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Utility commissioners to launch investigatory docket about future of Comanche 3

by Allen Best

When Comanche 3 began producing electricity in 2010, the coal-burning unit at Pueblo, Colo., was projected to continue operations to 2070.

Now, it’s an open question whether it will continue operations beyond 2030.

The Colorado Public Utilities Commission on May 13 decided to launch an investigatory docket about Comanche 3, Colorado’s largest coal plant. The investigation, said PUC Chairman Jeff Ackermann, should include modifications of the unit and “even retiring options. I think that’s putting it all on the table.”

Ackermann pointed to a presentation to the PUC commissioners earlier in the week by other state officials that identified further coal plant closures, beyond those already announced, as almost essential for Colorado to reduce its economy-wide emissions 50%, the target identified for 2030 in a state law adopted last year. That law, HB19-1261, or the Climate Action Plan to Reduce Pollution, also identified an 80% reduction on carbon emissions by 2030 by electrical utilities relative to 2005 levels.

The PUC commissioners will have a full discussion about the scope and purpose of the investigation, likely in June, said Terry Bote, spokesman for the PUC.

Comanche 3, completed at a cost of $1 billion, remains one of the newest and likely last coal plants in the United States to be built. It has 766 megawatts of generating capacity, compared to a combined 660 megawatts by the two adjoining Comanche units, 1 and 2, which were completed in 1973 and 1975. Those two older units are scheduled to close in 2022 and 2025.

The story begins even before the Colorado PUC formally approved the plant in January 2005. In planning construction, Xcel chose to use a state-of-the-art design that included use of alloys in a component of Comanche 3 called the finishing superheater. Problems appeared within a year of operations. Because of multiple leaks, the original components were replaced by stainless steel tubesin 2015. There had been 15 outages of the plant because of the leaks plus a 79-day outage while the new superheater was installed.

The Sierra Club persuaded two of the three PUC commissioners in December to disallow $11.7 million spent by Xcel to fix the problem from the rate base. The rate base is the value of property on which a public utility is permitted to earn a specified rate of return.

In March, Xcel asked for the PUC to reconsider this and other elements of its decision, all in the interest of allowing Xcel to earn more money. The PUC had authorized a return on equity, or REO, of 9.3%. This rate, said Xcel, significantly lagged the 9.63% that was the national average authorized REO for vertically integrated utilities such as Xcel. In Colorado, Xcel formally operates under the name Public Service Co. and delivers more than 60% of electricity consumed in Colorado.

“As established in the record and acknowledged by commissioners in deliberations, Public Service is a high performer in the electric utility industry—not only in the State of Colorado, but as compared to its peers at a national level—from rates to reliability to implementation of environmental objectives,” Xcel said in its March 2 application to the PUC for a reconsideration of its decision about rates.

“Our customers enjoy bills well below the national average and a high level of reliability, and Public Service under the Xcel Energy umbrella is leading the clean energy transition not just here in Colorado but nationally.”

But, added the filing, the commissioners made repeated decisions “that deviated from the record, well-established principles of law, and sound policy.” Xcel pointed to 9 discrete issues, including the Comanche filing. Ackermann pointedly denied Xcel’s accusations.

The view from the top of Comanche 3 and its smokestack in 2010, shortly after operations began. Photo/Allen Best

Both Ackermann  and John Gavan credited Xcel’s performance. Gavan called the company a “leader in the ESG (environmental, social and governance) space.” But Gavan also pointed to Xcel’s stock and individual performance, which he described as “stellar over the last decade.”

Ackermann was similarly complimentary. “I don’t want anything to be said today or throughout the long proceeding to be interpreted as lack of recognition or affirmation of Public Service company’s leadership in clean energy.”

But he later offered a mild rebuke of Xcel. In reducing emissions, he added, Public Service is merely complying with the law. “Public Service Co. seems to be advocating that compliance with the law should be the basis for an increased REO. And I don’t think that argument makes sense.”

Later in the discussion, Comanche 3 came up. The coal plant has “too many operational problems,” said Gavan, and then cited “turbine blade erosion and other issues.”

