With some significant alterations, the Public Service Co. of Colorado unit of Xcel Energy (NYSE: XEL) is moving forward with plans mandated under the state’s Clean Air-Clean Jobs Act (CAJCA).
The CACJA required PSCo to file a comprehensive plan to reduce annual emissions of NOx from the coal‑fired generation identified in the plan by at least 70% to 80% or greater from 2008 levels by 2017. The plan allows PSCo to propose emission controls, refueling, or retirement of at least 900 MW of coal‑fired generation in Colorado by 2017. The total investment associated with the adopted plan is about $1bn through 2017 and the rate impact is expected to increase future bills on average by 2% annually, Xcel noted in its Oct. 26 quarterly Form 10-Q filing.
In September 2012, the U.S. Environmental Protection Agency formally approved the Colorado state implementation plan (SIP) for regional haze, including the changes at the PSCo plants due to CACJA. PSCo’s plan as of Sept. 30, 2012, is:
- Cherokee Units 2 and 1 were shut down in 2011 and 2012, respectively, and Cherokee Unit 3 (365 MW in total) is expected to be shut down by the end of 2016, after a new natural gas combined‑cycle unit is built at Cherokee (569 MW);
- Cherokee Unit 2 was converted to a synchronous condenser to support the transmission system in 2012;
- Fuel‑switch Cherokee Unit 4 (352 MW) to natural gas by 2017;
- Shutdown Arapahoe Unit 3 (45 MW) and Unit 4 (111 MW) in 2013;
- Shutdown Valmont Unit 5 (186 MW) in 2017;
- Install selective catalytic reduction (SCR) for controlling NOx and a scrubber for controlling SO2 on Pawnee in 2014; and
- Install SCRs on Hayden Unit 1 in 2015 and Hayden Unit 2 in 2016.
PSCo has received certificates of public convenience and necessity for the conversion of Cherokee Unit 2 to a synchronous condenser, for the decommissioning of Cherokee Units 1-2, for the Pawnee emissions controls, for the SCRs on the Hayden units and for the new natural gas combined-cycle unit at Cherokee. PSCo retired Cherokee Units 1-2, and is in now decommissioning these plants.
Separately, in July 2012, PSCo sought approval to modify the original plan to retire Arapahoe Units 3-4. Subsequent transmission studies have determined that the synchronous condenser on Arapahoe Unit 3 is not needed for transmission system reliability given other upgrades to the system. PSCo recently filed a settlement related to Arapahoe Unit 3 with the Colorado Public Utilities Commission (CPUC) and is awaiting approval. PSCo has also found that a purchased power agreement with an existing generator is more cost effective than operating Arapahoe Unit 4 on natural gas. Decisions on both applications are expected in the first quarter of 2013.
Elements of PSCo’s electric resource plan also up for state approval
PSCo’s 2011 electric resource plan identified relatively low resource needs beginning in 2017, and proposed filling these needs with a competitive resource acquisition process. The CPUC is expected to consider the resource plan in two phases.
- In the first phase, the CPUC is expected to review planning assumptions, competitive bidding structure, and determine if PSCo should acquire generation technology. The first phase is expected to be completed by the end of 2012 or early 2013.
- In the second phase, PSCo expects to conduct the competitive acquisition process, which is expected to be submitted to the CPUC for approval in 2013.
In July 2012, PSCo filed two separate applications which, if approved, would update the existing resources considered in its resource plan.
The first application covers a purchase of Brush Power LLC and all of its assets, including Brush Units 1, 3 and 4 for a total purchase price of about $75m. Located in Brush, Colo., the generating units have a total capacity of 237 MW, including Brush Unit 1, a 60-MW combined-cycle unit; Brush Unit 3, a 30-MW simple-cycle unit; and Brush Unit 4, a 147-MW combined-cycle unit. The purchase is subject to various regulatory approvals including that of the CPUC and the FERC. In September this application was approved by the FERC. The Brush units currently provide energy and capacity to PSCo under purchased power agreements that are set to expire in 2017 for Brush Unit 1 and Brush Unit 3, and 2022 for Brush Unit 4.
The second application seeks approval to retire Arapahoe Unit 4, a 109-MW coal-fired company-owned facility at the end of 2013. This would be an alternative to permanently fuel switching Arapahoe Unit 4 to natural gas and instead replacing the capacity and associated energy with a natural gas purchased power agreement with an existing generator.
The CPUC combined all three electric resource plan-related applications and will hold hearings in late October and early November. A decision on all of these applications is expected in January 2013.
Coal mining association loses court appeal of air plan
In 2006, the Colorado Air Quality Control Commission (CAQCC) promulgated Best Available Retrofit Technology (BART) regulations requiring certain major stationary sources to evaluate, install, operate and maintain BART to make reasonable progress toward meeting the national visibility goal. In January 2011, the CAQCC approved a revised regional haze BART SIP incorporating the Colorado CACJA emission reduction plan, which will satisfy regional haze requirements. The Colorado legislature enacted a statute approving the SIP (the Colorado SIP), which was signed into law in 2011.
Subsequently, the Colorado Mining Association (CMA), representing coal producers to be hurt by the coal unit shutdowns and coal-to-gas conversions, challenged the Colorado SIP in a Colorado District Court. In June 2012, the CMA’s appeal was dismissed due to the legislative approval given to the Colorado SIP after the CAQCC approval. The CMA appealed this decision to the Colorado Court of Appeals in August 2012.
In September 2012, the EPA granted final approval of the Colorado SIP, including the CACJA emission reduction plan for PSCo, as satisfying BART requirements. The emission controls are expected to be installed between 2014 and 2017. Projected costs for emission controls at the Hayden and Pawnee plants are $334.2M. PSCo expects the cost of any required capital investment will be recoverable from customers through the CACJA emission reduction plan recovery mechanisms or other regulatory mechanisms.
In March 2010, two environmental groups petitioned the U.S. Department of the Interior (DOI) to certify that 12 coal-fired boilers and one coal-fired cement kiln in Colorado are contributing to visibility problems in Rocky Mountain National Park. PSCo’s Cherokee, Hayden, Pawnee and Valmont plants had units on that list. The groups allege that the Colorado BART rule is inadequate to satisfy the Clean Air Act mandate of ensuring reasonable further progress towards restoring natural visibility conditions in the park. It is not known when the DOI will rule on the petition, Xcel noted in the Form 10-Q.