A settlement, still many questions about Xcel's giant pivot in Colorado

by Allen Best

Shortly after she began testifying before the Colorado Public Utilities Commission on Dec. 8, Alice Jackson, who oversees Xcel Energy’s operations in Colorado, reported that Comanche 3 had recently been down for two weeks.

Some watching the video teleconference thought the admission telling. The 750-megawatt coal plant, the youngest in Colorado, has delivered electricity at relatively low cost when in operation. It’s been down a lot, however, including most of 2020.

Just when Comanche 3 will go down for good is among several central questions that the three members of the PUC must decide. The hearings are scheduled to continue through Dec. 17.

Two weeks before the hearings began on Dec. 8, Xcel Energy and 14 other parties filed a settlement agreement reflecting key compromises. The parties included the Polis administration, a state agency charged with looking after consumer interests, the state’s solar industry group, and the cities of Boulder, Denver and Pueblo, among others.

The non-unanimous partial-settlement agreement, described by Jackson as a “landmark,” had been achieved after about 12 days of negotiations conducted in video-conference and voluminous arguments and discussions in filings at the PUC. Jackson in her early December testimony noted that the filings then approached 28,600 pages. They have grown since

Central to the compromise was the accelerated retirement of Comanche 3, Colorado’s newest coal plant and quite likely to be the last one to close, depending upon what the three PUC commissioners decide, likely in February.

Like most other utilities, Xcel has been retreating from coal in the last decade. One, Cherokee, near downtown Denver, was converted to burn natural gas several years ago. Another unit, Comanche 1, will be retired in 2023, followed by other units in Pueblo and Hayden in 2025, 2027, and 2028. Xcel also has a financial interest in units at Craig, which are all to be retired by 2030.

When Comanche 3 operations began in 2010, they were scheduled for a 60-year run. Xcel announced in March that instead of 2070, it wanted Comanche to run until 2040. The settlement agreement calls for the plant to shutter in December 2034—and start ramping down long before.

The 30-page settlement has many other provisions. Pawnee, the coal plant at Brush, is to be converted to burn natural gas beginning in 2026, instead of 2028, as Xcel had earlier proposed.

The Pawnee plant near Brush would be converted to burn natural gas, and not coal, by late 2025, according to the settlement agreement. Photo/Allen Best

The idea of Just Transition – one of many elements in the settlement and in Xcel’s proposal that reflects legislation adopted in Colorado during the last three years – shows up prominently.

Xcel is to continue to make tax payments to Pueblo and Pueblo County until 2040, unless new generation is built to offset the property tax base lost to those jurisdictions. Xcel agreed to a $2 million study on alternative technologies that might be in Pueblo and fill that future void.

Garrison Ortiz, the chairman of the Pueblo Board of County Commissioners, said that the $2 million study to “analyze and determine if there is a place within our community to locate zero emission generation makes the words of ‘Just Transition’ meaningful to Pueblo County as opposed to an empty slogan.”

The county has shown interest in next-generation nuclear—as did PUC Commissioner John Gavan in his questions directly to Xcel executives. Commissioner Megan Gilman asked questions about the potential for replacement of green hydrogen in Xcel systems and the possibility for pumped-hydro storage.

Jackson fielded these and many other questions with the response that Xcel is studying the potential, but the technologies and other considerations may take time to resolve.

Also in the settlement are provisions reflecting concerns about impacts to disproportionately impacted communities, another element of Just Transition. Plus, Holy Cross Energy – the electrical provider for the Vail and Aspen areas – and Denver and Boulder both have their fingerprints on the agreement reflecting their interests.

Mike Kruger, executive director of Colorado Solar and Storage Association, one of the groups that is party to the settlement agreement, calls the agreement and the larger volume of filings at the PUC “the energy transition in paper form. It’s messy. It’s complicated. It has a lot of stakeholders. That all comes through in this filing.”

What nobody disputes is that this electric resource plan represents a giant pivot for Xcel, Colorado’s largest electrical utility. Xcel directly sells more than 52% of electricity consumed in Colorado and also delivers power distributed by several Western Slope electrical cooperatives and some municipal providers.

