As coal plants close, water rights may be available

Coal-fired power plant closings set to begin next year and continue through the decade mean water rights related to their operation and worth millions of dollars could come to market.

Or not.

“With plant closures, it’s not known if [energy companies] are sellers,” said Brett Bovee, a Fort Collins-based regional director for water management consultancy WestWater Research LLC in Boise. 

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The issue flows from closures planned by at least three providers of power to Northern Colorado: Platte River Power Authority in Fort Collins; Tri-State Generation & Transmission Association in Westminster; and Xcel Energy Inc. [Nasdaq: XEL] in Minneapolis. The three are involved in 10 plants, set to shutter starting in 2022.

The three are developing solar generation sites, for instance, and these, along with windmills, “do not require large amounts of water,” Bovee said, but natural gas generation or “micro-nuclear” power plants do. Further, new efforts toward future energy production by the three could focus as much on easing the economic effects of closing-down coal, whatever happens to the rights themselves.

Any transfer of water rights also requires court approval, added Jennifer Gimbel, a senior water policy scholar for the Colorado Water Center at Colorado State University in Fort Collins.

Water Fight

“Anyone who thinks they’re harmed can challenge you,” she said. “You can sell … but the buyer can’t use it until it’s approved by the Water Courts.”

Northern Colorado water rights are reviewed by the court in Greeley, which oversees the state’s South Platte Basin.

Opposition isn’t unlikely.

Witness ongoing tussles involving the cities of Thornton, Greeley, and Loveland over a 74-mile water pipeline, and a recent lawsuit filed by the city and county of Denver against Boulder County to expand a reservoir.

Gimbel said a key element of water rights transfers is “the piece of your right that you can sell is what you’ve consumptively used” — meaning the amount that supported the work and is now gone.

“In a coal-fired plant, how much consumptive use is there? That’s kind of a first question.”

Great Unknown

“At this point we don’t know” what will happen to its water rights, said Steve Roalstad, who directs marketing and communications for Platte River Power Authority. “We simply cannot say.”

“Electricity generation will always need water; the question is how much,” he said. “Right now and into the future we need that water.”

PRPA’s coal-fired plant at Rawhide 10 miles south of Wyoming uses 2,500 to 4,500 acre-feet of water “for cooling as well as process,” which it gets through exchange agreements with Fort Collins.

It also owns 18% of two coal-fired plants, the Yampa Project, in the city of Craig.

Tri-State generates power for co-op members in Colorado, Wyoming, New Mexico, and Nebraska, spokesman Mark Stutz, said by email. With PRPA and others it’s an owner of Yampa and holds a third Craig unit outright, its last coal-fired operations in the state.

It owns 24% of Craig units one and two. Joint-venture partners on Yampa include PRPA’s portion, Salt River Project at 29%, PacifiCorp with 19%, and Xcel’s 10%, held under its Public Service Co. of Colorado division.

Stutz said Craig’s three-plant layout uses 12,000 to 15,000 acre-feet of water annually. Its solely owned plant is set to close in 2030; the other two are scheduled for decommissioning in 2025 and 2028. 

“Tri-State has not made any decisions” on water rights, and where it has partners what happens involves others. 

The co-op closed a coal-fired plant in Nucla, south of Grand Junction and 40 miles from Utah, in September 2019. It used less than 2,000 acre-feet of water a year and continues to need water as it’s decommissioned, suggesting a timeframe can extend beyond official closing dates.

Xcel Energy filings with the U.S. Securities and Exchange Commission, and a March 2021 proposal to the Colorado Public Utilities Commission, suggest steady closings of coal-fired plants in Craig, Hayden, Brush, and Pueblo through this decade with a final unit’s decommissioning in 2040.

A spokesperson said via email the company plans to cut water use from power generation 70% by 2030, versus 2005 levels, and depending on what energy it moves to from coal, it will keep “some level of dependable water supply for the foreseeable future.”

As coal-fired plants close or convert, contracted water goes back to its owner and water rights Xcel controls are available to others. Coming plant closings in Hayden led to a deal with Steamboat Springs for the city to lease 1,200 acre-feet of water a year, the spokesperson said.

City Views

Bovee said when rights sell, “the dominant reason … is for municipal growth” from new homes.

This introduces more what-ifs, he said: Developers can pay water providers for service; buy rights directly and “dedicate” them to the provider to cover its need; or, for larger companies or projects, build their own systems. 

