A settlement agreement proposes an earlier coal plant retirement and a way way to evaluate need for new natural gas plants. It also punts some key decisions.
by Allen Best
An agreement filed Tuesday with state regulators proposes a sharper, faster pivot by Colorado’s largest electrical utility from coal to renewables and alternative technologies.
The settlement agreement filed by Xcel Energy and other parties calls for retirement of Comanche 3, the state’s youngest and most powerful coal plant, “no later than” Jan. 1, 2031. Retirement could actually occur sooner.
As for new natural gas generation, the agreement calls for a new measuring stick: How cost-effective can the gas plant be if it operates only 25 years?
This could potentially result in Xcel Energy reducing carbon emissions from its electrical generation 88% by 2030 as compared to 2005 levels. As of 2021 Xcel’s electrical generation in Colorado was 39% carbon free.
But the proposal would also kick some major decisions down the road to 2024 and 2025. “The modeling and technologies need just a little more time to improve,” said Gwen Farnsworth, managing senior policy advisor in Colorado for Boulder-based Western Resource Advocates.
Among the items almost certain to be taken up in 2024 are questions of whether new programs and business models can be used to configure demand for electricity to better match supplies. For example, can batteries of electric cars be charged during the middle of night, when wind turbines in eastern Colorado most reliably whirl? Can peak demand be shaved more on hot summer afternoons? Such strategies and new technologies could reduce need for new generation, both fossil and renewables,
Those decisions include when exactly Comanche 3 needs to close. When the $1 billion plant opened in 2010, it was projected to operate until 2070. It has had a troubled history, a largely unreliable source of electricity with massive amounts of debt remaining. The 750-megawatt plant has been idled – again – since January, with no certain date for reopening.
Noting that lack of reliability, two of the three PUC commissioners in March indicated that they saw no good reason for the plant to remain operational beyond 2029.
Xcel last year proposed continuing operations to 2040, then agreed to a 2034 closing. This moves up the no-later-than date to the end of 2030.
“No-later-than is a key phrase, because it allows for flexibility and even improving the results of this settlement over time,” said Farnsworth. She said the accelerated retirement of Comanche 3 by just four years will save Xcel ratepayers up to $39 million.
And having Comanche off-line this year has helped save money because otherwise production from wind farms and other renewable generation would have been curtailed.
As for new natural gas, Xcel originally proposed 1,300 megawatts of “dispatchable” resources, meaning natural gas or other fossil fuels. Dispatchable resources can – at least in theory – be turned on quickly to meet demand. In practice, it’s more complicated. See Comanche 3.
How much natural gas?
Some of Xcel’s plans for natural gas remain. The coal-burning Pawnee Power Plant near Brush, about 90 miles northeast of Denver, is to be converted to natural gas no later than January 2026. Still in question is how much additional natural gas generation Xcel will acquire.
Xcel could still propose new natural gas plants to go on line in 2030, for example, but they would have to cease producing emissions by 2050.
But the settlement agreement also will result in new modeling that the Sierra Club’s Anna McDevitt says will allow battery storage coupled with renewable generation to better compete with natural gas in giving Xcel the confidence it can meet demands. Previous modeling used what the Sierra Club believes were flawed assumptions that favored natural gas.
“There is much in the settlement that will result in less likelihood of building new gas plants,” she said.
Xcel, in a presentation to investors in November 2021, estimated its Colorado division would spend $9.9 billion from 2022 through 2026, not quite two-thirds for electric distribution and transmission but almost a quarter for natural gas.
Another major component of the plan calls for Xcel to continue property tax payments to Pueblo and Pueblo County districts from 2031 through 2040, the previous retirement date.
Holy Cross Energy, the electrical cooperative serving the Vail and Aspen areas, owns 8% of Comanche 3. That translates to a potential 60 megawatts of production.
The agreement specifies that Holy Cross will be able to continue to use Xcel Energy’s transmission lines from eastern Colorado for an equal amount of electrical production, either from the resources owned by Holy Cross or from the new generating resources being brought on-line by Xcel in coming years.
Xcel’s plans for new generation, to be determined by competitive bidding, are estimated to include 2,400 megawatts of new wind, 1,600 megawatts of large-scale solar, 400 megawatts of energy storage, and nearly 1,200 megawatts of distributed solar resources.
“In a way, we are held harmless by the early retirement” of Comanche 3, said Bryan Hannegan, the chief executive of Holy Cross.
Holy Cross is currently projected to pay off its portion of the Comanche 3 debt in 2042.
Sedalia-based CORE Electric Cooperative, the state’s largest electrical cooperative, which serves Castle Rock and other suburban and exurban communities on the south flanks of metropolitan Denver, owns 25% of Comanche 3.
Hannegan and many others credited Xcel with a major achievement in getting a diverse set of parties – Denver, Pueblo and other cities, as well as labor and business groups, environmental organizations, and still others – to come to a compromise.
Release of the agreement was accompanied by press releases from many organizations with a chorus of hosannahs.
“This agreement is a significant step toward meeting Colorado’s climate goals,” said Will Toor, chief executive of the Colorado Energy Office. “We’re so proud to lead the charge on reducing carbon emissions in Colorado,” said Alice Jackson, president of Xcel’s Colorado division. The Natural Resources Defense Council’s Noah Long also saluted a future of “savings for Xcel Energy customers and cleaner skies for Colorado.”
Farnsworth, of Western Resource Advocates, offered similar praise, but also pointed to a strong motivation: “I think the parties all made it possible because there’s a common understanding of the urgency of addressing climate change and also the urgency of moving this resource planning process forward in time to benefit from the federal tax credits for wind and solar.”
That, she added, made everybody want to reach compromise and avoid litigation.
The key word used by many was “flexible.”
Forward movement, but…
Not all were equally enthused. “Any date for shutting Pueblo unit 3 that isn’t 2022 is the wrong date,” said Leslie Glustrom of Boulder-based Clean Energy Action, referring to Comanche 3. “The climate crisis now is clear to everyone.”
The Colorado Renewable Energy Society policy committee members were miffed that the social cost of methane was not used in the agreement as they had advocated.
“A big move forward, but there are pieces missing,” said the group’s Laurent Meillon. He charged that the plan still favors Xcel building generating facilities – that it can then use to justify higher rates to customers than necessary.
“Xcel is orienting itself toward the construction of unnecessary gas plants, thus maximizing its investments and profits, right before it becomes entirely too obvious that only renewables and efficiencies are worthy of more investments. A repeat of its profitable coal mistakes, despite the current early coal closures with decades left to amortize those stranded assets,” he wrote in an e-mail.
CRES members, Glustrom and others say that Xcel must more aggressively pursue strategies that shave peak demands. Others involved in the agreement said they believe that those programs will become a central component of discussions in the middle of this decade. Xcel is beginning an update this summer of the thinking behind its programs.
All in all, how might this settlement be seen in a broader context – say, the United States? Farnsworth offers what must be considered a hometown view but one worth considering.
“Colorado might be on a smaller scale than some other states, but Xcel and this settlement are really on the leading edge.”
This story was corrected to reflect that Bouider was not a signatory to the settlement agreement.
Top photo: Pawnee, a coal-burning plant near Brush, in northeastern Colorado, would be converted to natural gas no later than 2026, according to a proposal submitted to state regulators yesterday. It’s located a mile from where this writer and photographer emerged into the world. Photo/Allen Best
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