A Quick Review of HB 1365…

HB 1365, the Clean Air Clean Jobs Act, mandates that Xcel file a plan by August 15 2010 that would:

• be implemented by December 31, 2017;
• meet “reasonably foreseeable” state and federal air quality regulations;
• achieve at least 70% reductions in nitrogen oxides emissions from at least 900 megawatts of coal fired power plants

The Public Utilities Commission (“PUC”) must approve, deny, or modify Xcel’s proposed plan by December 15, 2010, but only after the Department of Public Health and Environment (“CDPHE”) determines that the plan would meet “reasonably foreseeable” air quality regulations.

The legislation gives Xcel the right to withdraw its plan (i.e., the right to walk away) if it “disagrees with the [PUC’s] modifications.”

A Very Brief History of HB 1365 Implementation Plans

• August 13: Xcel chose “preferred” Plan 6.1E for achieving HB 1365, from nine possible scenarios. Click here for a 1-page summary of the nine scenarios.
• October 21: The PUC disqualified Xcel’s “preferred” Plan 6.1E because it included actions that would have occurred after a 2017 deadline.
• October 25: Xcel chose a new “recommended” plan from the nine possible scenarios that were set forth in August (Plan 5B), and it concomitantly proposed three new versions of its original, “preferred” plan (Plans 6.2J, 6E FS, and 6.1E FS).
• November 3: Xcel, which is accorded veto power over all of the plans before the PUC for consideration, disqualifies a number of possible plans. To see a 1-page summary of plans that are “in play,” click here.

HB 1365 Update: Roundup of Arguments on Xcel’s Four New Plans

Last Thursday November 9 was the deadline for parties to file direct testimony on Xcel’s new “recommended” HB 1365 implementation plan (Plan 5B) and three new iterations of the utility’s original, “preferred” plan (Plans 6.2J, 6E FS, and 6.1E FS).

Here’s a rundown of the written testimonies filed by November 9 (the actual testimony is contained in the hyperlinked names):

