Sierra Club says costs of new Peabody coal deal undercut Hayden future

Due in part to the costs under a new contract with Peabody Energy (NYSE:BTU) for coal out of the new Sage Creek longwall mine, the Colorado Public Utilities Commission should not approve the prudency of new emissions controls for the customer Hayden power plant, said the Sierra Club in March 19 testimony.

Public Service Co. of Colorado, a unit of Xcel Energy (NYSE:XEL) is seeking a certificate of public convenience and necessity (CPCN) for new emissions controls at Hayden. But the Sierra Club, an intervenor in the commission proceeding, would like the plant shut and replaced by other, cleaner generation. The commission generally expressed support for these controls in a prior approval of a Clean Air Clean Jobs Act (CACJA)-compliant case involving Public Service.

Hayden is a coal-fired station with two operating units. The plant has three owners, with operational responsibilities held by Xcel Energy. According to the Xcel website, ownership is as follows: Unit 1, Xcel Energy (75%), PacifiCorp (24.5%); Unit 2, Salt River Project (50%), Xcel Energy (37.4%) and PacifiCorp (12.6%). Unit 1 is 184 MW in size and Unit 2 is 262 MW.

Based on the very limited scope of review in the current CPCN proceeding so far, the Sierra Club said it does not at this time express an objection to the estimated costs that Public Service included in its application. However, the Sierra Club said its position in this proceeding does not constitute an endorsement of the continued operation of the Hayden plant. “In light of the higher coal prices disclosed by Public Service in this proceeding, the company and the commission should re-evaluate in a later docket whether changed circumstances related to the cost of operating the Hayden coal plant warrant a reconsideration of the commission’s prudency determination in the CACJA proceeding.”

The commission limited this current proceeding to consideration of the proposed costs of the Hayden emission control project, as well as the coal costs as those costs directly relate to the cost effectiveness of the project, the efficacy of imposing cost cap, and the details associated with the emission control project, the Sierra Club noted. The Sierra Club opposes attaching a presumption of prudence to the CPCN because evidence submitted by Public Service indicates that the previous models evaluating the prudency of continuing to operate Hayden are outdated and underestimate the costs of operating the facility.

The commission found during the prior CACJA proceeding that Public Service’s cost estimates for the pollution controls to be installed at Hayden, “are not CPCN quality.” In other words, Public Service failed to provide sufficient information for the commission to make a determination as to the prudency of the expected costs, the Sierra Club said.

Notwithstanding this lack of detail, the commission granted to Public Service a presumption of need for the installation of the pollution controls on Hayden. This presumption, however, implicitly assumed that the facts developed during this CPCN proceeding would be consistent with the representations that Public Service made during the CACJA case. The commission premised its decision that the installation of selective catalytic reduction (SCR) for NOx control at Hayden was preferable to early retirement for Hayden in part on the alleged cost effectiveness of the plant. The assumptions that the commission relied on included several different factors, including the cost of the SCR, the forecasted cost of coal and assumptions related to future environmental compliance requirements.

“In this case, Public Service admitted in its application for a CPCN that its prior forecasted coal costs from the CACJA proceeding turned out to be wrong,” the Sierra Club contended. “Public Service now admits that the coal supply for Hayden will be up to 69% higher than the estimate it provided” in the previous docket. The revised prices are largely based on a new contract that Public Service has signed with Peabody for coal out of the planned Sage Creek mine, which would be a replacement for Peabody’s nearby Foidel Creek longwall operation in Colorado, the current coal supplier to Hayden.

Projections and forecasts are, by their very nature, uncertain, the Sierra Club noted. “The fact remains, however, that coal prices for Hayden have gone up significantly, and the impact of this increase on the prudency of operating Hayden has not been the subject of any commission proceeding,” it added.

In light of the change in forecasted coal prices, if the commission grants a CPCN, it should withhold from Public Service a presumption of prudence for the SCR controls, said the Sierra Club. This approach is consistent with past commission decisions.

“If Public Service decides to proceed with the Hayden expenditures, the commission should provide intervenors and the company with a full opportunity in a separate docket or future rate case to present evidence addressing the prudence of such a decision,” the club said. “Deferring a prudency determination here would allow all parties in a later docket to conduct discovery, present evidence relevant to the company’s management decision making, and challenge any request for a determination of prudence.”

In Feb. 27 testimony in this case, Susan Arigoni, who is the Vice President, Fuels at Xcel Energy Services, a subsidiary of Xcel Energy, defended the new Peabody contract in response to critical testimony from another party to the case. Since her initial direct testimony in this case that was filed in November 2011, the long-term coal supply agreement was executed in December 2011.

“The actions taken by Public Service result in clearer economics for the supply of coal to Hayden,” Arigoni wrote. “Furthermore, the supply comes from a coal company that has a long and reliable history of providing coal for Hayden.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.