Colorado’s Magnificent Clean Energy Potential–Xcel’s 2009 “RFP”

Submitted by Leslie Glustrom on May 9, 2010 – 2:13pm

In April 2009, Xcel Energy received the results of its “Request for Proposals,” or “RFP,” for filling future generation needs on its Colorado system. In the midst of a brutal economic crisis, Xcel received over 15,000 MW of clean energy bids–even though it had only sought about 1,000 MW. For reference, Xcel’s peak system demand with a 16% reserve margin is usually between 7,000 and 8,000 MW.

A Denver Business Journal article on the bids is here and a graph showing the bids is attached.

Of the bids received by Xcel, over 7,000 MW of wind and solar bids were proposed for development in the 2011 and 2012 time frame as indicated in Xcel’s May 2009 “30 Day Report” on the bids in the 07A-447E Docket at the Colorado Public Utilities Commission.

Xcel’s Analysis of the bids indicates that adding more renewable energy to the system as we head into a carbon-constrained world is likely to lower system costs, not raise them as shown in Figures 15 and 16 of Xcel’s August 2009 “120 Day Report” on the April 2009 bids.

Both the 30-Day Report and the 120 Day Report on the April 2009 RFP bids were prepared as part of Phase II of Xcel’s 2007 Resource Plan found in Docket 07A-447E at the Colorado PUC with full details available at https://www.dora.state.co.us/pls/efi/EFI.Show_Docket?p_session_id=&p_docket_id=07A-447E .

While replacing fossil fuel resources needs to happen in a considered fashion to ensure system reliability, it is clear that Colorado has magnificent renewable energy resources and an abundance of project developers ready to turn these resources into clean electricity.

As we unleash the entrepreneurial abilities of Colorado’s clean energy developers, we will also help to keep Colorado’s energy dollars in the state, creating jobs, tax revenues and multiplier effects.

Presently, well over $100 million leaves the State of Colorado annually to pay for coal deliveries from Wyoming. With abundant wind and solar in the state, it appears that the amount of money leaving the state to pay for coal could be significantly reduced.

