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Preview of October 26 PUC Hearing on HB 1365: A New Plan

Preview of October 25 PUC Hearing
Review of October 25 PUC Hearing

Preview of October 26 PUC Hearing: A New Plan

Yesterday at 5pm, Xcel filed a new plan to meet HB 1365. The utility’s original plan had been rejected by the PUC because it would have switched fuels at a 351 megawatt Denver coal plant, known as Cherokee 4, in 2022–five years after a 2017 deadline set in HB 1365. Last night, the new plan had yet to be posted online, and I inferred that Xcel’s new plan would simply accelerate the timetable of its old one. That is, I thought that Xcel would move forward the date of the Cherokee 4 fuel conversion to 2017, so as to comply with HB 1365’s deadline.

Evidently, I was wrong. Although the new plan still has yet to be posted online (as of 10 AM eastern), news accounts today (here and here) suggest that Xcel will keep the Cherokee 4 coal plant, instead of replacing it with natural gas generation. In order to meet HB 1365’s 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.

SCR is the gold standard of NOx pollution control, but it is very expensive. Initial capital costs generally exceed $100 million. In its initial filing, Xcel indicated that space constraints at Cherokee 4 made construction even more expensive, so expensive that a SCR installation would be cost-prohibitive (see discussion of “constructability” below). This assertion was challenged by an economic study commissioned by the PUC staff and performed by the Harris Group Inc. According to the study, “[Xcel’s estimation of] SCR retrofit costs for Cherokee 3 and Cherokee 4 are three to four times higher than we would expect based on other SCR retrofits with which we are familiar.” Upon reanalysis, Xcel seems to have lowered its cost expectations of installing the pollution control.

Winners of New Plan

  • Colorado Mining Association: Cherokee 4 gets its coal from the Uintah basin in northwest Colorado (although its delivery agreement for Uintah coal ends in 2013, and Wyoming coal from the Powder River basin will challenge Colorado coal for the renewal of the Cherokee 4 contract).

Losers of New Plan

  • Xcel: Generally speaking, the more Xcel spends, the more it makes. So losing the right to build a new natural gas plant means that the utility will lose out on profits.
  • Independent Power Producers: Independent electricity generators are still shut out. (see last night’s review for more on IPP’s conflict with Xcel.

Why I Think That the PUC Will Reject Xcel’s New Plan

Matt Futch, Utilities Program Manager of the Colorado Governor’s Energy Office, submitted written testimony stating that his office “supports this plan [Xcel’s original preferred plan] with one primary exception: retire Cherokee 4 by end of calendar year 2017.” Mr. Futch argued that such a step was necessary to meet Governor Bill Ritter’s “Colorado Climate Action Plan” to reduce the state’s greenhouse gas emissions 20% below 2005 levels by 2020. That is, retiring Cherokee 4 is an essential component of the Governor’s climate plan. Because an iteration of Xcel’s initial HB 1365 proposal (“Plan 6”) includes fuel switching at Cherokee 4 by 2017, the PUC would have the authority that Xcel choose that course of action. And to date, the PUC has proven a reliable ally of the Governor.

Word of the Day: “Constructability”

“Constructability” is Xcel’s catch-all phrase to describe the space constraints at the Cherokee 4 (see PUC staff witness Sharon Podein September 17 direct testimony). Put simply, due to “constructability,” it is difficult to build anything at the site. Existing transmission infrastructure in Denver emanates from the Cherokee location (hom2 to four power plants, Cheroke 1-4), so it is a necessary component of any plan that Xcel would propose to meet HB 1365.

The upshot is that “constructability” gives Xcel a fudge factor that it can use to skew the results of any cost benefit analysis in its favor.