Xcel Energy intends to build or buy natural-gas power plants — rather than purchase power from existing, third-party generators — to replace the coal-fired units that the utility retires as part of a state legislative mandate to cut air pollution.
The move could be costlier for Xcel’s Colorado customers and would help the Minneapolis-based company boost its bottom line because it can collect a return on its investment from ratepayers.
Five natural-gas power plants along the Front Range with 540 megawatts of generation have contracts with Xcel that expire between the end of this year and 2013. Ratepayers could save at least $200 million if Xcel buys power from those plants instead of building its own units, independent power producers estimate.
Xcel doesn’t benefit financially when it buys power from independent generators because the fees are passed through dollar-for-dollar.
“The cost of doing a new plant is about twice what it would cost to use the old plants,” said Nick Muller, executive director of the Colorado Independent Energy Association.
Xcel said cost estimates are premature because it has yet to propose a plan in response to House Bill 1365, which mandates that the utility reduce emissions on 900 megawatts of coal generation by the end of 2017. However, the company told regulators in a filing last week that it “plans to replace most if not all” of its retired coal plants with “rate-based generation,” as it is entitled to do under the statute.
It is unclear how many new plants would be needed because Xcel hasn’t decided how many coal units will be shut down.
Xcel is considering retiring units at its Cherokee and Valmont plants in Denver and Boulder, respectively, said Karen Hyde, vice president for rates and regulatory affairs. The company can replace the retired units by building a new plant or buying an existing one. It also has the option of purchasing power from a plant it doesn’t own.
The company also may accelerate the retirement of the Arapahoe plant in Denver and pursue emissions controls of units at Cherokee, Valmont and stations in Brush and Hayden. Another option is to repower an existing coal unit by converting it to natural gas.
Xcel noted that newly constructed power plants would use technology that generates more electricity with the same amount of gas than the existing independent plants.
“We have no idea at what rate they would be willing to sell those assets at,” Hyde said. “They are not particularly efficient in converting natural gas to electricity.”
In the long term, Xcel’s customers would see cost savings from a company-owned plant, Hyde said.
Xcel can earn, from ratepayers, a return of 10.5 percent annually on the money it spends to build a plant. The company already owns 1,200 megawatts of natural-gas generation.
Without a new contract from Xcel, the independent plants will be stranded or used to generate power for out-of-state utilities, creating redundant emissions, Muller said.
“When you add that unnecessary combustion and environmental impact to the negative impact on ratepayers of adding tens of millions of extra costs, it is a bad deal for Colorado not to include these existing gas plants,” he said.
Muller said two of the five plants would be as efficient as the new, combined-cycle plants Xcel plans to build.
Xcel is holding a private workshop today to discuss its plan with independent producers, environmental advocates, and city and state officials.
Bill Levis, director of the Colorado Office of Consumer Counsel, said it was too early to address cost concerns.
Xcel has to submit a plan to the state Public Utilities Commission by Aug. 13. The PUC has until Dec. 15 to rule.
If the plan is approved, under HB 1365, the costs Xcel incurs to build new plants would be considered prudent, said PUC spokesman Terry Bote. That means anyone who challenges the cost recovery will have to show that the company spent recklessly.
Andy Vuong: 303-954-1209, avuong@denverpost.com or