Coal is in for a Bumpy Ride and Final Decline

Submitted by Anne Butterfield on April 21, 2010 – 1:37pm

More coal miners have lost their lives from cave-ins, explosions and lung disease since 1900 than all the Americans who died in World War II. – Ralph Nader There is a moment in the progress of any high altitude flight when the engines let off and the craft pitches down slightly; that is the beginning of the long descent for landing. In the past three weeks, our nation crossed a line in how we think about coal, and it now seems coal’s long flight of dominating how we produce electricity has embarked on a final decline. A pivotal lightning strike hit the industry on April 5, in the probably avoidable explosion at the Upper Big Branch mine in West Virginia. Lit up in the glare of the news cycle was Don Blankenship of Massey Energy whose union busting and campaign of appealing safety violations has led, probably, to the explosion in his mine. That’s the view loudly proclaimed by AFL-CIO president and former president of United Mine Workers Richard Trumka, who can cogently claim the disaster was propelled by the lack of union vigilance in the mine in question. Preceded by 53 safety violations in March and over 450 the previous year, the accident launched two federal investigations sought by West Virginia Senators Rockefeller and Byrd — who are otherwise quite protective of the industry — and a campaign of inspecting all mines in West Virginia was ordered by Governor Joe Manchin. A Wall Street law firm has joined the pushback posse, seeking to know if Massey violated SEC regulations by failing to disclose risk properly to investors. Another investor group dubbed Change to Win is calling for the ouster of Blankenship. It’s been joined by New York State’s Comptroller, Thomas DiNapoli, who has direct control of over 300,000 shares of Massey stock through that state’s common retirement fund. There is nothing like a mass casualty incident to focus our politics, and the small chance of coal state pols voting for clean energy jobs and a climate bill is inching higher, especially as the national focus on coal’s danger may lead eyeballs to stumble upon a recent study by Downstream Strategies showing what Appalachians know in their guts that the region’s coal reserves are in decline and the region needs diverse economic development immediately. Severe local turbulence can lead to loss of altitude, but more distant control can call for descent, too, in the form of federal regulation. Just days before the Montcoal catastrophe, the Environmental Protection Agency issued new rules to curb the practice of mountain top removal mining that is poisoning waterways and flattening Appalachia. It was denounced by Friends of Coal as a big job-killer, their usual line, as the industry hates all job losses that they do not effectuate from their own corporate offices. Also, later this month the EPA is scheduled to release new regulations for the handling of coal ash waste, the long awaited comeuppance for the spill of biblical proportions that cloaked eastern Tennessee at Christmas of 2008. The regulations could impose serious costs on the industry. As forces of scrutiny and regulation converge on the coal industry to reduce some of its hazards, they will push the price of the black rock appropriately upward. And as celebrated environmentalist Lester Brown has said, the free market is fine so long as prices tell the truth about costs. We need coal to be priced according to it costs, and politics is moving in that direction, particularly as we look west. Citing the city’s home rule authority as their clout, Chicago’s City Council has joyfully presented an ordinance to regulate the emissions of two coal plants inside the city limits, and if that fails, to call for the plants’ retirement. Chicagoans suffer twice the asthma-related hospitalizations than the national average. Here in Boulder we too have home rule authority and are feeling a strong push to delay the signing of a new franchise agreement with Xcel Energy in favor of a new business arrangement crafted for decarbonization. This week all nine members of the City Council opined in a study session that times are changing and so must our energy production. Focusing on how coal is becoming less reliable, Councilwoman Susie Ageton put it forcefully: “We’ve got to make the shift – we’ve got to do it.” Maybe she knows that Colorado’s coal fields are faltering; the state hit peak production six years ago and “force majeure” has shut down mines four times since 2007. As for the motherlode of coal up in Wyoming, the most recent US Geological Survey assessment of coal in the Gillette Field of the Powder River Basin (which provides about 40 percent of our nation’s coal) found that only 6 percent was economically accessible. And The Bureau of Land Management has stated that major mines in the PRB have less than a ten year life span. Future mine expansions will face compelling geologic and other challenges. (For more on coal supply constraints go…..) So no one, especially the coal industry, should be surprised that Governor Ritter will sign legislation calling on Xcel Energy to reduce by 80 percent the nasty pollutants of key coal plants along the Front Range, with overt instruction to consider natural gas and low emitting sources as replacement for coal. We’re seeing the decline of coal. There may be air pockets to bump the industry back up and sharply down in its trajectory, but the fact is the 150 year flight is just plain running out of gas. And with Colorado in the forefront, many American communities are preparing for a smooth landing. A version of this column appeared in the Boulder Daily Camera.

Comanche 3–The Billion Dollar Mistake

Xcel has spent over $1 Billion to build the new 750 MW Unit 3 coal plant in Pueblo (which Xcel refers to as “Comanche 3”) and they are presently trying to bring the coal plant on line. Yet, there are a growing number of signs that the coal plant is a “Billion Dollar Mistake.”

The coal plant has been plagued by engineering and noise issues which are discussed in a recent report to the Colorado PUC here. There is a Powerpoint (starting on page 7 of 35) included in the “Verified Report” at this link which details the problems that Xcel has been experiencing with leaking steam tubes, boiler pumps that won’t work and a high pitched noise that is causing tremendous disturbance to local residents who are becoming depressed and distraught, with many of them moving into hotels (which at least Xcel is paying for) because they can not bear the noise any longer and the sleep deprivation has become too much. Of course moving into a hotel is also a tremendous disturbance to one’s life and the residents’ health issues are becoming exacerbated by the continuous noise that disrupts their sleep and creates serious additional stress.

You can read the comments of the local citizens who are being affected by the noise issue on the PUC website under Docket 10M-135E.

Operating the coal plant will cost approximately $1 billion per decade and add large amounts of CO2, mercury and other pollutants to the environment. Soon Colorado will have to decide whether it is worth putting good money after bad when it comes to the coal plant or whether the money spent operating the plant would be better spent building out the renewable energy infrastrucuture that will keep Colorado powered in the 21st century as coal and pollution control (and likely carbon) costs mount.

Here is a report detailing the history and the expected future costs of operating the coal plant attached.

Xcel has received three rate increases in the last four years totalling over $300 million dollars of additional annual revenue paid by Colorado rate payers and the largest driver in these back-to-back rate increases has been the Unit 3 coal plant.

