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Xcel Changes Tune on “Recommended” Plan

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). Click here for a detailed review of the new plans.
  • November 3: Xcel, which is accorded veto power over all of the plans before the PUC for consideration, disqualified a number of possible plans. To see a 1-page summary of plans that are “in play,” click here.

PUC Denies Peabody Motion to Dismiss Proceedings

Before yesterday’s hearing started, the PUC made a determination on Peabody’s motion to dismiss the proceedings. I discussed the motion here. In a nutshell, Peabody argues that HB 1365 established an August 15 2010 deadline for the submission of implementation plans, and that Xcel violated this deadline by introducing implementation Plans 6.2J, 6E FS, and 6.1E FS on October 25.

The PUC determined that Plans 6.2J, 6E FS, and 6.1E FS are not new plans subject to the August 15 deadline, but rather “further development of facts.” It should be noted that the PUC’s conclusions contradict those of the PUC staff, which had expressed doubt about the feasibility of adequately analyzing the new plans in the compressed frame established by HB 1365.

Xcel Changes Tune on “Recommended” Plan

As I explained here, when Xcel first unveiled its new, “recommended” Plan 5B on October 25, the utility did so “reluctantly.” To be sure, Plan 5B is very good to Xcel–the plan allows Xcel a 10.5% profit on construction costs, up front, and it results in an expansion of Xcel’s share of the wholesale electricity market at the expense of independent power producers. The problem (at least from Xcel’s perspective) is that its original “preferred” Plan 6.1 E, which was offered on August 13 and disqualified on October 21, was even more lucrative, as it allowed Xcel to build two natural gas power plants, while Plan 5B calls for only one. The more Xcel builds, the more it makes. Relatively speaking, “recommended” Plan 5B is less of a boondoggle than the “preferred” Plan 6.1E. That’s why Xcel’s support for Plan 5B was lukewarm.

Yesterday, however, Xcel embraced “recommended” Plan 5B. Under cross-examination by Peabody, Karen Hyde, Vice President for Rates and Regulatory Affairs, confirmed the utility’s “unconditional” support for Plan 5B.

Gas Interveners’ Accounting Secret: Ignore Costs

After Karen Hyde, Gas Intervener witness A. Joseph Cavicchi took the stand. In his direct testimony, a copy of which is available here, Mr. Cavicchi pitched the Gas Interveners preferred Plan 7E. Gas Interveners prefer this plan because it calls for a switch to natural gas fastest of any plan before the PUC. Mr. Cavicchi had testified that Plan 7E performs “similarly” to Xcel Plans 5B, 6.2J, 6E FS, and 6.1E FS in a rate-impact analysis through 2020, but under cross examination by Xcel, he conceded that Plan 7E performs well only because the construction of a 314 megawatt natural gas power plant is delayed until after 2020, so the costs weren’t considered in the economic analysis.

Economic Models: Biased Inputs, Biased Outputs

A very revealing exchange took place between Xcel witness James F. Hill, Director of Resource Planning and Bidding-Colorado, and Peabody counsel. A large part of Mr. Hill’s testimony (available here) was given to rebutting economic modeling performed by Peabody witness Anne Smith (available here). The two economists analyzed the same implementation plans, but they came to starkly different conclusions: Ms. Smith found that her employer’s preferred Plan Benchmark 1 is the most affordable, while Mr. Hill found that his employer’s recommended Plan 5B is the most affordable. Imagine that!

Under cross examination by Peabody counsel, Mr. Hill agreed that “in general, modeling results are dependent on assumptions,” and that his testimony and Ms. Smith’s testimony “only highlight the important of core assumptions.”

What’s the cheapest way to implement HB 1365? In the cloud kicked up by dueling analyses, it’s impossible to know.  Whatever the cost, it’s too much, because HB 1365 was a false bill of goods.

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