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Primer for October 25 PUC Hearing on HB 1365

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.”

Primer for Today’s PUC Hearing (October 25, 2010)

Xcel today is expected to file a new plan to comply with HB 1365. This is a significant development in the PUC proceedings, because the time frame is so compressed. Normally, a major resource acquisition plan such as the one mandated by HB 1365 would take years to consider. For example, the Public Utilities Commission examined Xcel’s last Electric Resource Plan for almost three years. Yet HB 1365, which was enacted in April, requires Public Utilities Commission to decide on Xcel’s implementation plan by December 15.

So the schedule was already tight. Now it’s even tighter. The PUC had been deliberating Xcel’s preferred plan for more than two months, and now it seems as if the proceedings will have to start anew.

Here is a timeline of the events that led to today’s expected filing:

  • September 4: A group of Independent Power Producers (“IPP interveners”) challenged plan 6.1E, arguing that it is illegal because it included actions that would occur after an implementation deadline established by HB 1365’s (December 31 2017). Specifically, the IPP interveners objected to plan 6.1E’s stipulation that Cherokee 4, a 351 megawatt coal fired power plant on the outskirts of Denver, be replaced with natural gas generation in 2022 (five years after the HB 1365 deadline).
  • September 29: In Decision C10-1067, the PUC partially ruled in favor of the IPP interveners, by striking all actions from plan 6.1E that take place after 2017 (ie, the 2022 fuel switching at the Cherokee 4 site). The PUC signals that it will continue deliberations on the truncated plan by sending it to the Department of Public Health and Environment for a determination whether the truncated plan met all reasonably foreseeable air quality regulations.
  • October 5: Xcel indicates that it is not content to proceed with the truncated version of its preferred plan by filing for a rehearing, re-argument, or reconsideration (“RRR”) of the PUC’s September 29 decision to truncate plan 6.1E. This was an attempt to resuscitate its preferred plan.
  • October 21: The PUC rejected Xcel’s RRR. By reaffirming its September 29 decision, the PUC finally terminated Xcel’s preferred plan. According to the PUC Commissioner Matt Barker, “what had been the preferred plan, is no longer on the table.”

Thus, Xcel’s preferred plan died. So What Happens Next?

Xcel’s preferred plan was disqualified because it waited to fuel switch at Cherokee 4 coal unit until 2022—five years after an implementation deadline established by H.B. 1365. With its preferred plan foundering, the utility last week indicated that it would file a new preferred plan today (Monday, October 25).

It’s anyone’s guess what sort of plan Xcel will file today, as the utility sent mixed signals last week. On the one hand, Xcel Vice President of Rates and Regulatory Affairs Karen Hyde intimated that Xcel could fix its preferred plan with “easy fixes.” On the other hand, she said that Xcel may find an alternative plan “infeasible.” Xcel’s counsel made it seem as though the utility would be cramming all weekend in order to finish a new preferred plan.

Who Wants What in the New Plan?

  • Xcel wants a plan that would maximize the company’s bottom line under the rate-making framework established by HB 1365.
  • The Governor’s Energy Office advocates that Xcel simply accelerate plan 6.1E, so that Cherokee 4 is replaced with natural gas generation by 2017. Xcel, however, has stated that this would be an impossibility. In her September 17 2010 direct testimony, Xcel VP for Rates and Regulations Karen Hyde said that “the earliest replacement [natural gas generation to replace Cherokee 4] could be in service would be in the 2018-2020 time frame…”
  • IPP interveners would prefer a plan whereby Xcel meets the requirements of HB 1365 by buying electricity from the wholesale electricity market (from an IPP), rather than building new generation assets owned by the utility.
  • Peabody Energy (a coal mining company) and the Colorado Mining Association would prefer a plan that spurns fuel switching in favor retrofitting coal fired power plants with pollution controls.
  • Chesapeake (a natural gas company) and Anadarko want maximum fuel switching so as to gain electricity market share at the expense of coal.
  • The PUC staff argues that it is unreasonable to start with a new plan, given the time constraints of the proceedings. As such, the PUC staff suggests that the PUC disallow a new plan from Xcel, and instead proceed with one of the HB 1365 compliant plans that the utility first identified (Xcel chose its August 13 preferred plan from a pool of plans that had been modeled to be HB 1365 compliant).