A huge pivot for Xcel and #Colorado — @BigPivots #ActOnClimate #KeepItInTheGround

Photo credit: Allen Best/Big Pivots

Click the link to read the article on the Big Pivots website (Allen Best):

Colorado’s largest electrical utility has halved its coal generation since 2005 and will achieve effectively zero by 2030. Surely this investment ranks as among the biggest, most important of the last century

A cliché seems like a terrible way to begin a story that strives for deeper analysis of this milestone in Colorado history, but I’m not clever enough to come up with my own simile or metaphor, so here goes:

Colorado’s reinvention of its energy system is like trying to rebuild an airplane in mid-air. Plans by Xcel Energy, by far the state’s largest utility, to revamp its electrical generation constitute the most compelling exhibit.

Colorado has been flying a plane using technology and infrastructure from the 1970-1990s. The rebuilding has been underway for awhile now, particularly since 2016, after prices of wind, in particular, had plummeted, and utilities satisfied themselves that they could integrate renewables without endangering reliability.

Now comes the giant stride. This coupled with new transmission could yield investment of up to $10 billion.

I’d suggest that Colorado has had few singular rivals in the last 100 years in terms of investment in public and quasi-public infrastructure. The splurge of roadbuilding unleashed by the National Interstate and Defense Highways Act of 1956 certainly surpasses this. I’d single out the Colorado-Big Thompson water diversion project of the ‘40s and ‘50s. Arguably construction of DIA, too. Buy me a beer, and we can chew through this at length.

But by whatever yardstick you choose, this is – and you knew I had to say this – a Big Pivot. This represents Colorado’s most muscular turn yet from centralized power generation from fossil fuel sources to more dispersed renewables.

Click the image to go to Xcel’s project page and the interactive map.

The landscape of eastern Colorado can be expected to look substantially different by the end of 2025. The plans — approved conceptually in a series of meetings during recent weeks by the Colorado Public Utilities Commission —will yield thousands and thousands of new wind turbines during the next few years scattered across eastern Colorado, likely massive amounts of solar, and game-changing amounts of storage. I can’t cite precise numbers, because they are yet to be worked out.

More clear is the transmission needed for this farm-to-market delivery of renewable energy: up to 650 miles of high-strung wires looping around eastern Colorado in a project called Power Pathway. Also possible is a 90-mile extension from a substation north of Lamar to the Springfield area.

Driving this hurried, gold rush-type of development in Colorado’s wind-rich regions is the state’s determination to dramatically reduce carbon dioxide emissions from electrical generation during this decade. It aims to do this even as it displaces use of fossil fuels in transportation and for space and water heating in buildings.

A hard deadline is imposed by the expiration of federal tax credits for wind and solar at the end of 2025.

An Xcel representative, Amanda King, had testified to the importance of completing the first two Power Pathway transmission segments sooner rather than later. The PUC commissioners cited that testimony in their June 2 decision approving the transmission lines:

“The company asserts that by having these segments in-service by the end of 2025, wind and solar developers will be able to interconnect resources prior to the expiration of the production tax credit and step-down of the investment tax credit, which would represent cost savings of approximately $300 million per (gigawatt) of interconnected wind capacity and $100 million per (gigawatt) of interconnected solar capacity, in net present value, to customers,” the decision said.

“It’s a pretty amazing amount of infrastructure that needs to go into the ground in a really short time,” says one individual, a stakeholder in the PUC process, speaking on condition of confidentiality.

Because of that exigency, a written decision is likely in July, no later than August. Appeals by Xcel or other stakeholders could delay the actual green light, but not for long.

For some, this represents a triumph of arguments going back almost two decades.

“It helps unleash the innovation we need to build the 21st century electrical system,” said Leslie Glustrom, who wears various hats but was speaking as a representative of the Colorado Renewable Energy Society the day I talked with her.

She uses the metaphor of inheritance vs. income. In this case, fossil fuels are the inheritance. In the future we must live off the income of renewables.

“If you were lucky enough to have a big inheritance you could buy three houses and five condos,” she said. Living off income poses a major challenge, she says, especially if you haven’t acquired the skills you need.

“We can do it,” she adds, “especially if we are better at matching our demands to the times when we have an abundance of wind and solar.”

Risk is inherent in this process of transition. But risk cuts both ways, as pointed out by Gwen Farnsworth, senior policy advisor for Western Resource Advocates. The PUC deliberations are focused on how to evaluate those risks of relying upon fossil fuel generation in terms of system reliability and climate change. The commission, she says, is “pushing Xcel so that its future resources are cleaner, more flexible and more reliable.”

