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Xcel Hedging Bets on Imaginary Coal

The cost of coal is going up, but rather than find a cleaner, more affordable path forward, Xcel Energy is hedging its bets that it can simply pass along these rising costs to ratepayers.

But at the company’s Hayden power plant in northwestern Colorado, betting on coal seems to be defying all odds.  In fact, they seem to be betting it all on a new coal mine that doesn’t exist.  All this just exposes just how tenuous the future of the Hayden power plant really is and how Xcel’s betting is likely to backfire big time.

In testimony filed yesterday before the Colorado Public Utilities Commission (PUC), Xcel Vice President Karen Hyde revealed that “coal supply is more expensive than what we are currently paying at Hayden…” (see Hyde testimony at page 18).  Boy was she right.  According to supporting testimony from Xcel employee Susan Arigoni, by 2018 the cost of coal will be nearly 70% higher than previously estimated (see Arigoni testimony at page 12).

This testimony is significant because it comes as Xcel is trying to convince the PUC that retrofitting the Hayden power plant with modern air pollution controls is cheaper than shutting down the power plant altogether.

In other words, if Xcel wins, they get their retrofits and ratepayers get stuck with the bill.  If Xcel loses, the Hayden plant goes down.

It’s a pivotal moment, and although the odds seem even, if not stacked in favor of Xcel, in reality, the odds are much worse for the company and its Hayden plant.  Here’s why.

To begin with, although Susan Arigoni claims that a growing coal export market is fueling price increases, the reality is prices are going up because Hayden’s supply is dwindling.

Here’s the pickle:  The coal mine that currently  fuels the Hayden plant, the Twentymile mine, is slated to play out by 2013.  And although there is another coal mine nearby, the ColoWyo mine, that could fuel the plant, that mine is not only slated to play out by 2017, but the remaining production is already under contract.

Put another way, the Hayden power plant will have no coal after 2013.

So how has Xcel proposed to get out of this pickle?  They’ve proposed to lock into a long-term coal supply contract from Peabody Energy’s Sage Creek coal mine.  As Susan Arigoni testified:

The Peabody interests of developing a structure for a long-term contract that would underpin Sage Creek development align with Public Service’s need for a long-term, reliable supply to support the long-term operation of the plant. Public Service was able to balance its lack of competitive options with Peabody’s interests to achieve a transaction that provides a long-term supply for Hayden.

Of course, there’s only one problem.  The Sage Creek coal mine doesn’t yet exist (check out the map of the “proposed” coal mine).  It hasn’t been constructed, hasn’t even permitted, and doesn’t even have the necessary federal coal lease.

So the long-term contract is, for all intents and purposes, make believe.  There is no coal.

And it’s truly questionable whether there will be coal.  Although the U.S. Bureau of Land Management (BLM) is proposing to issue a federal coal lease to Peabody for the Sage Creek mine, the proposal so far has been riddled with flaws.

As WildEarth Guardians commented last September, the BLM’s proposal makes a mockery of the environmental review process.  The agency went so far as to claim the environmental impacts associated with burning the coal would be speculative, yet it’s been clear from day one that Sage Creek was intended to fuel the Hayden power plant.

To say the least, the BLM’s proposed lease is vulnerable.  And that means the Sage Creek coal mine is far from a done deal.

Which also means the future Hayden power plant is far from certain.  And yet, as the latest filings show, Xcel seems committed to risking it all on coal.  In this case, imaginary coal.

It’s a dangerous dirty energy gamble that seems destined to leave Xcel, and in turn its ratepayers, broke.

Hayden Station
Every year, the Hayden coal-fired power plant contributes to 6 deaths, 10 heart attacks, 120 asthma attacks, and other adverse health impacts, all at a cost of $46 million.

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