Xcel has reduced carbon emissions 46% compared to 2004 levels by using its coal plants less and ramping up production from wind and now solar projects. This plan will put Xcel north of 80%, by some modeling achieving an 85% to 87% reduction. That’s well over the 80% threshold required for 2030 by state law.

To compensate for this loss of coal plants and to get ready for increasing volumes of electricity needed for transportation and to replace natural gas in buildings, Xcel had proposed 2.2 gigawatts of wind and 1.6 megawatts of solar plus storage.

Jackson, in her filed testimony, called it the biggest change in the 150-year history of the Public Service Co. of Colorado, Xcel’s division in Colorado.

Dissent

If the settlement agreement reflects key consensus, support for the settlement being reviewed by the PUC is far from unanimous. Environmental groups declined to join. They argue that Xcel might actually be able to retire Comanche 3 earlier than 2034.

“During the last 15 years, the costs of clean energy choices have shifted dramatically compared with fossil fueled generation, and our understanding of the devastating impacts of climate change has also advanced significantly—including through our direct experience of shorter winters, less snowpack, extended droughts, and more numerous and destructive wildfires each year,” wrote Gwendolyn Farnsworth of Western Resource Advocates in a Dec. 7 filing. “The Commission must retain its authority to retire Comanche 3 even sooner than 2035 in a future proceeding, to protect customers and the climate.”

Others have raised different issues. A prominent line of questioning of Xcel executives was from Mark Detzsky, an attorney representing the Colorado Independent Energy Association, one of the industry groups unhappy with Xcel’s plans. His questions suggested that Xcel will feather its nest by building new generating capacity to add to its assets when wind farms built by others can be done so by third parties more effectively.

Will Coyne, director of the independent power producers, was more blunt in a Dec. 6 filing with the PUC. He accused Xcel of “overreaching” and of using “hardball tactics” in negotiations that produced the settlement agreement.

That agreement, said Coyne, “takes a generational opportunity with the laudable goals of decarbonizing the electric sector by expanding Colorado’s renewable generation and retiring aging coal plants —and guarantees that the transition will be considerably more expensive for ratepayers than it could otherwise be.”

A natural gas plant located along Interstate 70 east of Denver. Photo/Allen Best

To be an example of decarbonization to the rest of the country, he added, the agreement needed to be modified to remove Xcel’s edge in developing new wind projects. Further, he added, the “agreement results in a $626 million utility ownership blank check” to Xcel.

Natural gas and also securitization

Also in question is how much natural gas generation Xcel will put on line to replace the lost coal generation. One company witness testified that it’s unlikely that Xcel will actually build new natural gas plants.

Many questions had to do with the social cost of methane, a new metric adopted by Colorado legislators in 2021, likely a first in the United States, in evaluating what generation is built and, in some cases, what type of generation is used. In addition, Xcel Energy has agreed to use the social cost of carbon for an 18-month period beginning next summer in determining when Comanche 3 gets operated and at what level.

Jack Ihle, the company’s director of regulatory and strategic analysis, said Xcel aims to get fugitive emissions down to 0.25%, a four-fold reduction from current estimated levels. The company is also moving toward tighter protocols in a program called responsibly sourced gas.

The most interesting questions, however, may have come from Eric Blank, the chairman of the PUC. He probed whether Xcel Energy could pay off the cost of Comanche 3 sooner rather than later. He said he was concerned about bequeathing debt owned onto a stranded asset to a future generation of Xcel customers.

Xcel’s witness Brooke Trammell pushed back at the suggestion in her response in a discussion that went deep into the weeds of financing, cost of capital, and a financial leveraging device called securitization. Securitization, used elsewhere, was authorized by state legislators in 2019 as a way to expedite the retirement of coal plants.

Blank, incidentally, was formerly a developer first of wind and then solar projects —including a solar farm located adjacent to the Comanche Generating Station.

Gavan also asked questions about the potential to use the tool of securitization to greater effect. “My intent is to telegraph that interest.”