With this triumph also comes anxiety. The three commissioners used the word “uncertainty” maybe a dozen times when they deliberated during a long afternoon on June 10.

Eric Blank. Photo via Big Pivots

“We are making decisions about billions of dollars of investments under conditions that may have unprecedented uncertainty,” said Eric Blank, the chair, while mentioning climate change, inflationary pressures, rising labor costs, and supply chain disruptions.

Renewables won’t be the steal they were in 2018. Demand has grown. This is the gold rush. California alone wants to add 8,000 megawatts of renewable generation.

Closely related is the growing concern about “resource adequacy” mentioned by Commissioner Megan Gilman and also Commissioner John Gavan. Can Xcel keep the air conditioners on during a really, really hot day—or, as in February 2021, on a very cold day?

After, I talked with Jeffrey Ackermann, the chair of the PUC for four years prior to Blank, to get his big-picture assessment of what this represents.

“I think everyone – regulators and utilities, but stakeholders, too – are eager to move forward while also realizing that you can’t get it mostly right. It has to be 100% right.”

Ackermann was referring to the greater complexity of the electrical grid being assembled with its more diverse resources and greater interplay between utilities and consumers. The stakes have also elevated.

Jeffrey Ackermann. Photo via Big Pivots

Overlay that onto the burgeoning Western markets that are still taking shape, which provokes new questions about resource adequacy and reserve margins. What if the interconnected utilities from Montana to New Mexico get struck by a heat wave at the same time?

In the PUC handling of this complex case, Ackermann commends his successor, Blank.

“I like how this chairman has sequenced the conversation,” he said. “It affirms the complexity of this and also the uncertainty. At the same time it doesn’t shy away from realizing that some tough decisions need to be made now if you want to achieve 2030 goals and beyond. It’s a tough balance.”

Ron Lehr, who chaired the PUC beginning in 1983, concedes the complexity, acknowledges the uncertainty – although pointing out that in 1983, interest rates stood at 18%. (I can confirm; I was suffocating that year, paying 21% interest on my loan for a purchase of a trailer in Granby).

Colorado’s planning process, says Lehr, deserves credit. For outsiders, it’s maddeningly complex and anything but transparent. Even those deeply engaged in the process sometimes get frustrated with the filing system at the PUC. Joe “Schmo,” public citizen? Fuggedaboutit.

Despite these shortcomings, Lehr argues the process itself has been very effective and has improved over time. It creates a forum for diverse voices to exchange ideas.

That process yields some crackpot ideas, he said, “but you weed through them. Then you can diversify your thinking and create a lower-risk template that can attract investment from the private sector.”

Colorado’s process, he added, has drawn national attention for yielding lots of bids for electrical generation — and lower prices.

“The more inclusive and integrated our planning and the more far-sighted the planning, the better we can handle the uncertainty,” he told me.

The story about moving on from coal is the easy story here, but Lehr thinks a side story – about the impacts of Winter Storm Uri on natural gas prices in Colorado — will move the needle past natural gas, too.

“Gas is a bankrupt long-term strategy. You don’t have it when you need it.”

Back to the metaphor of rebuilding the airplane in mid-flight. It was given to me by Mike Kruger, the chief executive of the Colorado Solar and Storage Association, and in a far more colorful way than I’ve articulated here.

We wouldn’t be remodeling this plane in flight if it wasn’t necessary, he says. Yes, uncertainties exist, and likely new uncertainties will become apparent. But the status quo of centralized fossil fuel generation isn’t working.

“We have to try something.”

Despite its cumbersome aspect, he believes Colorado’s legal structure and the stakeholders – Xcel but also the business, consumer, environmental, government, and other groups – have enough flexibility to respond rapidly if necessary.

“If in two and a half years we find we missed the mark on something, I would be surprised if the industry and the environmental and labor groups and Xcel would not be able to figure how to correct it quickly.”

Segments of wind turbine towers at the former Vestas (now CS Wind) factory in Pueblo with the smokestacks of Comanche Generating Station in the background, unit 3 on the left. Photo/Allen Best

That brings up Colorado’s newest coal plant, not quite a dozen years old, and also its largest, at 750 megawatts: Comanche 3.

(Some refuse to call it by that name in the belief that it besmirches tribal people. I couldn’t help note that almost invariably in the PUC discussions it was referred to as unit 3 or Pueblo unit 3.” Maybe Leslie Glustrom’s rants on this are being heard).

