Advisory committee says SB 252 is feasible, but…

The Colorado Statesman

The advisory committee trying to decide whether SB 13-252 is feasible is closing in on an answer: “Yes, but.”

The committee met Wednesday to review the legislation in-depth and discuss just how much it would cost for the two impacted rural electric co-ops to meet the 20 percent renewable energy standard (RES) required under SB 252. That standard must be met by 2020.

Prior to SB 252, Tri-State Generation & Transmission and the Intermountain Rural Electric Association (IREA) had until 2020 to meet a 10 percent RES, a standard set in 2004. Investor-owned utilities like Xcel must meet a 30 percent RES by 2020; municipal-owned utilities and electric co-ops with less than 40,000 customers have a 10 percent requirement, also by 2020.

But SB 252 bumped the requirement for Tri-State and IREA up to 20 percent, with just 6 1/2 years to meet it. That led to howls by the co-ops that it was not feasible.

While Gov. John Hickenlooper signed SB 252 into law in June, he did so with some misgivings. To address the concerns raised by the co-ops and rural electric customers, he issued an executive order to create an advisory group that would look at SB 252 and determine whether it was really feasible.

The feasibility discussions began in earnest this week. The committee met all day on Aug. 7 to look at the options for meeting a 20 percent RES and what a 2 percent rate cap would entail.
Can a 20 percent standard be achieved in 6 1/2 years? Yes, but the option that will cost the least may make everyone unhappy.

Dave Lock, senior manager for government relations for Tri-State, told the committee this week that Tri-State must generate about 230 megawatts (MW) of power in renewables to go from the 10 percent to the 20 percent standard. Another 254 MW will be needed in non-renewable energy, such as natural gas, to backup the renewables and create consistent power. Finally, Tri-State also must build transmission lines to carry the energy, with 484 MW required. The total cost would be about $1.1 billion. Under SB 252, those costs would have to be spread out only among Tri-State’s 18 Colorado members, as well as meet a 2 percent rate cap on customers’ electric bills.

That isn’t feasible in 6 1/2 years, Lock said. For example, it took Tri-State 13 years to get a 40-mile transmission line built from start to finish.

Representatives of environmental groups took issue with Lock’s estimate. Gwen Farnsworth of Western Resource Advocates and Pete Maysmith of Conservation Colorado disputed both the costs and how those costs would be covered. Farnsworth noted that such an investment would likely spread out over much more than 6 1/2 years; more likely those costs could be covered in at least 20 years.

IREA is in a different position, according to Mike Kopp, manager of corporate affairs. They are one of four rural co-ops that buy power from Xcel Energy; the other three don’t fall under SB 252 because they have fewer than 100,000 customers. Kopp told the group that unlike Tri-State, IREA just buys the power; it doesn’t own the wind farm. Its power purchasing agreements with Xcel are long-term, with the current one set to expire in 2025. That agreement provides about 50 percent of IREA’s electric needs, and IREA can piggyback on Xcel’s RES. That will cover 15 percent of IREA’s 20 percent requirement. 

The company also buys power from the Western Area Power Administration, to meet about 6 percent of its annual needs. The rest comes from the Comanche 3 station near Pueblo, owned by Xcel and which began operations in 2010. IREA owns a quarter share of Comanche 3, with an investment of more than $350 million, Kopp said. 

Renewable energy credits may be the answer

So how can both entities meet the 20 percent standard in six years? By purchasing renewable energy credits (RECs), but it’s at best a short-term solution, committee members said Wednesday, and one that may not exactly meet the spirit of the law.

Renewable energy credits (or certificates) are a property right to the non-electricity benefits of renewable energy, according to the Environmental Protection Agency. One REC equals 1,000 kilowatts, or one MW of electricity on the power grid, and they are available from Xcel as well as electric utilities in other states. One MW would power about 700 homes on average, according to Tri-State’s Lee Boughey. Both Tri-State and IREA reps said they could meet the 20 percent standard by buying RECs. Cost also is a factor: a REC costs about $1 per MW; competitive wind power projects cost about $30 per MW. By comparison, coal is about $16.20 per MW, according to Lock.