More information is available on request.

Colorado’s Billion Dollar Mistake

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Colorado Coal Production Apparent Peak Was 2004–Most Other States Are Also Past Peak Production

Colorado is typically about the seventh largest producer of coal in the United States, producing less than 40 million tons of coal a year. By comparison, the top coal producing state Wyoming produces over 450 million tons–with many single mines in Wyoming producing more than the entire annual coal production of Colorado.

Coal production by state can be tracked in Table 1 of the Energy Information Administration’s annual coal report which can be found here.

Tracking Colorado’s coal production. it becomes clear that Colorado’s coal production hit a peak of just under 40 million tons in 2004. Since that time, Colorado coal production has declined significantly with Colorado coal production in 2008 being reported as 32.8 million tons.

Between 2004 and 2008, Colorado coal production declined by about 17%–and, as discussed below, 2009 production is lagging about 10% behind 2008 production. When final 2009 data become available, it is possible that between 2004 and 2009, Colorado coal production will have declined by 20% or more.

As of the third quarter of 2009, Colorado’s coal production was about 10% below 2008 levels. Quarterly coal production by state can be found on the Energy Information Administration coal data web page here.

The decline in Colorado coal production (and as discussed below a similar decline in most other coal producing states) is largely the result of geologic constraints. The easily accessible coal in the United States has largely been mined and turned into CO2 that now resides in the atmosphere and oceans.

While it is possible that Colorado (and other coal producing states that are past peak production) could open new mines and reach a new peak in production this doesn’t seem likely considering the considerable geologic, economic, legal and transportation constraints facing future coal production as discussed in detail here.

What About the Other Coal Producing States?

From EIA data on coal production, it is clear that all of the top 15 coal producing states have passed peak coal production except Wyoming and Montana. As of the third quarter of 2009, both Wyoming and Montana coal production declined in 2009 compared to 2008, but this could be due to the economy.

A careful analysis of existing life span of Wyoming mines and the geology of the coal in the Powder River Basin indicates that a peak in Wyoming coal production may not be too far in the future.

Montana is an unknown, but at about 40 million tons of coal produced a year, and strong local opposition to sacrificing the local agriculture and range economy for coal production, it appears unlikely that Montana coal production will increase dramatically in the future.

An extensive report on US coal supplies entitled “Coal–Cheap and Abundant, Or Is It? Why Americans Should Stop Assuming that the United States Has a 200 Year Supply of Coal” is available for free download from the Clean Energy Action website.

Additional information is available from the author upon request.

Xcel’s 2009 Coal Prices Match Price Predicted for 2035–Ooops…

In its last Resource Plan Xcel predicted that its coal prices would stay relatively flat–increasing about 2% a year for the next several decades. Historical prices back to 1998 can be seen in LWG 1-4, part (b).  Until Xcel’s long term coal contracts began expiring in 2005, the average price paid for coal was under $1/MMBTU (million BTUs).

Once the long term coal contracts expired, Xcel’s coal costs have been mounting significantly-averaging over 10%/year. In 2009, Xcel paid over $1.50/MMBTU. In Xcel’s 2009 Annual 10-k report submitted to the Securities and Exchange Commission, Xcel reported paying $1.52/MMBTU for its coal in Colorado. (See page 21 for Xcel’s Colorado coal costs.) In response to the Discovery Question LWG 5-3 (Docket 09A-772E), Xcel provided a 2009 coal cost of $1.61/MMBTU. The reason for the discrepancy is not clear–but either way this is a 50% increase in price in four years–way beyond the 2% per year price increase that was predicted in the last Xcel Resource Plan.

With a coal price in excess of $1.50/MMBTU in 2009, Xcel paid a price for coal in 2009 that it didn’t expect to pay until 2035. Ooops!

A careful assessment of production statistics and the geology of existing coal mines and an analysis of future constraints on coal production indicate that future price increases for coal are likely. While all fossil fuels are subject to complex forces of supply and demand and their price is volatile, the fact that coal is a solid, makes it difficult to work around the very real geologic constraints that exist on economically accessible coal.

More information on coal supplies is available in the extensive Clean Energy Action report issued in February 2009 entitled, “Coal–Cheap and Abundant–Or Is It?”

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