The Colorado Public Utilities Commission on Friday balked at approving a $1 billion price to shut down Xcel Energy’s five remaining coal-fired generating units — to be paid for by customers — and is instead seeking more detailed financial analysis.
The proposed closing costs were part of a settlement agreement between Xcel Energy, the state’s largest electricity supplier, and a group of state agencies, local governments, labor and environmental groups.
The commission, however, wanted a closer look at the finances. “We have expressed concern about understanding these costs,” Commissioner Megan Gilman said. “We owe it to taxpayers.”
The financial method proposed by Xcel Energy to recover closure costs is at issue. The commission said it wanted Xcel Energy to explore a range of options, particularly using securitized bonds, which are seen as a cheaper potential funding mechanism.
“It is up to the company to model securitization and other options,” commissioner John Gavan said. “We’ll have to take that off to a separate proceeding.”
As part of its Electric Resources Plan – which forecasts the utility’s electricity demand for the next four years and the generation resources to meet it – and its Clean Energy Plan, aimed at reducing greenhouse gas emissions to greenhouse effect of the utility, Xcel Energy is preparing to close all its coal-fired power plants.
The plan is to shut down the utility’s five remaining units – at Craig, Hayden, Fort Morgan and Pueblo – between 2027 and 2031 at a cost of just over $1 billion.
Most of that figure — $732 million — is for shutting down the 750-megawatt Comanche 3 unit in Pueblo. The $1.3 billion plant was only commissioned in 2010 and will be the last to close at the end of 2030.
The plant was plagued with operational, equipment and financial problems, resulting in over 800 days of downtime. Initially, Xcel offered to run the plant until 2040, then under pressure reduced the shutdown date to 2035 and possibly 2031.
The commission also requested more detailed data on the project’s operating and maintenance costs for Comanche 3, while it is still in use. “We saw an unexpected increase in costs in terms of maintaining Unit 3,” Gavan said.
Xcel Energy is proposing to use securitized bonds to finance the shutdown of Comanche 3, which includes $690 million to pay the unamortized portion of the utility’s investment in the unit, $32 million in cleanup costs and $10 million in bond fees.
Securitized bonds are linked to a guaranteed source of utility revenue and therefore can be offered lower interest rates, reducing overall costs.
For the other three units, however, Xcel Energy has proposed, in the partial settlement of its resource plan submitted to the PUC, to use other financing mechanisms, such as accelerated depreciation and a so-called regulatory asset.
A regulatory asset is a financial arrangement where all the costs associated with closing a coal unit would be collected in one place and repaid by customers over time – with Xcel Energy also receiving an interest payment on the account .
The PUC’s decision could be a concern for parties to the deal, said Gwen Farnsworth, senior policy adviser for environmental group Western Resources Advocates, which signed the deal.
One of the objectives of the settlement was to shut down the coal-fired plants as quickly as possible, with Pawnee shutting down its coal unit and switching to natural gas in 2025, followed by the Hayden 2 unit in 2027, and the closure of Hayden 1 and Craig. in 2028.
Allocating retirement costs in a separate procedure could delay the closing process and even cause repercussions by delaying the acquisition of new own resources, Farnsworth said.