EVANSTON — “There is often a lot of denial or people just avoid talking about really difficult topics, and unfortunately we just can’t do that anymore. With the current budget crisis the state is facing, we’ve come to the — with the old kick the can analogy — we’ve come to the end of the road.” Those words, spoken by University of Wyoming Economics Professor Robert Godby during the first of four “Reclaiming and Growing Wyoming’s Future” webinars hosted by the Powder River Basin Resource Council, get right to the heart of the huge fiscal challenges facing Wyoming at the present time.
During the first webinar on Wednesday, June 17, Godby, along with Rocky Mountain Power/PacifiCorp Vice President for Wyoming Sharon Fain and Kirk Keyser with the United States Economic Development Association (EDA), focused on the webinar title of “Wyoming’s Reality and Future Opportunities.”
As it turns out, Wyoming’s current reality is bleak. Long dependent on energy production revenues — particularly those of coal, oil and gas — to pay for public services and programs, the precipitous decline in coal means the state’s budget is now facing a projected shortfall of up to $1.5 billion, according to recent estimates by the Consensus Revenue Estimating Group (CREG).
While it may be easy to point to the COVID-19 pandemic as the cause of the state’s fiscal woes, according to Godby, the decline in coal and the implications for the state’s revenues have been evident for several years. The pandemic simply hastened what was long predicted and, although there may be a brief post-COVID rebound and “last hurrah” in 2021, the long-term decline is expected to continue. “Problems we thought were 5-10 years down the road are now at our feet,” said Godby.
There are two primary factors behind coal’s market decline, according to Godby – cost competitiveness and consumer preferences. Godby said consumer preferences matter for businesses, and customers are shifting those preferences to renewable energy over coal, even in Wyoming. “This isn’t a partisan issue anymore,” he said. “Renewables are supported across the board. Utilities are reacting to consumer preferences and that has resulted in structural changes in the energy sector.” Fain agreed, saying Wyoming is at a “pivotal moment,” and noting that businesses and companies looking to move to Wyoming are also demanding cleaner energy.
Godby said cost competitiveness has changed dramatically, as renewables like wind energy continually become less expensive and as natural gas boomed and displaced a significant amount of coal’s traditional share of energy production. The capacity factor of an energy production plant, like coal, refers to how much energy is being produced compared to how much energy could be produced at a given plant. For coal, that capacity factor keeps declining. Coal operations have fixed costs that are very expensive, Godby explained, meaning that plants that are only producing a fraction of their potential are a losing business venture.
While some may point to government subsidies as unfairly stacking the market in favor of renewables, Godby said even without those subsidies the costs of renewable energy have decreased substantially in recent years. For example, unsubsidized wind energy production costs have decreased by about 70% in the past decade. Coal’s costs are for the most part fixed. While technologies, such as carbon capture, could potentially change coal’s environmental impacts and consumer preferences, they require huge financial investments that make them risky propositions.
Throughout the state, and in Southwest Wyoming in particular, these structural changes in energy production have been a factor in PacifiCorp’s decision to retire coal-powered plants earlier than expected. The Wyoming Legislature passed legislation during the most recent session requiring companies to make a good faith effort to sell such plants rather than simply retiring them; however, Godby said, at best, any sale of a plant would be a temporary solution.
Fain said PacifiCorp is committed to working with communities impacted by the company’s decision to retire plants. “Our commitment and our goal is zero job loss,” said Fain, explaining the company is offering educational, relocation and priority hiring opportunities to employees in an effort to ensure jobs are not lost due to the changes.
Fain and Godby said good jobs will likely be available for a 1-2 year period after mines close due to reclamation requirements and responsibilities and jobs will likely be available during the construction of renewable energy projects, including wind projects. However, Godby did acknowledge there are fewer long-term jobs at wind energy sites.
Both Godby and Fain emphasized that, although Wyoming’s historical energy production businesses may be facing challenges, there are also opportunities. PacifiCorp has committed to an approximately $4 billion investment into new energy production in the state, including renewables. Godby said the potential for wind energy production in the state is huge and could easily be increased by about three times what is currently produced.
Godby said the state’s potential for solar power generation is also good, although not as high as locations in the southwestern part of the country. However, PacifiCorp has identified several potential solar projects and Fain said solar power and battery storage are part of the company’s Integrated Resource Plan (IRP).
Godby also addressed nuclear power, which he said has two primary drawbacks – cost and regulatory uncertainties. “It’s really hard to make the case for nuclear from a financial business sense right now, but we could be talking about lots of nuclear development in the next wave, 5-10 years from now,” he said, noting that modular nuclear reactors are being developed and tested.
Fain, Godby and Keyser acknowledged the difficulties presented by the changes and the impacts on communities that have relied on coal-related jobs, as well as the statewide impacts due to revenue loss. Keyser said the EDA offers several different grants for communities dealing with such losses to help with designated projects, particularly if projects would benefit a specific business and result in additional job creation.
Fain said PacifiCorp is open to innovative ideas and projects to meet energy demands that would also meet the company’s mandate to provide customers with the lowest cost resource. “Now is the time to reinvent the state’s economy,” said Fain, who said that can start with the companies, like PacifiCorp, that are already located in the state and committed to its people. “We’re looking at an all-of-the-above approach, but that shift in the pie is happening.”
Godby said the people and lawmakers in the state will have difficult discussions and decisions to make. “Coal mining is part of Wyoming’s identity,” he said, but acknowledged coal isn’t going to return to its predominant position. “We’re at the end of the time to keep holding on to the past...The real time to start planning is before you’re in trouble,” he said, noting that it’s going to be extremely difficult now to deal with the simultaneous structural changes and revenue decline.
“We’re going to have to have difficult conversations about what services we want to provide and what kind of communities we want and whether we’re willing to raise taxes to pay for them,” said Godby, referencing the state’s long-time dependence on energy taxes. He referred to a recent study showing a typical Wyoming family of four receives approximately $27,000 in services annually but pays only about $3,000 in taxes.
“If we want to maintain those services, we’re going to have to find a way to pay for them. Are we willing to do the things we need to do to have the communities we want,” he asked. “What kind of Wyoming do we want?”