When the plant was formally approved in 2005, Colorado’s first major wind farm, Colorado Green, located near Lamar, had just begun producing electricity. It was the future, not coal, but most utilities had not yet gotten that memo. Tri-State was about to start spending $100 million on a humongous coal plant downstream along the Arkansas River in Kansas—a decision from which it has not fully recovered. And, of course, Comanche 3 cost upwards of $1 billion in today’s dollars. Xcel still had humongous debt, a central issue in how soon it is retired.

Coal’s rapid fall from favor and competitiveness is told in these numbers. The fuel produced 66% of Xcel’s electricity for Colorado retail and wholesale customers in 2005. Last year It had fallen by more than half, to 32%. It should be close to zero by 2030. (Xcel may still buy some power from the market that will come from coal plants).

As Noah Long of the Natural Resources Defense Council pointed out in a May 25 posting, this electric resource plan being approved could put Xcel on track to achieve approximately 90% carbon emissions’ reductions as compared to 2005 when Comanche closes, no later than New Year’s Eve of 2030.

Actually, the plant will likely close before then, perhaps long before.

Operations of Comanche will be determined, in part, by a new filter, the social cost of carbon, as specified by new Colorado laws in the last several years.

Another element of the plan being approved by the PUC will create a performance-incentive mechanism (PIM, in the acronym-heavy soup of PUC discussions) to give Xcel financial incentives to steer the plant with decarbonization goals in mind.

The PUC commissioners are going beyond the settlement agreement submitted to them in May by Xcel and the various stakeholder groups. At the suggestion of Blank, the commissioners plan to adopt an additional review governing operations and management that is to be tripped if another major investment is needed to continue operations of the plant.

At issue is how much money will be poured into propping up what one person close to these proceedings described as a “dog.” The analogy is to a car. At what point do you just walk away from it?

“Five years down the road we may have another turbine-bearing outage, and it just isn’t worth it,” said Commissioner Gavan, alluding to the cause of the most recent outage that has had “Pueblo unit 3” off-line for most of 2022 (it’s back in operation now). It was also off-line for most of 2020.

It seemingly has been cursed with problems since it began operations in the summer of 2010. The latest evidence was the deaths of two men in a slide of coal outside the plant on June 5. Their bodies were found under about 60 feet of coal.

A sharper definition of the closing should come into view during a “Just Transition” proceeding that begins in 2024. That proceeding will consider another round of new generation, presumably renewables, likely with a preference for those that can be added to property tax rolls in Pueblo County, to compensate for the loss of property tax there as the coal plants get retired.

The Pawnee Power Plant near Brush is to be converted to natural gas, but with retirement of some components of the coal-burning operation. Photo/Allen Best

In all this, the PUC has much balancing to do. Xcel is ultimately responsible for reliability of electricity, the PUC in protecting the interests of ratepayers. At least in theory – and I believe in practice – both have an interest in reducing greenhouse gas emissions, while Xcel has the additional motivation of delivering profits to investors.

This gets into a complex area of cost-recovery. As Glustrom points out, “these are not insignificant numbers.” The Colorado Renewable Energy Society documented undepreciated assets of the Hayden coal units of somewhere around $70 million, the Pawnee plant at Brush of $170 million, Comanche 3 even more.

Glustrom has long argued that state regulators allow Xcel and its investors unreasonably large returns on their investments. The authorized rate of return is 9.3%. If the utility’s decisions are risk free, then the return on equity should be below 5%, she says. Most everybody else is inclined to be more generous to Xcel than Glustrom.

What almost certainly will come into play is a concept called securitization. It’s fundamentally a way for an investor-owned utility to shuffle its debt into lower-interest long-term bonds. This will be part of the process going forward and, once again, could alter the retirement date of Comanche 3.

This area of cost recovery, almost certainly will be controversial – and might trigger an appeal by Xcel.

Three of the many additional elements of this deserve mention.

Pre-construction development

One is the idea advanced by Blank to give Xcel some leeway to begin planning and incurring expenses for gas-fired generation, but also wind, solar, and storage – with the expectation that the company will be able to recoup costs short of actual commissioning construction of the assets. It’s called “pre-construction development assets.”

This provision reflects the concern about the uncertainties and fluidities that Blank talked about in the June 10 meeting. This gives the company some rope to move forward but only so far.

Yampa River. Photo credit: Yampa River
Integrated Water Management Plan website

Status of water

Another new element never seen before in Colorado – and perhaps no other state, either – is a provision that Xcel must report the status of its water rights associated with its retiring coal plants. Think particularly of Hayden, although Xcel has an interest in the coal plants at Craig, too. And then there is Comanche 3.

