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King Coal, politics and the new energy economy

Allen Best //September 1, 2010//

King Coal, politics and the new energy economy

Allen Best //September 1, 2010//


Comanche 3 began generating electricity July 6 on the prairie just outside Pueblo. “The monster has risen,” read a sign deep within the bowels of the power plant, Colorado’s largest, when I visited in August.

The project employed as many as 2,400 workers, including pipe fitters and boilermakers from across the country who came to learn and perfect innovative welding and other construction techniques as needed by one of the most advanced coal plants anywhere.

But many have said it will be Colorado’s last coal plant. Does it also represent a colossal failure of foresight – not just by Xcel Energy, the developer and primary owner, but also by environmental groups and community groups who struck a landmark deal in 2004 with the utility?

“Absolutely not,” says Frank Prager, Xcel’s vice president of environmental policy. “This is a great project – great for Xcel, great for our customers and great for the people of Colorado. And because of the settlement agreement, it’s great for the environment.”

Prager further argues that the low cost of Comanche 3 power enabled Xcel to expand its investment into wind and solar generation, ultimately reducing its emissions of greenhouse gases. Too, Comanche 3 will allow Xcel to close older, less efficient and more polluting coal plants near Grand Junction and in Denver and Boulder.

Del Worley, chief executive of Holy Cross Energy, one of Comanche 3’s owners, contends that the plant will always make financial sense “unless you get some really wild and crazy emissions costs or carbon tax, whatever you want to call it. And I just don’t think the economy would take that sort of jolt.”

Environmental groups – at least most of them – reject insinuations that they caved in prematurely. “You have to deal with political reality, not theory,” says Howard Geller, executive director of the Southwest Energy Efficiency Project, one of the signatories.

“We took a big step forward with Xcel at that time,” he adds. “These aren’t fights you win in one day. Shifting from total fossil-fuel dependency and very high coal dependence to much lower coal dependence and greater reliance on renewables is a multi-year and multi-step process.”

But if changes can be incremental, they can also be seismic – as the bust-up of the telephone monopolies were in the 1980s. Seen in that light, our existing power production – of which Comanche 3 is a shining example – just might be a dinosaur even now, with 60 years of remaining life expectancy.

But such dinosaurs aren’t finished stomping the Earth, not by a long shot. The Associated Press reported in August that more than 30 coal plants have been built since 2008 or are under construction across the country. The AP based its report on records from the U.S. Department of Energy and information from utilities and trade groups.

Environmentalists counter that 100 plants have been scrapped or delayed due to tighter regulations on emission limits for acid rain pollutants, the AP reported. Utilities like Xcel and Tri-state have also experienced a slump in demand for power from consumers during the recession.

Towering giant

Physically, the plant is a monster. A 500-foot-tall smokestack looms over cooling towers and a pit broad enough to hold 30 years of accumulated ashes. Railroad tracks bring mile-long coal trains from Wyoming’s Powder River Basin. Each train’s 125 hopper cars carry 120 tons. One or two trains arrive daily to feed the fires in the bellies of Comanche 3 and its two companion units, Comanche 1 and 2.

The two predecessor units were built in 1972 and 1975, when pollution controls were more lax. As part of the 2004 settlement allowing Comanche 3 construction, Xcel outfitted the older plants to remove 50 percent to 60 percent of nitrogen oxides, 85 percent of sulfur dioxide, and reduce emissions of particulates. All three have been proven harmful to human health with prolonged exposure.

Comanche 3 gets these advancements and more. New mercury-reduction technology will, if successful, be applied to the existing plants. The supercritical boilers achieve higher steam pressures to drive generators, creating 5 percent to 6 percent more electricity per ton of burned coal than the older units. Cooling units that operate much like a car’s radiator allow steam to be re-condensed by air flow when ambient temperatures drop below 50 percent. That halves the water needed annually at the plant.
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Altogether, power production has more than doubled while total air pollutants – except for carbon dioxide – have been reduced. All this comes at a cost, $1.3 billion altogether among the three units. A nuclear power plant would have taken much longer to build and at much higher cost, perhaps $7 billion to $8 billion.

Electrical output at this new plant – 750 megawatts after meeting in-plant needs – will serve a city of 750,000 people but ends up in many places. Xcel, Colorado’s largest electrical provider, owns two-thirds of production, and Intermountain Rural Electric Association a quarter. Of IREA’s 138,000 customers, two-thirds live in Castle Rock, Parker and other south metro suburbs.

“We wanted a stable, long-term, low-cost source of power,” says John Pope, IREA’s assistant general manager.

Holy Cross Energy owns the remaining 8 percent of Comanche 3, supplying Vail and most of Aspen westward to beyond Rifle.