The Colorado Renewable Energy Society had questions designed to probe why Xcel can’t use programs designed to suppress demand and improve efficiency that could reduce the need for costly new generation. Xcel representatives defended previous efforts but ultimately suggested this is more properly taken up in a different proceeding, now that is before the PUC.

Holy Cross Energy

Notable among the signatories to the settlement agreement was Holy Cross Energy, which owns 8% of the Comanche 3 plant, and the cities of Boulder and Denver. Despite its ownership stake, Holy Cross has a formal goal of being carbon-free by 2035. Boulder has a similar goal.

Holy Cross will be able to piggyback onto Xcel’s decarbonizing efforts. Specifically, Holy Cross will have the option of substituting renewable energy capacity for the fossil energy capacity lost as Comanche 3 ramps down and is retired. “That makes us whole for the loss that we would suffer because of the early retirement of plant,” said Bryan Hannegan, chief executive of Holy Cross. “That’s very important.”

At the same time, Hannegan says there will continue to be the need for backup fossil fuel generation, such as for periods as occurred last February, when days were snowy, sometimes cloudy, and the wind blew very little. Pawnee, in being converted to natural gas, he describes as having more of a backup role.

As for paying down the debt on Comanche 3, Hannegan says that Holy Cross had already accelerated payments on the debt for its 8% share of Comanche 3, with debt retirement currently scheduled to expire in 2042. That’s the same year that the Holy Cross contract for power from Xcel Energy expires. It’s possible Holy Cross will further accelerate payments, he says.

Core, the Sedalia-based electrical cooperative formerly known as Intermountain Electrical Cooperative, opposed the settlement agreement.

Boulder’s participation

Boulder has been prominent in the discussions. Boulder residents were amply evident in a public listening session on Dec. 2, and their opinions were notable in letters filed with the PUC. “PUC should hold Xcel to the most aggressive possible timeframe for transition away from fossil fuels,” wrote Jacques A. Juilland of Habilis DesignBuild in Boulder. “2030 should be the expected transition date.”

The municipality, was a party to the settlement agreement. That agreement commits Xcel to working with Boulder to develop a program design for a “Zero Emissions Community Portfolio Program.” If agreement is reached on design of that program, Xcel will present it to the PUC no later than June 2022.

In the Dec. 2 listening session, prominent Xcel watchdog Leslie Glustrom criticized Boulder representatives for signing the settlement agreement without first consulting the city council or at least municipal committees charged with climate action work.

In a statement, Jonathan Koehn, the city’s interim climate initiatives director, defended the agreement as one that “largely met the city’s objectives, namely guaranteeing the closure of Comanche 3 no later than 2035. It sets a firm line in the sand.”

The agreement also “leaves the door open for an even earlier retirement and preserves the city’s right to advocate in the future for more reductions in greenhouse gas emissions,” he added.

“While not explicit in the settlement, there are a number of components that, taken together, are expected to minimize the need to acquire new natural gas assets and to go above and beyond the emissions reductions that Xcel is projecting. Examples of this include additional scenarios that would be presented to the commission; the commitment to work with Boulder on a program to close ours, as well as other communities’, emissions gaps; and the addition of using the social cost of carbon in dispatching strategies.”

In a nod to the criticism by Glustrom, Koehn said the city is “committed to sharing with the community as much as it can throughout this process, within the rules of often confidential settlement discussions.”

Xcel’s Ihle, in a November filing, before the settlement agreement, had signaled an interest by the company in figuring out a way for Boulder customers to achieve faster, deeper reduction—at a cost.

“I do note that Boulder’s request here represents something that the Company and the Commission should continue to consider – certain communities and customers would like to go farther and faster on emissions reductions than even our ambitious Preferred Plan would take the system,” he wrote of Xcel’s original plan, which included a later retirement of Comanche 3 and a later conversion of Pawnee to natural gas.

The next step in 2022, called Phase II, where Xcel will solicit bids for projects after the PUC has made its decision, he called a “potentially viable pathway to connect such customers and communities to attractive resource bids while creating more investment opportunity for clean generation and storage in Colorado.”

These additions, he went on to say, would be at the added cost to the customers who want them, not to (Xcel’s) general body of customers.”

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