A panel that hears appraisal protests rejected an attempt Wednesday by Sandy Creek Power Associates to slash the value of the Riesel coal-fired power plant by more than two-thirds.
The four-member Appraisal Review Board panel pegged the value of the 945-megawatt plant at $500 million, just $13 million less than the McLennan County Appraisal District had listed for 2019.
As in previous value disputes, Sandy Creek representatives argued that low natural gas prices and the burgeoning wind and solar industry have taken a toll on the profitability of coal power.
They asked for a value of $162.5 million, based on projections that wholesale power rates would continue to plummet in coming years while coal transportation costs would rise.
Sandy Creek already has a pending lawsuit against the appraisal district over the 2018 appraisal of $444 million, and it also sued in 2014 and 2016. In 2016, a jury slashed by more than half the Appraisal Review Board’s value of $850 million, saving the company $12 million in school, college and county taxes per year.
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The plant was permitted in the mid-2000s when natural gas prices were expected to skyrocket and create a heavy demand for relatively cheap coal. The fracking revolution in natural gas has shattered those expectations and made it difficult for coal to compete with gas-fired power.
“That’s why this plant has a real problem,” said Paul Bellon of Austin-based valuation firm Duff & Phelps, representing Sandy Creek at the hearing Wednesday. He said at the original projections, “this plant would be worth more than $1 billion. It would be printing money. The expectation was that gas prices were going to be high and electricity prices were going to be high.”
He said 4,000 MW of coal-power generation capacity was taken offline in Texas last year because of economic hardship. Retirements included the Big Brown plant in Freestone County and the Sandow 5 plant built in 2009 in Bastrop County.
Bellon cited industry figures indicating that average electrical prices would decline steadily over the next decade from $39.51 per megawatt-hour this year to $25.56 by 2028.
He said renewables are increasingly hurting the coal generation industry and by 2021 are expected to eclipse coal as a source of Texas power. He showed a slide of projections from the Electric Reliability Council of Texas showing wind power growing from 21,751 MW to 36,032 MW by 2021.
MCAD officials increased their value estimate this year based on a bump last year in 2018 electricity prices and future revenues projected by an Austin consultant.
In an interview, MCAD assistant chief appraiser Joe Bobbitt said Sandy Creek ran for longer periods last year, producing more electricity and revenue.
Bellon said those gains are temporary and partly the result of coal power being taken offline. “Despite the fact that 2018 was better, market forces are trending downward,” he said.
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MCAD’s valuation takes into account a long-term contract that the Sandy Creek plant has with the Lower Colorado River Authority to buy electricity at a dependable price, insulating it from market volatility. In past litigation, Sandy Creek has prevailed with its argument that the contract cannot be counted toward the plant’s “tangible value.”
However, Bobbitt said another Texas court case since then has held that such a contract can be counted toward the appraisal value.
The Appraisal Review Board panel, which is appointed by a local district judge to hear protests of MCAD decisions, voted 4-0 for the $500 million valuation.