That last one has been more prevalent south of Denver, he noted, and “not super common in the Northern Front Range,” though even here it’s tried. Developers of Montava in Fort Collins, HF2M Colorado Inc., for instance, plan an alluvial groundwater-based system to produce a million gallons a day.

Meanwhile, the city of Greeley traded water credits to get the 1.2 million-acre-foot Terry Ranch aquifer, under land along the Colorado-Wyoming border, which it expects to use for storage for future water needs. 

“There’s no step-by-step process” for dispensing rights, Bovee said. Public auction or RFP? Horse-trading or new-build? Leasing or assignment? And since prospective buyers’ plans for volume, use, and timeframe differ — developers might look three years out, cities a decade or more — the same water can gin up varying values.

Gold Water

While not much in northern Front Range water use is quickly clear, its need, scarcity, and worth mean few say rights transfers to new uses won’t take place; growth depends on it. 

Tri-State’s Stutz said in an interview that “we’re almost a decade out” from the Craig plant closing in 2030 but when it said last year it would shutter the unit, “we got inquiries about 30 seconds after we announced it.”

So, even as what will happen to power providers’ rights remains murky — and where the companies will still need the water, a mirage — no one doubts the dollars involved.

PRPA gets water from Windy Gap, “the water rights we exercise to support Rawhide,” Roalstad said.

Windy Gap has 18 owners including PRPA, the largest single rights holder, with 110 shares out of 480 or 23%, providing 12,000-acre-feet of water annually, according to PRPA’s April 29, 2021, “Water Resources Reference Document.”

A spokesperson for Northern Colorado Water Conservancy District in Berthoud, whose infrastructure delivers much of the water to the region, said in the 1960s when Windy Gap was planned, shares were a buck-fifty each.

Water was already being allocated — PRPA got its original stake in 1974 — and Windy Gap didn’t open until 1981, but water rights were already valuable.

Northern Water’s Jeff Stahla said a share of the Colorado Big Thompson project today is worth about $60,000.

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Xcel Energy Inc.’s local ownership

Xcel Energy Inc. [Nasdaq: XEL] in Minneapolis owns all or part of three coal-fired power plants in Pueblo; two in Craig, 200 miles west of Fort Collins; two in Hayden about 20 miles closer; and one in Brush, 65 miles east of Greeley.

It owns 100% of two coal-fired plants in Pueblo at a project called Comanche, with closures set to begin next year and in 2025; its Craig interests, with closures marked for 2025 and 2028.

Two plants in Hayden, which it owns 37% and 76% of respectively, are set to begin decommissioning in 2027 and 2028. Its Pawnee plant in Brush could convert to natural gas — which requires water use — by 2028.

Timetables for Pawnee and a third Comanche unit partly owned by Xcel and its youngest coal-fired plant at 11 years old, were proposed in a March 2021 filing with the Colorado Public Utilities Commission.

Its “Clean Energy Plan” says the third Comanche unit can cut back operations by two-thirds by 2030 and close in 2040 with, “no layoffs … anticipated,” while the Pawnee unit will convert to natural gas by 2028.

Xcel expects a CPUC decision next year. The filing overall represents “significant reduction in Colorado coal operations by 2030, with full coal retirement by 2040,” the company’s website said.

Xcel has 6,223 MW of generating capacity for the state, going to 1.5 million retail electric customers, holding north of $20 billion in assets, according to its website. It sold 7 billion KWh of retail electricity in Q1 of 2021, an SEC filing said.

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Future closures

Coal-fired power plant closures that could release water rights consistently over the next decade include:

•  Comanche 1 — 2022
• Comanche 2 — 2025
•  Craig 1 — 2025
•  Hayden 2 — 2027 [note: this is correct: Hayden 2 is closing first]
•  Hayden 1 — 2028 
•  Craig 2 — 2028
•  Pawnee — 2028
•  Rawhide — 2029
•  Craig 3 — 2030

Comanche plants are in Pueblo; Pawnee is in Brush. 

A third Comanche plant looks to reduce operations through 2030 and close by 2040.

Industry sources and public documents peg Comanche’s three plants at 10,100 acre-feet of water use annually; Craig’s three at 12,000 to 15,000; Hayden’s two: 4,600; Pawnee, 5,300; and Rawhide, 2,500 to 4,500 acre-feet a year. 

Ownership and control gets complex and some rights are likely to be committed to new power production, but a napkin sketch musing shows about 35,000 acre feet of water re-directed over the next 10 years. 

Source: BizWest Research