State utilities prepare to meet coal-conversion

Two investor-owned utilities will be moving away from burning coal toward natural gas, under a new Colorado law passed with strong bipartisan support. And one result could be a sharp upswing in natural gas production in Northern Colorado.

House Bill 1365 was signed by Gov. Ritter in April. It calls for investor-owned Xcel Energy and Black Hills Energy to submit plans showing how they intend to reduce their coal-fired electric generation capacity by 900 megawatts or by 50 percent, whichever is smaller, by Dec. 31, 2017. The plans are due by Aug. 15 and are scheduled to be reviewed by the state’s Air Quality Control Commission by Dec. 15.

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Xcel is Colorado’s largest utility, serving most of the state including Northern Colorado through its subsidiary, Public Service Co. of Colorado. Rapid City, S.D.-based Black Hills Energy serves most of east-central and southeast Colorado.

The law doesn’t specifically mandate a coal-to-natural-gas conversion, but the Colorado Mining Association is criticizing it as a “natural gas giveaway” that will hurt the state’s coal industry and drive up electricity rates for consumers.

“The Colorado Mining Association strongly opposed this legislation, which was the product of secret negotiations between the governor’s office, Xcel Energy, the natural gas industry and anti-coal interests, among others,´ said Stuart Sanderson, CMA president.

The bill, which sailed through the legislature in just 16 days, split the normally cordial relations between the CMA and the Colorado Oil and Gas Association, which praised its passage.

“For natural gas production and use, HB 1365 is the most significant and positive piece of legislation in the state legislature in the last decade,´ said Tisha Schuller, COGA president. “This bill will help to decrease harmful emissions in Colorado communities, since natural gas burns 50 percent cleaner and would have a substantial effect on the Colorado economy with high-paying jobs and new severance tax revenue.”

Northern Colorado is one area expected to benefit economically from HB 1365. The Julesburg-Wattenburg geologic formation in Larimer and Weld counties is one of the state’s biggest sources of natural gas. Weld County, which has by far the largest number of active oil and gas wells in the state, funds about 40 percent of its budget from energy severance taxes.

Law gives flexibility

Rep. Judy Solano, D-Adams County, was one of the main sponsors of the bill. Solano said it will help the state’s investor-owned utilities meet expected strict carbon dioxide emissions standards being crafted at the federal level.

“It gives flexibility to the utilities,” Solano said. “We have these coal-fired power plants that are over 50 years old. We can replace them with coal, but that’s going to be very expensive to meet stringent federal clean air requirements. I think this gives the Public Utilities Commission and utilities and the Department of Public Health and Environment a plan on how we can deal with these looming federal mandates.”

Solano said she rejects criticism from the coal industry, which currently provides most of the fuel for electricity production in the state. “Coal is saying the sky is falling,” she said. “But the majority of what’s mined in Colorado leaves the state anyway.”

Coal-fired units could convert to “other low-emitting resources” such as solar or wind, but Solano acknowledges natural gas is the most logical choice at present.

“We have an abundance of natural gas in our state that is much cleaner-burning, and it makes financial sense when talking about building a new coal-fired plant,” she said.

Currently, it costs about one-fourth as much to produce electricity from coal as it does from natural gas. Utilities have also been reluctant to switch over to natural gas because of its price instability compared to coal.

However, new natural gas drilling techniques are opening up new areas of production, and a strong ongoing demand for natural gas by the state’s two major utilities could help lock in lower prices on long-term contracts.

But mining association president Sanderson said the new law does not insure more Colorado natural gas production. “There’s absolutely no guarantee the gas will be produced in Colorado,” he said. “All the governor has done is benefit one out-of-state industry at the expense of the resident mining industry in this state.”

Tom Henley, Xcel spokesman, said the utility’s Front Range coal-fired plants will likely soon be targeted by the EPA to clean up their emissions. He said having a plan in place could help avoid a more expensive, piecemeal approach.

“We have the opportunity to deal with this in a broader fashion,” he said.

Henley said Xcel will be specifically looking at its 505-megawatt Pawnee plant in Fort Morgan, 717-megawatt Cherokee plant in Denver and 226-megawatt Valmont plant in Boulder as it develops a plan to meet the new law’s objectives.

Henley said Xcel and Black Hills will each decide how to reduce their reliance on coal. “The bottom line is we need to determine what option will work best,” he said.

Strong governor support

Tom Plant, director of the Governor’s Energy Office, said GEO supports a switchover from coal to natural gas for electricity production.

“We believe it’s essential to clean up the emissions, and natural gas is a much-cleaner emissions source,” he said. “Natural gas is a great Colorado resource, and increasing the use of natural gas in Colorado has been a part of the New Energy Economy since the beginning. It’s always been a priority of the governor.”

Plant said HB 1365 should help bring down costs for utilities. “One of the aspects of the new law is the ability to obtain long-term contracts for natural gas,” he said.

Plant said the assertion that converting from coal to cleaner-emissions natural gas will automatically cost electricity customers more is a “red herring.”

“The rate increases in the last few years in Xcel’s territory have been primarily from coal and the cost of the construction of a huge new coal plant,” he said.

Xcel last year completed Comanche 3 near Pueblo, its first new coal-fired plant in 30 years. Xcel spokesman Henley said the Minneapolis-based utility chose to build the $1.3 billion plant in 2004 because of the cost advantage of burning coal versus natural gas.

Bill sponsor Solano said the state’s smaller, member-owned utilities were specifically excluded from the new law. “They’ve resisted in the past all efforts to do this,” she said. “If they want to be involved, they should let us know. The right decision right now is to start with the investor-owned utilities and then move on little by little.”

Solano said the writing is on the wall that change is coming, and the state needs to be proactive about what that change will look like and how it will be carried out.

“I think (the new state law) says we’re taking charge of how we do this,” she said. “If we don’t have a plan, (the federal government will) provide one for us.”