Gassing up at the power company

Last fall, when a 272-megawatt natural gas-fired power plant in Fort Lupton was put on the market, Tri-State Generation and Transmission Association Inc. jumped on the deal.

A wholesale power supplier based in Westminster, Tri-State provides power for and is owned by 44 electric cooperatives, including the Poudre Valley Rural Electric Association. The association wasn’t necessarily shopping for new plants at the time, but the offer was “an unforeseen opportunity” to increase its natural-gas power, said Brad Nebergall, Tri-State senior vice president of energy management.

The association’s increased stake in natural-gas is part of a growing national trend fueled by cheap natural-gas prices and promising forecasts for plentiful supplies.

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The trend also is getting a push from regulators who want to limit emissions that contribute to climate change, haze and health problems such as respiratory illness.

The U.S. Energy Information Administration projects natural gas will account for 82 percent of new energy capacity in the country in 2013, way up from 42 percent this year.

Coal-burning facilities, meanwhile, are expected to slip to 10 percent of total new capacity in the U.S. in 2013, down from 18 percent in 2009, the U.S. Energy Information Administration reports.

With oil-extraction processes, namely hydraulic fracturing, raising concerns over pollution and contamination of air and water, the comparatively clean-burning profile of natural gas is reshaping electric companies’ short- and long-term plans.

On the flip side, market softening for natural gas also poses challenges for Tri-State and other utilities and state governments. Natural-gas prices this year have sunk to their lowest levels in a decade, which has meant lower revenues for Tri-State.

In late April, Wyoming Gov. Matt Mead called for an 8-percent state budget reduction to save $74.5 million because the state primarily relies on natural-gas production for its revenue. The steep drop in gas prices could cost Wyoming as much as $125 million, according to the governor’s office.

Those market fluctuations hint at the volatility for the
commodity, said Brian Moeck, the outgoing general manager of the Platte River Power Authority, which supplies electricity to Fort Collins, Loveland, Longmont and Estes Park.

So, he said, while the record supply and prices of natural gas are intriguing at the moment, the power authority isn’t about to abandon its fossil-fuel operations.

Platte River produces roughly 80 percent of its energy via the Rawhide coal-fired power plant and another coal plant near Craig. In 2009, natural gas accounted for just 0.3 percent of the company’s energy supply to the four cities it serves.

That’s not likely to change much, because power generation from coal is still roughly four times cheaper than generation from natural gas.

On the other hand, the power authority’s plans do call for building a new natural-gas power unit in the next 10 years, along with additional renewable energy supplies.

Also, Xcel Energy Inc. in the past year announced plans to close a coal plant in Boulder and convert facilities at the Cherokee power plant in Denver to run on natural gas instead of coal. The $1.3 billion conversion was $225 million cheaper than installing pollution-control equipment.

Many big coal-burning utilities have invested billions on pollution-control equipment on their largest coal-fired plants. But they are replacing or idling smaller coal plants for which such expenditures can’t be justified.

As gas supplies remain abundant and prices stay low, climate-change concerns are expected to further accelerate the gas-power boom and long-term utility plans.

And if a carbon tax or other climate-related regulations raise the costs of operating coal plants, natural gas, which releases less carbon and burns more cleanly than coal, could quickly become the preferred energy source.

“It’s the biggest game-changer on the horizon,” Tri-State’s Nebergall said of a potential carbon tax. “We’re watching it real closely.”

For now, natural gas represents about 25 percent of Tri-State’s generating capacity.

Meanwhile, gas development is having one more impact on Tri-State’s growth: In 2010, the company’s load increased 5.5 percent, three times faster than the average growth rate of U.S. electric utilities.

The spike in demand, Nebergall said, was “largely driven by industrial development in the rural communities served by electric cooperatives,” referring mainly to natural-gas exploration and drilling in the areas it serves, including northern and eastern Colorado.