Global warming activists in mountain towns have heartburn about the new plant. Auden Schendler, the Aspen Skiing Co.’s executive director of community and environmental responsibility, says Holy Cross’ investment in the plant reverses gains the utility made to reduce its carbon footprint, directly affecting Aspen Skiing’s footprint. “Comanche 3 will essentially increase our carbon intensity,” Schendler says. “It will move us in the wrong direction.”

20th century abundance

Nobody disputes the great utility of cheap, abundant electricity. Central to this abundance has been coal, which accounts for 51 percent of Xcel’s power supply mix. The plants were small at first, but after World War II they became ever-larger, controlled largely by monopolies responding to growing demand. In places, however, other types of electrical production were bumped aside. Aspen had used a small hydroelectric plant since 1892, but in 1958 abandoned it – because coal power was slightly cheaper and less of a headache.

Similar to national trends, the last coal plant in Colorado went online in 1984, and then was followed by smaller plants burning natural gas. Within Xcel’s portfolio, gas grew from 6 percent to 48 percent in just nine years. More expensive than coal, natural gas can ramp up more rapidly for peak demands, such as air conditioners. Gas prices, however, have always been volatile, in recent years swinging wildly between $2 and $13.50 per million Btu of heating value. Doubts also grew about long-term supplies.

By 2004, utilities were galloping toward another round of coal plants in Colorado and across the West. Driving demand were population growth and greater per-capita use. Xcel forecast the need for 2,000 more megawatts over its Colorado capacity of 7,200.

Environmental groups believed they could pester the utilities, slowing but not blocking construction. Utilities had laws, regulations and political help on their side. Bill Owens was governor and his appointees to the Colorado Public Utilities Commission, the body that regulates Xcel and other investor-owned utilities, reflected his sensibilities.

“The debate at the (PUC) then wasn’t whether to build a coal plant,” says John Nielsen, energy program director of Western Resource Advocates, a Boulder-based group. “It was about how many coal plants would be built, and who would own these plants, and what kind of technology they would use.”

PUC’s governing of Xcel has traditionally been driven by low costs and reliable service, with lesser consideration given to environmental impacts. Entirely new to utility governance were concerns about emissions of carbon dioxide, a byproduct of coal combustion and a key greenhouse gas for which no removal technology has been proven at an acceptable price or on a large scale.

And finally, Xcel in the early 21st century was in many ways the same utility it had been in the 1960s, when it was busy building new coal plants. It had begun investments in alternative energy but in 2004 spent huge amounts of money to oppose Amendment 37, the renewable energy mandate. Company representatives later said Xcel’s opposition was founded in concerns about poorly written provisions.

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In a hurry to get approvals for Comanche 3, Xcel in 2004 convened discussions with several environmental and Pueblo community groups. A settlement emerged six months later. It allowed Xcel to order concrete, steel and other materials before worldwide prices spurted in 2005-2007. It also gained primary ownership of an expensive power plant, crucial in maximizing profits for shareholders.

Xcel’s makeover

But environmentalists and Pueblo groups also won concessions they believed fundamentally altered Xcel.

“I believe they’re telling the truth when they say it changed the company,” says Ross Vincent, a retired chemical engineer, who represented Better Pueblo in the negotiations. “It hasn’t made them an auxiliary of the Sierra Club, but it has made them much more environmentally conscious. And they have done some pretty impressive things since then. It’s not perfect, but it’s better.”

Of most immediate and local benefit, Xcel agreed to install modern pollution control equipment on the two older plants at Comanche. Computer models predict reduced haze at the Great Sand Dunes. Scrubbers and other improved controls probably would have been installed anyway, owing to stricter federal regulations, but possibly not until about 2017. With the super-critical boiler technology, they also got greater efficiency – meaning more electricity per ton of coal burned, and hence less pollution.

Xcel also agreed to expand efforts to develop renewable energy. “Our view was that you could integrate larger amounts and at lower cost,” says Nielsen of Western Resource Advocates. He believes that view has been vindicated. From 2 percent renewables in 1999, Xcel’s portfolio will have grown to 30 percent by 2020.

Another provision required Xcel to spend $196 million over the next eight years to ramp up its demand-side management programs, or DSM. Before, the company had set weak goals to reduce peak demand, the church-for-Easter-Sunday syndrome, but had done almost nothing to encourage deeper and broader efficiencies.

Most daring, the settlement agreement called for Xcel to begin assuming future imposition of federal carbon taxes. Aside from PacificCorp, later purchased by Warren Buffett, very few utilities were then doing so. It tilts the playing field, making natural gas – with 58 percent fewer carbon dioxide emissions than coal, and solar and wind, with none – more competitive with coal in planning for future needs.

Xcel delivered the settlement to the PUC, allowing no room for cherry picking of parts. Two consented with reservations, but the third, then-PUC Chairman Gregory E. Sopkin, objected vehemently. He was particularly incensed by the assumption of a future carbon tax.

