Watching the Drake Power Plant and Colorado Springs Utilities debate from afar, it seems to this outsider that the most important issue is missing in action.
First, the debate seemed to focus on whether to engage Neumann Systems Group to develop and install supposedly cheaper pollution controls on CSU’s existing coal units to meet the Environmental Protection Agency’s regional haze mandate. Then the Sierra Club filed notice of intent to sue over CSU’s alleged violation of the new source review provisions of the Clean Air Act. Now the debate seems focused on whether CSU should spend money on certain public relations activities. These debates miss the point and confuse ratepayers.
The missing issue is whether CSU’s current mix of generating capacity will provide the lowest-cost electricity now and in the coming years. I offer the following points as someone now studying this issue for another utility and having spent 37 years conducting energy and environmental analyses:
Dramatic and truly unprecedented changes are taking place in the energy and environmental world in which utilities now must operate. These changes have caused other utilities to announce in 2011 and 2012 alone the premature closure of 221 coal-fired generating units in the U.S. Why are other utilities, including two in Colorado, closing coal units?
Natural gas prices have dramatically declined and are not anticipated to return to historic levels. This makes the cost of generating electricity with gas-fired combined cycle units cheaper than coal units in many applications. Gas has become cheap because it is now technically feasible and economic to recover large amounts that were previously bound in tight shale deposits in many parts of the country, including the Colorado Springs area.
A flood of new EPA rules coming next year will tip the balance in favor of gas because the new rules are almost universally focused on coal and mandated by court rulings. The probability of their impacting CSU’s coal plants is very high, and this is after costs are incurred to meet the regional haze requirements.
Most coal plants planned for closure around the country share three characteristics. They are small, inefficient from an energy-use perspective and old. As such, even when gas is more expensive than coal on a cost per energy unit basis, it is often cheaper to replace coal units with gas ones that are 35-45 percent or more energy efficient.
How do CSU’s coal units compare with the plants that are being closed?
CSU’s coal units are small. The average capacity of units being closed nationally is 122 megawatts. Only the Drake 7 and Nixon 1 units exceed this value and the largest is only 208 megawatts. Size matters when it comes to coal plants because small units lack the scale economies of units in the 500-600 MW range.
CSU’s coal units are energy-inefficient. Units planned for closure nationally use an average of 10,500 units of energy to generate one kilowatt of power. The best of CSU’s coal units takes this much energy and the least efficient requires 11,800 units. CSU’s coal units are 30-40 percent less efficient than today’s best gas units.
CSU’s coal units are old. Plants closing nationally are as new as 22 years of age whereas CSU’s newest unit was commissioned 32 years ago and its oldest is 50 years old. Age matters because older coal plants lack design efficiencies and, as a plant ages, its cost of operation increases.
If the question for Colorado Springs ratepayers is whether the current mix of CSU capacity will provide the least-expensive electricity in the future, what do citizens need to engage in this debate? Normally, a utility’s integrated resource plan provides the necessary technical data. However, CSU’s 2012 plan incorporates dated natural gas price assumptions from an obscure source. Had the IRP used current Department of Energy gas price forecasts, it likely would have shown that CSU has more efficient alternatives than maintaining some or all of its base load capacity.
DOE’s most recent price forecast shows that coal’s advantage over gas is less than $2 per unit of energy. Moreover, forecasts have shown a continuous decline in the differential between coal and gas since 2002.
Ratepayers should demand a thorough and independent analysis of the city’s options for low cost power now and in the foreseeable future. Focusing on Neumann Systems Group, the Sierra Club or CSU’s public relations department is a distraction.
Jack Campbell, president of Aspen View Consulting LLC of Santa Fe, N.M., is a former deputy director of the Environmental Protection Agency’s policy office, analyst for the U.S. Department of the Interior, and director of environmental programs for GE Capital Corp.