• Anne Smith, Peabody: Ms. Smith offered a thorough, compelling endorsement of Plan Benchmark 1. This is Peabody’s preferred plan, because it wouldn’t retire any coal power plants, and would instead retrofit them with pollution controls to meet the requirements of HB 1365. According to her Ms. Smith’s analysis, “Benchmark 1 is less costly than any of the alternative plans.” Unfortunately for Peabody, Xcel vetoed Plan Benchmark 1 on November 3.
• Kip Coddington, Peabody: Mr. Coddington testified that the results of the November 2 Congressional elections make a federal cap-and-trade very unlikely in the foreseeable future. Therefore, Mr. Coddington argues, it is inappropriate for Xcel to include a $20/ton CO2 emissions fee into the economic models that the utility uses to project the costs of the various scenarios. As coal is more carbon intensive than natural gas, such a carbon fee gives natural gas an enormous cost advantage in the model projections.
• W. David Montgomery, Peabody: Mr. Montgomery claimed in his testimony that Xcel grossly underestimated the cost of natural gas logistics inherent to each of its three new “preferred” plan (Plans 6.2J, 6E FS, and 6.1E FS). Mr. Montgomery suggested that Xcel hid costs in part by having its natural gas logistics subsidiary lowball its estimate for gas transportation. (Such “cross subsidies” are illegal.)
• Joseph Cavicchi, Gas Interveners: Mr. Cavicchi testified that the gas interveners “strongly oppose” Xcel’s new “recommended” Plan 5B, because it keeps the 351 megawatt Cherokee 4 power plant running on coal, instead of switching to natural gas, or building a replacement natural gas plant. Mr. Cavicchi said that the Gas Interveners can support Xcel’s three alternatives to its “preferred” plan (Plans 6.2J, 6E FS, and 6.1E FS), as they would result in either fuel switching at Cherokee 4 (Plans 6E FS and 6.1E FS) or replacement natural gas generation (Plan 6.2J)
• Saravanan Arunachalam, Gas Interveners: Mr. Saravanan testified that all four of Xcel’s new plans achieve inferior air quality results that Plan 7E, which is the Gas Interveners preferred plan (because it would use the most gas, the fastest).
• M. Lynn Norsworthy, Gas Interveners: Ms. Norsworthy compared the economic impacts of Plans 6.2J, 6E FS, and 6.1E FS (Xcel’s three alternatives to its original, “preferred” Plan 6.1E) compared to the Plan 7E, the Gas Interveners’ preferred plan. According to her analysis, “if only fuel costs are considered, [Gas Interveners’ preferred Plan 7E] is the most expensive, and that is because it makes the earliest and most comprehensive switch to gas-fired power generation.” Nonetheless, she still endorses 7Em because “faster is simply better” when it comes to fuel switching.
• Stephen J. Baron, CF&I Steel and Climax Molybdenum: Mr. Baron testified “each of the CACJ compliance plans, including the new recommended Plan 5B, result in significant rate increases. According to his model, Plan 5B would raise rates 10.1% through 2020; Plan 6.1E FS would raise rates 17% through 2020; Plan 6E FS would raise rates 19.5%; and plan 6.2J would raise rates 22.3%.
• Paul Tourangeau, Colorado Department of Public Health and Environment: Mr. Tourangeau testified that Plans 5B, 6.2J, 6.1 FS, and 6.1E FS all meet “reasonably foreseeable” state and federal air quality regulations, although he said that CDPHE recommends 6.2J. Interestingly,  he said that CDPHE “does not believe that the intent of the Act [HB 1365] is to have the Department [CDPHE] evaluate reasonably foreseeable requirements for new natural gas replacement power.” This statement rebuts the claim by Peabody that the CDPHE mistakenly ignored the air quality regulations for new natural gas plants.
• David Rhodes, Southwest Generation: Mr. Rhodes testified about the threat of cost-over runs for Plans 5B (Xcel’s new “recommended” plan) and 6.2J (an accelerated version of Xcel’s old, “preferred” plan). Southwest Generation objects to these plans because they would result in Xcel increasing its share of the wholesale electricity market, at the expense of Southwest. Instead, the power producer is advancing a plan (Plan IPP2) that would maintain Southwest’s market share.
• Leland B. Deck, Western Resource Advocates: Mr. Beck compared the health benefits of Xcel’s four new plans. His impact analysis calculated the mortality and sickness “savings” achieved by the plans relative to one another. According to Mr. Beck, Plan 5B is the unhealthiest, followed by (in ascending order of healthiness) Plan 6.2J, Plan 6.1E FS, and Plan 6E FS.
• Gene Camp, PUC Staff: Mr. Camp presented the work of independent consultants contracted by the PUC Staff. This independent study concludes that Xcel low-balled cost estimates for a large natural gas plant to replace coal generation at the Cherokee site, and high-balled estimates of pollution controls for coal fired power plants at the site. The upshot is that fuel switching appears relatively more affordable.

What’s Next?

• November 15: Rebuttal testimony on direct testimony regarding Xcel’s four new plans (ie, responses to all the testimonies in this post) is due. Also on November 15, responses to Peabody’s motion to dismiss the proceedings are due (to read about Peabody’s motion, click here or here).
• November 18-20: PUC hearings on the direct and rebuttal testimonies regarding Xcel’s four new plans.

Recent HB 1365 Media:
Ritter Plan Tied to Phantom Carbon Tax
William Yeatman & Amy Oliver Cooke, Pueblo Chieftain, 14 November 2010

How to Lower Energy Costs
Peter Blake, Face the State, 11 November 2010

Time Retire Ritter’s Stealth Carbon Tax
Vincent Carroll, Denver Post, 10 November 2010

Nation Watching Xcel Plans for Coal Plants
Mark Jaffe, Denver Post, 7 November 2010

William Yeatman is an energy policy analyst at the Competitive Enterprise Institute