At first glance, this seems like a strange requirement. After all, Colorado state government already has a Division of Water Resources. Why does the PUC need to poke its nose into water?

That was essentially Xcel’s argument. The PUC commissioners, though, hesitated not at all in embracing this requirement

The idea had been advanced by Western Resource Advocates. WRA’s Ellen Howard Kutzer explains the expansive view here: Water is an essential component of the coal-fired steam plants built by the monopoly to create a public good, the production of electricity. As the coal plants go, the PUC should have some purview over the disposition of those assets. And Xcel has the staff that can provide the essential information in a way that is understandable to PUC staff.

True, the state water agency gets the same information. But the water world gets weirdly wonky at times. So, Xcel’s water staff can translate it for non-water-wonks. It won’t be a major imposition.

Five coal-burning units at Craig and Hayden now require water, but by 2030 those uses of Yampa River water will crease. Future uses remain unclear. 2020 photo/Allen Best

But why does this information matter?

Xcel likely has not decided, and certainly has not disclosed, what it will do at Hayden. It has talked about molten salt but has not dismissed the possibility for green hydrogen or other technologies that may – or may not – be ready for prime time. They can involve water.

The way Western Resource Advocates sees the water, it should be considered as part of the just transition process for Yampa Valley communities. The water that is kept there will most benefit the local communities.

The fear here is of water export, particularly to the Front Range. I dove deeply into this in late 2019 and early 2020 on behalf of Aspen Journalism. Geography matters entirely here. Exporting the water would require pumping it over two mountain ranges. That’s a big lift. That said, money has surfaced recently to reanimate the even bigger stretch of exporting water from Flaming Gorge Reservoir to the Front Range, so who knows.

Just how much water is involved in water for the coal plants? I forget the precise volumes, but they are not as much as you might think, but neither were they insignificant. Importantly, they have relatively high seniority.

WRA’s position, Howard Kutzer said, is that it’s not right to leave the utility to do with the water entirely what it pleases.

“They used these public resources to create a public good, so ultimately — not now, but in the future — the PUC should be able to say whether transferring those water rights is in the public interest.”

Level playing field for storage

Finally, the PUC affirmed their support for the treatment of storage proposed by Colorado Solar and Storage.

“Storage will be a critical path to getting the grid of the future that we want,” said Gilman at the June 10 meeting of the commissioners in endorsing the recommendation of the trade group.

The critical issues here are of the value assigned to storage and the role of private operators in providing that storage as opposed to company-owned storage. The limitations of storage are well known. Lithium-ion batteries currently can store reserves for about four hours. Because of that, Xcel Energy wanted to assign a lower value, but others wanted a higher value. This outcome favors higher value and hence greater incentive for private developers to propose projects.

Fred and Kay Lynn Hefley arranged to have a wind turbine erected on their farm near Walsh, in southeastern Colorado, to record the wind speeds and durations. 2021 photo/Allen Best

Other elements of this plan being approved could deserve mention. An entire story could be written through the lens of Pueblo County (and maybe I will—later).

Or through the lens of Akron, or Cope or Walsh, places on the eastern plains near which these new transmission lines will be draped, along with wind turbines. I hear diverse voices. Some resent the coming wind turbines, an intrusion into rural life to benefit city residents. Others – more commonly those who will directly benefit from lease payments – welcome the development of wind and solar resources.

This won’t solve all the problems of eastern Colorado, where mechanization has left farmers arguably more prosperous but it’s the main street of towns ever more anemic. Many, like Yuma County, had larger populations 100 years ago than they do today. Several times in recent years, I’ve had young people from eastern Colorado say to me, “I just wish Kit Carson had two or three restaurants,” or “It would be nice if Lamar was just a bit bigger.”

This won’t make that happen, but it will at least slow some of the erosion.

What’s next in this transition? So many things are up in the air. Rules are being drawn up governing the minimized use of natural gas in buildings (and boy, is that stuff tedious).

Then there will be the question of demand-side management and energy efficiency. Xcel is expected to submit its plans for that and for beneficial electrification of buildings on July 1. Expect a lot of push and pull here, as there has been over Comanche 3. The environmental community believes Xcel has vastly under-estimated what it can do in terms of reducing demand and shaping demand to better correspond with this vast fleet of renewables soon to take shape on Colorado’s High Plains.

There’s good cause for high-five’s, but there will be little time to dawdle.

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