Legislation passed this week requiring investor-owned electric utilities to switch from coal to natural gas had the support of environmentalists, gas producers and the company most affected by its mandates, Xcel Energy.
But not Colorado Springs Utilities.
Backers of HB 1365 said that aging coal-fired plants, such as those operated by CSU, are inefficient, dangerous to public health and cannot be economically retrofitted to comply with looming federal clean-air standards.
CSU disagrees. The utility, which is exempt from the bill’s mandates, intends to keep generating most of its power from coal, and believes that converting to clean-burning gas would cost ratepayers billions of dollars during the next two decades.
Xcel, on the other hand, believes that bringing coal-fired plants into compliance with coming regulations will be more expensive than replacing them.
If CSU is wrong in its financial assumptions, city residents might be left holding the bag, paying higher rates just to keep the city’s wheezing coal-burning power plants in compliance.
Nonetheless, CSU is adamant about its position.
In making its case, it cited its 2003 deal with Xcel’s predecessor, Public Service of Colorado, to build the Front Range power project, a 480-megawatt combined cycle gas-fired plant adjacent to the coal-fired Nixon plant.
CSU now believes building the plant was a mistake that cost ratepayers more than $300 million.
“A reliance upon similar claims (to those made by advocates of HR 1365) about abundant (gas) supply and stable future prices led Colorado Springs Utilities to construct the Front Range Power Project,” according to a CSU position paper obtained by the Business Journal.
“Anticipating industry-wide forecasts of natural gas under $4 per million BTUs, we instead saw actual costs spike and trend much higher.
“In fact, cumulative incremental costs due to deviations from our forecast have topped $360 million since spring 2003. This equates to an average of $60 million a year to a customer base of only approximately 180,000 people, for one power plant.”
And if that’s not bad enough, CSU projects that the cost of junking the two aging coal-fired units and replacing them with a new gas plant would have a 20-year cost of $3.2 billion.
Pam Kiely of Environment Colorado says that CSU is wrong to focus on the past.
“You can’t assume that the cost of coal will remain static,” she said. “The cost of coal-fired generation will astronomically increase during the next few years because of federal climate legislation. Investment bankers know this, and they’re telling their clients to stay away from carbon-intensive technology.”
Vice Mayor Larry Small isn’t convinced.
“It’s a sham,” he said of the bill. “It’s just a way for Xcel to force their ratepayers to subsidize their wind energy costs. They convert to gas, and the Public Utilities Commission puts all their energy costs in the rate base. It was cooked up between Xcel and the gas industry.”
(Xcel has been the industry leader in incorporating wind into its energy portfolio, while CSU has made a comparatively small commitment to renewable energy.)
CSU CEO Jerry Forte thinks the bill will end up costing his customers regardless.
He pointed out that once Xcel phases out its use of coal, gas prices will increase, especially if Xcel locks up a substantial portion of Colorado’s natural gas production in long-term contracts.
That will hurt CSU customers because although its coal-fired plants generate most of the city’s electricity, reserve peak demands are met by gas-fired units. Higher gas prices will drive up the operating costs of such units.
The city also has an interest in the gas-fired Front Range plant, which will supply an increasing percentage of the city’s needs over the next decade.
Forte and Small agree converting to natural gas would lower emissions from CSU’s power plants, but at too high a cost.
“The city council, acting as the Utilities Board, sets utility rates,” Small pointed out. “We have to protect our ratepayers, and I don’t see us authorizing the kind of rate increases we’d need to abandon our coal plants and replace them with gas.”
Xcel, by contrast, can spread any rate increases over a much large customer base.
Finally, advocates of switching to gas, citing vast new discoveries of “shale gas” in the Midwest, believe that gas prices will remain low for the foreseeable future, and that producers will be willing to ink long-term supply contracts.
Andy Colosimo, CSU’s government affairs manager, doubts both claims.
“Coal and gas are different commodities,” he said, “and we don’t think that gas producers will be eager to sign up for long-term deals. Historically, gas is very volatile, and producers are very aware of this.”
Companies in the oil and gas business employ nearly 8,000 Coloradans, with an annual payroll of $1.12 billion. Coal mining, by contrast, supports approximately 2,300 jobs, with an annual payroll of less than $200 million.