Review of October 25 PUC Hearing on HB 1365

As I explained this morning, Xcel today filed a new plan to comply with HB 1365, the controversial 2010 law to meet all “reasonably foreseeable” state and federal air quality regulations. The PUC rejected Xcel’s original plan because it would have replaced a 351 megawatt Denver coal power plant, known as Cherokee 4, with a gas plant in 2022—five years after HB 1365’s 2017 implementation deadline.

Xcel’s new plan wasn’t filed until 5 pm, and it has yet to be posted online, but the utility indicated that the new preferred plan is simply an accelerated version of the old one*. Previously, Xcel argued that it was impossible to build a new gas plant to replace Cherokee 4 before 2018, but today, Xcel witness Gregory Ford, an engineering expert, said that “a key element of the revised submittal” involves the construction of replacement gas generation for Cherokee 4 by the 2017 implementation deadline. Evidently, Xcel has engineered “an unconventional design” at the site.

*Update: I was wrong. Although the new plan has yet to be posted online (as of 10 AM eastern), news accounts today (here and here) suggest that Xcel will keep Cherokee 4 as a coal plant, instead of replacing it with natural gas generation. In order to meet HB 1365 requirement to reduce nitrogen oxides emissions at least 70%, Xcel will install Cherokee 4 with a technology known as selective catalytic reduction (SCR), and the coal plant would not retire until 2027. I inferred that Witness Ford was discussing the retirement of Cherokee 3 to make space for a new gas generator, when in fact, it seems he was speaking about retiring Cherokee 3 to make room for the construction of nitrogen oxides pollution control.

*Update 2: On further review, I was right. Xcel gave every indication it had found an engineering solution that made possible the replacement of the Cherokee 4 coal plant with natural gas. On October 19, the utility filed a statement that its “engineers may have a feasible way to accelerate the 2017 schedule” for retirement of Cherokee 4. All partied took this to mean that Xcel would propose an accelerated version of its original plan (to wit, the Department of Public Health and Environment on October 20 filed that “[Xcel’s] motion seeks to allow the utility to submit additional testimony to support a plan for retiring Cherokee 4 and constructing replacement generation at the Cherokee site no later than December 31 2017”). Moreover, Xcel did file three versions of an accelerated preferred plan on Monday, in addition to the plan described in the first update. For more, read “Xcel’s New Plan Is Actually an Old Plan.”

With that to go on, lawyers for parties opposed to Xcel spent much of the morning battering the utility’s presumed plan with insinuations about the risks of cost overruns, potential water quality violations (the new natural gas plant at the Cherokee 4 site would be built partly on what is now a pond), and reliability concerns.

The highlight of the afternoon came when a Peabody lawyer cross examined UC Leeds School of Business professor Richard Robbekind, the author of an Xcel commissioned study showing that its preferred plan is economically advantageous. The exchange centered on the definition of “energy producing communities.” Such communities are afforded special consideration under HB 1365, in order to protect coal mining communities from undue harm caused by lower coal demand due to the retirement of coal plants. Dr. Robbekind, however, maintained that the phrase “energy producing communities” refers to the “community of Colorado.”

PUC Deliberations Are Mere Industrial War by Other Means

The $500 billion electricity industry is one of the largest in America. It’s also the most regulated. When it comes to the generation, transmission, distribution, and sale of electricity, investor-owned utilities like Xcel can’t do anything without the approval of the state, as represented by the PUC. As such, the companies that make up the electricity industry (the generators, the transmitters, the distributors, and the sellers) don’t compete with one another on the market, but rather in PUC hearings.

There are two such competitions to interpret HB 1365:

1. Coal vs. Gas:
HB 1365 picks winners and losers in the Colorado energy industry. Gas is the winner. Coal is the loser, which is why it’s running a scorched earth campaign. Most recently, the Colorado Mining Association requested that PUC Chairman Ron Binz and PUC Commissioner Matt Baker disqualify themselves from the proceedings, on the grounds that they had participated in negotiations for HB 1365, and are therefore unfit to rule on the law’s implementation. The PUC commissioners acknowledged their participation in the drafting of HB 1365, but they denied the CMA’s request. It should be noted that Binz and Baker—the implicated parties—got to play judge and jury in their own case. They represent a voting majority vote on the PUC.

In the gas corner, there’s Chesapeake Energy. The natural gas company is well represented with copious filings in the PUC’s docket. Chesapeake has long fanned the flames of anti-coal environmentalism to advance natural gas’s market share. In 2008, for example, Chesapeake funded a “Dirty Coal” print ad campaign, featuring the coal-smudged faces of children.

2. IPPs vs. Xcel:
There are two types of electricity generators competing in Colorado: Xcel and independent power producers. (Unfortunately, their competition is to win the PUC’s favor, rather than that of energy customers.) Currently, they share the electricity market almost evenly. The nationwide average, however, is tilted higher towards investor owned utilities like Xcel. For three years, Xcel has been pushing for the right to increase its share of the electricity market, in order to bring it closer in line with the national average.

Xcel first moved against independent power producers in the 2007 electric resource plan, by requesting that the PUC grant Xcel the right to generate 60% of the electricity it sells. Xcel would gain 10% market share; independent power producers would lose 10% market share. In its final decision, the PUC agreed to consider the 60/40 arrangement when it made determinations about resource acquisition. Accordingly, Xcel’s preferred implementation plan for HB 1365 would have accorded to itself 100% of the replacement generation for the 5 coal fired power plants it retired

Independent power producers spearheaded the legal challenge that sank Xcel’s preferred strategy. Their proposed strategy is to replace the retired coal power with their power.