But it’s far from a good solution for the co-ops financially, nor is it good for the renewable energy companies that supported SB 252 in hopes that the law would drive new industry jobs in Colorado. Jerry Vaninetti of Renewable Energy Systems Americas told The Colorado Statesman that using only RECs would be a “hollow victory,” one that would provide “minimal or no opportunity” for the renewable energy companies that hope to expand under SB 252, he added. The law doesn’t require the co-ops to invest in more renewable projects, only that they meet the higher standard. Lock said Tri-State would be “resistant” to any suggestion on how they would meet the standard.

“Nobody’s wild about doing just REC’s,” Kopp told The Colorado Statesman Wednesday. “The more projects on the grid, the better. The law says that,” added Maysmith. 

Kopp said using RECs isn’t a good financial solution for IREA because it creates extra cost with no discernible benefit for customers. It’s the same problem for Tri-State, which would like to take that money and invest it in infrastructure (i.e., transmission lines, renewable projects and backup energy sources). 

One observer likened the situation to leasing or buying a car: at the end of the lease, you’ve spent a lot of money and don’t have the car to show for it. There’s also an issue of supply and demand. There’s no guarantee that the RECs would stay at that same low rate, especially if Tri-State and IREA started buying up the surplus RECs to meet the standard. And a REC has a shelf-life of just five years; it must be used in that time or lost. That means at best, a REC is a short-term solution, according to committee members; it might get the co-ops to the finish line, but it won’t last and eventually the co-ops will need some other renewable resource.

Farnsworth said her group would be satisfied with using RECs to meet the 20 percent, but they also see the value of building long-term infrastructure and more renewable projects to keep up the demand for renewables.

“We believe in renewables,” Maysmith said. “It’s good for the economy and the environment.”

Committee members also raised the issue of fairness as well as feasibility. Chris Kraft of Badger Creek/Quail Ridge Farms of Fort Morgan said that he spends about $25,000 per month on his electric bill. It’s not the same kind of use as a home; his electricity helps operate the farm and feed the citizens of Colorado. In addition, a co-op with 30,000 members, such as one of the 18 co-ops in Colorado under Tri-State, has a higher renewable energy standard than a municipal electric utility in Fort Collins or Colorado Springs.

On Thursday, Chris Worley of the Colorado Energy Office characterized the discussions as a “general understanding that the utilities could meet the standard by buying RECs” but that wouldn’t fit under the spirit of the law, and the utilities would do “their best” to uphold the law.

Boughey said that wasn’t quite how the co-ops saw it. He said the co-ops would continue to look at the least cost option to meet their compliance obligations. “That could include RECs and development of new facilities. We’re currently evaluating the most responsible way to comply with the law and protect the interests of our member co-ops,” he added. Tri-State issued requests for proposals in 2012 for three new renewable projects; although one of those requests has since been pulled because of SB 252.

It’s unclear, however, whether further discussions will produce any recommendations.
Nearing the conclusion of Wednesday’s meeting, at least two members felt like everything that could be said had been said, and that any further discussions might not be necessary.

Kopp half-jokingly suggested the committee adjourn. Maysmith told The Statesman he agreed; “There’s little left to do,” he said Thursday.

The committee plans to continue its discussions, according to Worley. They will meet again on September 4 to discuss potential legislation to “improve the statute.”

Those interested in the outcome of the SB 252 committee’s discussions spoke to The Statesman about the progress of those meetings. Speaker of the House Mark Ferrandino, D-Denver, who sponsored SB 252 in the House, said the economics of it make sense that the higher standard would come through generation of new energy. Using only RECs wouldn’t be smart in the long run. “2020 is still six years away, they have time,” he said.

Sen. Greg Brophy, R-Wray, wasn’t surprised by the discussion on RECs; he was aware that was an option during the session. But even using RECs is a “waste of my money and a lot of my neighbors’ monies. We’d be transferring our money to Xcel shareholders” across the country. Brophy added he’d be happier if they’d just roll back the legislation.

The committee’s recommendations are due to the governor by November 1; it will meet at least two or three more times to formulate those recommendations and draft its report.