Coal-fired power plants are closing early and Colorado lawmakers want to ease towns’ tough transition

Mark Jaffe | February 26 | The Colorado Sun

House Bill 1037 would let electric companies recoup money spent to build the plants while funding economic impact grants to towns losing jobs along the way

Word that the local coal mine and power plant it served were closing went off like a bomb in Nucla — they were the community’s main employers and taxpayers in the tiny town southwest of Montrose

“It’s a big blow,” said Deana Sherriff, executive director of the West End Economic Development Corp., which is helping to develop an economic recovery plan for the town of about 700 people.

The school and fire districts are looking at a 56 percent reduction in their budgets. The mine and coal-fired power plant, which at their peak employed 170 people, are now down to 24, Sherriff said. The mine is already closed, and the plant will be shuttered in 2022.

Tri-State Generation and Transmission Association, which operated the mine and plant, set up a $50,000 block grant to aid businesses, but the town was pretty much left to fend for itself.

“We’ve had to scramble,” Sherriff said. “But this put us in a position to qualify for everything, every grant out there … These communities need funds to move forward.”

The Colorado Energy Impact Assistance Act — a bill working its way through legislature under the title of House Bill 1037 —  would provide those funds and at the same time lower the financial impact of power-plant closures on utility customers, its sponsor says. The bill is awaiting a vote by the full House.

“Nucla is going to suffer tremendously from that closure,” said Rep. Chris Hansen, D-Denver, the bill’s main sponsor. “The status quo is unacceptable. It is a lose-lose situation.”

The bill’s other lead sponsors are Rep. Daneya Esgar, D-Pueblo, and Sen. Kerry Donovan, D-Vail.

A similar Hansen-sponsored bill was passed by the House in 2017, only to die in the Senate, which was then controlled by Republicans.

Plants in Craig, Pueblo also headed for closure

Nucla isn’t the only plant on the block. Tri-State, which serves 43 rural electric cooperatives including 18 in Colorado, also plans to close one of three coal units at the Craig Station by 2025.

Xcel Energy, the state’s largest electricity provider, is set to close the Comanche 1 and 2 units in Pueblo — 660 megawatts or about one-third of the utility’s remaining coal fleet — by 2026.

Six Xcel coal plants were closed or retrofitted to natural gas by 2017, under the Clean Air-Clean Jobs Act. Households are paying about $2 a month on their bills to cover the costs.

Across the U.S., coal plants continue to close under pressure of cheaper renewable and natural-gas generation. In 2018, a near-record year, 16 gigawatts (GW) of coal-fired capacity closed — the generating equivalent of almost 50 Comanche 1 units.

Another 4 GW of coal plants are forecast to close in 2019, according to the federal Energy Information Administration. On Feb. 19, Montana-Dakota Utilities said it was closing coal plants in Montana and North Dakota. The plants were “no longer cost competitive,” said Nicole Kivisto, the utility’s president.

Hansen’s bill would enable utilities looking to close power plants to use, with Colorado Public Utilities Commission approval, securitized bonds to pay for the closure and unrecovered capital cost of the units.

Because the bonds are backed, or secured, by customer revenues, they can command top credit ratings and therefore, lower interest rates. The difference between the existing repayment rate on the plant and the lower securitized bond creates a saving.

An analysis of how the bonding and impact fund would work was developed by Uday Varadarajan, a principal at the Rocky Mountain Institute, a non-profit energy think tank.

“For an asset retired 20 years before its scheduled retirement date, our analysis suggests that for every $100 million in unrecovered costs securitized, ratepayers can save roughly $35 million to $45 million … relative to business as usual,” Varadarajan said

On top of that, substituting cheaper wind and solar generation, which requires no fuel and has lower operating and maintenance costs, creates another saving, Varadarajan said.

“Securitized bonds can lower the overall financing costs, and that eventually follows back to customers,” said Travis Miller, a senior equity analyst at Morningstar.

Twenty states have bond securitization statutes. They have been used in the past few years to finance the closure of a $1.3 billion nuclear plant in Florida and a $390 million coal-fired plant in Michigan.

Savings on bonds could be used to help communities

The innovation in the Colorado bill is that up to 15 percent of the savings would go to workers and communities hit by the closure of a coal-fired plant. The legislation would create a seven-member Colorado Energy Impact Assistance Authority to administer the funds.

“Securitization is a really an effective tool for handling coal plant debt,” said Emily Gedeon, Colorado conservation director for the Sierra Club, which supports the bill. “What is unique about this bill is that it specifically looks at savings being reinvested in workers and communities. That is really trailblazing.”

In Varadarajan’s $100 million example, securitization would create around $6 million in community and worker impact funds.

Nevertheless, officials from other coal-plant communities are wary of the legislation. “We feel that this particular piece of legislation incentivizes the closure of coal-fired power plants,” said Ray Beck, a Moffat County commissioner. The county is the home of two mines that serve the Craig Power Station.

Tri-State, as part of the settlement in an air-pollution lawsuit, agreed to close Nucla and one of the Craig station’s three units. “Six of 10 of the county’s top taxpayers are tied to coal or electricity production,” Beck said. “Craig Station pays 30 percent of the tax liability.”

“Training or no training, bond or no bond, it is going to be devastating to our community” if we lose the power plant, Beck said.

Tri-State has taken no position and is monitoring the bill. “We have appreciated the opportunity to discuss it several times with Rep. Hansen,” spokesman Lee Boughey said. “The bill would be difficult to apply to not-for-profit generation and transmission cooperatives and it is unlikely Tri-State could utilize its provisions. The bill could offer benefits to investor-owned utilities.”

Xcel trying to “make it a workable tool”

Neighboring Routt County is home to Xcel Energy’s Hayden Generating Station, another economic driver for the community. “Routt County hasn’t been ‘hell no’ on this bill. We are not opposing the bill. We aren’t supporting,” county Commissioner Doug Monger said. “We appreciate Rep. Hansen trying to take care of this, but this is a big risk.”

Xcel said it also has not taken a position on the bill. “We are monitoring it and working to make it a workable tool. As of today, we have not needed to use securitization,” the company said in a statement Friday. “As the bill is currently drafted, it may not be workable to ensure the safety and reliability of the system.”

In closing the two Comanche units, the PUC granted Xcel a traditional financing mechanism of accelerated depreciation and a regulatory asset, an accounting device to gather the closure costs.

A sharp hike in customer rates was avoided by directing half of the 2 percent on the bill each household pays for renewable energy projects to finance the closures.

“That was creative,” Gedeon said. “But it was a one-time thing.”

An analysis by Varadarajan of possible Minnesota coal-plant closures found that using accelerated depreciation over five years and a regulatory asset would cost $29 a megawatt-hour (MWh) annually, while securitized 20-year bonds would cost $5 a MWh — a savings of $45 million.

Hansen said the economic pressure on coal-fired power plants is only likely to increase as the price of wind, solar and natural-gas fired generation undercut the cost of operating coal-fired units.

In January 2018, Xcel received bids for new wind generation with a median of $18 a MWh and for solar photovoltaic generation, $29.50 a MWh. Xcel’s estimate for the all-in costs of operating the two Comanche units is about $31 a MWh.

“You can’t ignore economic reality, you can’t ignore basic math,” Hansen said. “We can prepare Colorado for these closures and be ready to help the people who are going to be impacted. …If we have a delay, we could have another Nucla.”