“I remain very concerned about the ongoing performance and operational problems with Comanche 3,” he said. “I would like to open an investigatory docket to better understand the depth of this issue and the rate impacts these ongoing problems have imposed on ratepayers.”

Ackermann agreed while pointing to a subtle distinction. Malfunction might be the wrong way to describe the problems. “Like debating the quality of the meal in a restaurant when the real issue is how well the kitchen is being run.” He said the commissioners need to identify 4 or 5 discrete ideas about how to frame the Comanche 3 investigation.

The timing of this investigation will coincide with the planning by Xcel of how it intends to move forward in coming years. That electric resource plan is due to be submitted to the PUC in spring 2021.

Megan Gilman, the third PUC commissioner, did not participate or vote in the weekly meeting discussion. She was appointed to the commission in mid-March, long after the PUC’s deliberations about the rate increases for Xcel. A possible complicating factor is her prior position as chair of the board of directors for Holy Cross Energy, a minority owner in Comanche.

“I think it makes a lot of sense, particularly in light of the statewide carbon-reduction goals, and I think Ackermann was right to connect the dots,” said Matthew Gerhart, staff attorney for the Sierra Club Environmental Law Program in Denver.

Not only does Comanche 3 have a history of problems, he added, but it is also the single largest emitter of carbon dioxide in Colorado.

To close Comanche 3 relatively soon would also leave Xcel and its minority owners with a giant debt still mostly undepreciated.  One possible solution would be to tap securitization, a tool authorized by SB19-263. A utility can issue bonds in the amount of the remaining investment for rates that are far lower than normal, accelerating payment.

Public Service of New Mexico will use securitization for the early retirement of the San Juan Generating Station near Farmington. (See April 9 issue of Big Pivots, “New Mexico to use new financial tool to retire coal plant. Will Colorado also?”) See also Oct. 2, 2018, story, “How refinancing could help retire Colorado coal plants sooner.”)

Securitization has more value to Xcel and other investor-owned utilities than for assets owned by Tri-State and its members, who have different financing structures.

Xcel operates Comanche and owns two-thirds of the production. Sedalia-based Intermountain Rural Electric Association, a cooperative with a crescent-shaped service territory around the south side of the Denver metropolitan area, owns roughly a quarter. Holy Cross, also a cooperative,  serves the Vail, Aspen, and Rifle areas and  has an 8% ownership. It sells its share of the production from Comanche to Guzman Energy.

Given the opportunity to comment, none of the three owners of Comanche 3 chose to do so. Holy Cross said it would be premature to comment absent formal notice from the PUC.

Xcel partially or wholly owns eight different coal units at four generating stations in Colorado, with a total of 2,000 megawatts of capacity. It plans to close the two original Comanche units at Pueblo, which together have 660 megawatts of generating capacity, in 2022 and 2025. It has not disclosed its plans for its ownership stake in Hayden 1 and Hayden 2, near Steamboat Springs, nor for Pawnee, near Brush. It owns 100% of the latter. Those plants were originally scheduled to be retired between 2030 and 2041.

A 2019 study by Strategen Consulting for the Sierra Club found that Comanche 3, if allowed to operate through 2050, would cost nearly $1.8 billion to operate.

In a 2009 report, “Colorado’s Billion Dollar Mistake,” Leslie Glustrom, of Clean Energy Action, had already reached the same conclusion. “We can choose to do nothing and allow what is a now a $1 billion dollar mistake to become a $2 billion or more mistake,” she said. Better, she advised, would be to close the coal plant even before it opened and instead invest in carbon-free infrastructure.

Of course, Xcel and other utilities were not then nearly as comfortable integrating wind and solar resources in ways to ensure reliability as they have become. Xcel in 2018 adopted a goal of 80% carbon-free energy by 2030 and emissions-free energy by 2050.

Alice Jackson, president of Xcel’s Colorado subsidiary, said at a forum in late April that the company is looking into both modular nuclear units and carbon capture and sequestration as ways to get from 80% to 100% emissions-free energy.

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