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Carbon Loading

Xcelís solution to rising energy prices includes a lot of coal. Is that a bad thing?

Prior to the 2000 merger of its parent company with Xcel, Public Service Company of Colorado hadn't built a coal plant in this state since the early 1980s. But Xcel has "had expertise over the years at building coal-fired plants," Stutz notes, and a 750-megawatt addition to the Comanche station soon became a key element in the company's plans for future power generation. (Xcel will net only 500 megawatts from the project; the rest is going to rural electric companies.)

The regulatory climate was right for the move, too. At a national level, EPA efforts to enforce Clean Air Act provisions were under attack in the courts and being overhauled -- some would say gutted -- by the Bush administration. At the state level, Public Utilities Commission chairman Greg Sopkin, an attorney who had once done work for Xcel, was an unabashed proponent of the coal boom; two years ago, he even wrote an op-ed piece in the Rocky Mountain Newspraising the "long-term benefits" of coal plants over natural gas.

A PUC provision requires Xcel to seek competitive bids for any new power source of more than 250 megawatts. One of the company's first moves was to seek a waiver of that provision for its new coal plant; the PUC readily granted the request.

The waiver saved time and money, Stutz says. The company didn't get any coal bids when it unveiled a similar proposal in Minnesota a couple of years ago, and adding a unit to the existing Pueblo operation will be more economical than going to the open market. "Nobody can probably do a coal plant as well as we can, because it's a brownfield [already developed] site," he says. "You have a tremendous advantage right there. You already have the equipment in place."

Major environmental groups taking stock of the situation soon realized they were in a better position to negotiate conditions for the plant than to try to stop it. Recognizing that Xcel officials were concerned that litigation would raise construction costs and strain the patience of ratepayers and stockholders alike, environmentalists joined with labor and civic groups to wring significant concessions out of the deal.

"We got several things out of this," says Mark Baker, executive director of Environment Colorado. "When you balance that against seven million tons of carbon emissions every single year, it's a difficult tradeoff."

The settlement that was reached is an example of how big power companies and environmental organizations can find common ground, Baker says. It also marks a milestone in what has been a gradual effort at détente between Xcel and some of its traditional opponents. A few years ago, he notes, "our relationships with Xcel could only be characterized as dismal. In 2001 they refused to do any kind of wind and had to be forced to do it by the PUC, only because it was far less expensive than natural-gas plants. They were pretty adamant about not cleaning up their coal plants without a guaranteed cost-recovery mechanism. Up until then, they lobbied against every single energy-efficiency and renewable-energy proposal. After the California energy crisis, and after they saw how their customers responded to wind, there was a growing realization that they could do some of the right things and make a buck out of it."

Under the agreement, Xcel will reduce overall sulfur dioxide emissions at the Comanche station by 11,000 tons a year, and nitrogen oxides by 2,300 tons. The company will develop up to 890 megawatts of renewable energy resources over the next eight years, nearly double what it's required to do under Amendment 37. It will add a nine-dollar-per-ton "carbon adder" cost to energy bids from sources that emit carbon dioxide -- a move that anticipates future regulatory costs of controlling the greenhouse gas and makes renewables more competitive in the bidding process. Xcel also agreed to use union labor for construction jobs, to sponsor public forums on sustainable development in Pueblo, and to pay for some other environmental cleanup projects in that city. Although not cheap, the package is expected to save the company money in some areas; even Xcel's own worst-case scenario projects that the deal will raise operational costs of the plant by only a few cents per megawatt-hour.

"It's a big deal for us," says Stutz. "It gives us a reliable source of generation. It may not have been what everybody wanted, but it was enough for them to agree to it."

One of the most impressive aspects of the settlement is Xcel's pledge to reduce electricity consumption over the next decade through efficiency programs, at a cost of $196 million. In Minnesota, Xcel has saved thousands of megawatts through what's known as demand-side management, or DSM -- working with businesses and consumers to install more efficient lighting and appliances, planning new development to take advantage of passive solar heating, and other conservation measures -- but its efforts in Colorado have been far more modest.

"Historically, the utilities in Colorado have had relatively weak energy-efficiency programs," says SWEEP's Geller, a leading figure in the energy-efficiency movement. "The PUC has not pushed the utilities to implement programs, nor given them financial incentives. There haven't been carrots or sticks, and that's usually what it takes."

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