“The totality of evidence suggesting the inevitability of such a tax amounts to grim-faced witnesses declaring, to paraphrase, ‘It’s going to happen – you’ll see,'” Sopkin said. The only competent evidence, he added, was that Congress had not yet adopted such a tax.

Six years later, Congress still hasn’t levied a tax on carbon, either directly or through a cap-and-trade edict. However, classification of carbon dioxide as a pollutant to be regulated under the Clean Air Act may achieve the same effect. The Aspen Skiing Co. filed a brief in that court case.

Comanche 3 gave Xcel Energy the platform for pivoting more securely in its energy resources, shutting down coal plants while ramping up wind, now 1,200 megawatts of Xcel’s portfolio in Colorado.

Xcel has also exceeded the settlement’s requirements for demand-side management, spending $60 million this year alone. In effect, Xcel’s business model has been changing. It’s no longer purely selling widgets, i.e. electrons. It’s selling electrical services.

Looking at the future

Both utility executives and environmental leaders say Comanche 3 will likely be Colorado’s last coal plant – unless cost-effective carbon capture and sequestration technology with acceptable environmental risks gets developed. There are few signs of hope, although a task force this summer has been creating possible legislation to govern geological sequestration. Tri-State Generation and Transmission, the second largest power supplier in Colorado, hasn’t ruled out the possibility of a new coal plant in the Arkansas River Valley, where it has acquired both water and land.

The better question may be whether Comanche 3 will get retired early, well in advance of the normal 50 to 60 years. Vacliv Smil, a professor at the University of Manitoba and prominent energy analyst, scoffs at suggestions of a rapid transition from coal. But environmental leaders think it’s possible.

“I would bet any amount of money that this is Colorado’s last coal plant,” says Geller, of the Southwestern Energy Efficiency Project. “Whether it operates 10 years or 20 years or 50 years remains to be seen. There’s a good chance that it won’t operate 50 years.” He adds: “Sooner or later we will adopt laws that require deep reductions in greenhouse gas emissions by mid-century.”

Leslie Glustrom, a biochemist from Boulder with a growing number of followers, calls Comanche 3 a “billion-dollar mistake.” She argues for abandonment of the plant even now, because of the rising cost of coal. On the face of it, that argument seems absurd. But a paper issued earlier this year by two engineering professors, Tadeusz W. Patzek and Gregory D. Croft, supports her contention, at least globally. They predict a 50 percent decline in global coal consumption in the next 40 years.

Glustrom and others also argue a more fundamental business case. They contend that existing state regulations give Xcel every financial reason to retain control of production, effectively discouraging innovation.

Sharing this view is Susan L. Perkins, a former oil and gas attorney in Greenwood Village who now specializes in renewable energy. “Is Xcel doing a good job within its paradigm? Well, it may be. But it’s within its paradigm.” That paradigm is of monopolistic control. Xcel controls both energy production and sales. That, she says, slows technological innovation.

The parallel to Xcel’s energy production, she says, were the Bell monopolies. Until the federal government broke up the telephone monopolies, consumers had few choices, technological innovation occurred at a snail’s pace, and the Bells exerted great control – even owning the old-fashioned rotary telephones found in houses. After the breakup came incentives to innovate. We now have improved services and at lower costs.

That’s the argument of future years, first being tested in Boulder, where the City Council has been talking about breaking free from Xcel in order to accelerate the pace of change.

Lingering lessons

For Vickie Patton, general counsel for the Environmental Defense Fund, the key lesson drawn from the six years since Comanche 3 was authorized is that leaders matter, in both business and in government.

“The choices that the public makes in our political leadership and the leaders of our private businesses – they matter immensely,” she says. “And leaders like Gov. Bill Ritter and (Xcel chief executive) Dick Kelly, who inherited a decision that they did not make (Comanche 3) and pivoted that decision in a very strategic way to a clean energy economy and a future for Colorado, means that Comanche 3 will in fact be Colorado’s last coal plant.”

Geller, from the Southwestern Energy Efficiency Project, similarly contends that politics matter – because they yield laws and regulations that frame energy choices. “The political dynamic in 2004 was 180 degrees different than it is today. Elections do matter,” he says. “Moralistic concerns and arguments, while certainly well-founded, don’t really matter in the real world. What matters are the laws and regulations in place.”

He does see real progress. “The enemy is not an individual coal plant,” he says. “It’s greenhouse gas emissions. That is what is warming the planet. And, in fact, we have made good strides to where Xcel is cutting in absolute terms its greenhouse gas emissions.

“How many utilities can you name that have said, ‘Yes, we can cut greenhouse gas emissions’?” Geller says. “Let’s keep our eyes on the prize, the total greenhouse gas emissions.”

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