The Colorado Energy Plan and the Far Side of the Rubicon River

The phrase “Cross the Rubicon” is a reference to the ultimatum that the Roman Senate delivered to Julius Caesar not to bring his army across the Rubicon River.  When Caesar ignored that warning, the period of imperial Rome had begun.  Thus, to cross the rubicon has come to signify a decision point from which there is no turning back.  The nature of the analysis is such that the rubicon is usually only able to be seen in hindsight.  This is not so in the electric generation sector (in Colorado at least).  We are so far past the rubicon where renewable energy resources have outpaced the large coal-fired generation that dominated the 20th century that we can review the next big decision in Colorado energy policy as logical today to what was once only a “pipe dream” (a story for another day).  That decision point is known as the Colorado Energy Plan (CEP).

The CEP is an offshoot or add-on to the pending Electric Resource Plan (ERP) process of Public Service Company of Colorado (dba Xcel Energy) currently before the Colorado Public Utilities Commission.  ERPs occur every 4 years; though this current plan dates back to October 2015 (when it was first due).   Xcel serves approximately 65% of Colorado territory and, with over 1.2 million customers and approximately 7000 megawatts (MW) of demand on its system, is the largest utility by load as well.  The CEP would result in the early retirement (by 10 years) of the Comanche 1 and 2 coal-fired generation units.  These units have a capacity of about 660 MW.  The CEP would replace that capacity, along with 450 MW of load-related resource need, with a plan including a range approximating 1000 MW of wind, 600 MW of solar, and 600 MW of natural gas-fired units.  

The CEP has a number of associated parts.  There is a utility ownership target that independent power groups such as our client the Colorado Independent Energy Association (CIEA) negotiated in the settlement agreement that brought forward the CEP.  The targets are a range of 40 – 60 percent for renewables and 60 -75 percent for gas units.  The coal-fired units will have their remaining amortized capital costs paid off by reducing the revenue stream intended for renewable energy’s incremental costs, known as the “RESA”.  The RESA collects 2% of customer bills to pay for the incremental system costs for acquiring renewable resources.  For large-scale renewable resources, there no longer is any incremental cost because those resources these days cause overall system cost savings.  So, a cut for the RESA to pay down call redirects revenues to a similar purpose.  There are also transmission elements to the plan. 

The CEP has been bolstered by the remarkably low cost proposals for wind, solar, and energy storage that Xcel received in its solicitation for the ERP from independent power producers (IPPs).  The median price of the wind bids is less than 2 cents per kilowatt (kW) of capacity, and less than 3 cents/kW for solar capacity.  These prices have not before been seen in Colorado or much of the world for that matter.  In addition, Xcel is seeking to join the Southwest Power Pool market, where units are dispatched by an objective third party and not by each utility. Simultaneously, Xcel has taken notice that in areas of the country with established markets, coal plants are either retiring or sitting idle as uncompetitive.

The value of the bid prices received has allowed Xcel to focus its CEP case to the Public Utilities Commission on straight economics, before reaching the environmental benefits or market risks.  This process has allowed consumer groups and large industrial customers to support bringing the CEP forward.  But this analysis, of course, misses the point.  The CEP would not exist but for the urgent need to mitigate human contributions to climate change.   The costs of inaction on climate change dwarf any economic analysis on rate impacts when you consider that our functioning ecosystem is what allows our economy to exist.

The CEP is not the first coal retirement plan, even in Colorado.  Coal plants are being retired – or stranded – across the country also due to economics. The costs of using fossil fuels and mitigating the resulting emissions cannot compete against smaller plants that use natural gas or no fuel at all.  In 2010, Colorado passed the Clean Air Clean Jobs Act (CACJA), that retired approximately 900 MW of Xcel-owned coal-fired generation.  In that case, the tension between fossil fuel and renewables was at its zenith. The coal industry was still fighting back with traditional arguments at the PUC and in the courts.  When the CACJA was approved, the implementation of that statute was the march across the Rubicon River.

But today those days are behind us.  The paradigm shift has occurred.  The coal industry at the February 2018 CEP hearing solely debated the modeling and the accounting mechanism to recover the retirement of the Comanche 1 and 2 Units, even though there is no allowance for overall bill increases to accomplish the CEP.  When anything other than ratepayer bills are considered in the analysis, the competition isn’t even close.  This is not good news in the near term for regions that depend on a coal economy, but it is overall the best news for humanity.  The CEP is what life is like when the rubicon has been crossed, and the future that was envisioned decades ago for a renewable generation portfolio using natural gas as a “bridge fuel” has actually arrived.  Renewable technologies were given the opportunity to prove their worth, and they have met that challenge.  For the coal industry, Rome lies ahead.

Submitted by: Mark D. Detsky