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A Reluctant Move Away from Coal

by Allen Best | FEBRUARY 8, 2011

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Kansas officials just before Christmas delivered a package that electrical utilities had been

wanting for five years: an air­quality permit for a new 895­megawatt, coal­fired generating

plant near Holcomb, in the state’s southwest corner.

But now Kansas­based Sunflower Electric Power Corp. may not need the permit. Its key

partner, Colorado­based Tri­State Generation and Transmission, which would be entitled to

get up to 78 percent of electrical production from the plant, has no firm plans to move

forward.

“We are considering nuclear, coal and natural gas,” said Ken Anderson, general manager of

Tri­State at a conference in October, a position that Tri­State representatives say remains.

“We will pick our technology once policy certainty comes about,” he added.

The Holcomb case provides a rich portrait of the rapidly changing forces shaping the market

for Wyoming coal, an industry that delivers more than $1 billion in state and local revenues

each year and employs some 6,900 miners.

Stalled first by growing concerns about accumulating greenhouse gases and then by a

recession that blunted growth in demand, utilities have been reevaluating plans to use coal,
despite its seeming cost advantage.

Scores of new coal­fired power plants that were being planned across the nation six or seven

years ago have mostly been shelved. Last year alone, utilities and power­generating

companies dropped plans to build 38 coal plants, according to the Sierra Club, while

announcing they would retire 48 aging, inefficient ones. Stepping into the void is natural gas

and renewables. Utilities have also more aggressively embraced demand­side management

strategies to bend down the growth curve.

Environmentalists want Tri­State to divest itself of Holcomb and other new coal plants.

“Why would you continue to pursue building a multi­billion dollar coal plant in Kansas when

all of your own analysis shows that a combination of natural gas, renewable energy and

energy efficiency is a lower­cost, lower­risk way to meet your customers’ energy needs,” said

John Nielsen, energy program director at Western Resource Advocates, a Colorado­based

group.

Tri­State was created in 1952 by cooperatives in

Wyoming, Nebraska, and Colorado. Its essential

task was to deliver power from the federal

hydroelectric plants of the West, creating

strength in diversity, and ensuring future

supplies as farm families rapidly found new uses

for electricity.

In the 1970s and early 1980s, that new supply

grew to include coal­fired plants, the largest at

Wheatland and Craig, Colo. Through partial

ownership in Western Fuels, Tri­State has also

gained a direct interest in the Dry Fork mine near Gillette, as well as railroad cars. Last year

48, percent of Tri­State’s generating capacity was based on coal, although through

purchased generation, the figure ran to around 75 percent.

Along the way, Tri­State has also expanded geography: It now has 44 cooperatives in four

states, including New Mexico, serving a total of 1.5 million people.

Like many other utilities after California’s crisis of rolling blackouts in 2000­2001, Tri­State

saw the need for major new generation capacity. Especially in Colorado, demand was growing

rapidly. The booming natural gas sector drove some of that increase, but so did urban

growth as Front Range cities spilled into farm country.

In 2005, Tri­State partnered with Sunflower, a small generation and transmission association

that had an existing 362­megawatt, coal­fired plant at Holcomb. Together, they drafted

plans for a 10,000­acre campus with up to three 700­megawatt plants.

Then came the shocker.

In October 2007, the Kansas Department of Health & Environment denied an air­quality

permit for the plants. Roderick L. Bremby, then the agency’s administrator, cited the

emissions of carbon dioxide as justification for denial. The evidence, he said, “provides

support for the position that emission of air pollution from the proposed coal­fired plant,
specifically, carbon dioxide emissions, presents a substantial endangerment to the health of

persons or to the environment.”

It was first time in the United States that a greenhouse gas had been grounds for rejecting a

coal­fired power plant.

Several years of political skirmishing followed in Kansas. State legislators twice passed laws

ordering a permit for the plant. But both times, Gov. Kathleen Sebelius vetoed the bills.

Then, after she left in 2009 to become secretary of the U.S. Department of Health and

Human Services, the new governor, Mark Parkinson, brokered an agreement. Sunflower

would get a permit for just one 895­megawatt plant, and Kansas would invest in more

renewable generation.

Sunflower got its permit on Dec. 16, avoiding greenhouse gas regulations by the

Environmental Protection Agency that went into effect in January. The permit was promptly

challenged.

Earthjustice, the legal arm of the Sierra Club, filed suit, leveling dozens of allegations. Most

fundamentally, it accuses Kansas, in ordering a permit, of bypassing the normal regulatory

review governing particulates, nitrogen oxides, sulfur dioxide, ozone­forming constituents,

mercury, acid gases and, of course, greenhouse gases.

Bob Eye, a lawyer for Earthjustice who grew up in a farming town in western Kansas, says

the permit violates the Clean Air Act.

“If you look at the settlement agreement, it says the applicant shall receive a permit – and

that was before the applicant even applied for this permit,” Eye said. “They are getting a

permit as if it was a ‘fait accompli,’ and that is not what the Clean Air Act requires. The

Clean Air Act requires independent, empirically based, clear analysis. That is simply not what

happened.”

Sunflower Electric insists the lawsuit lacks merit.

“We are confident that the permit will withstand any judicial review,” said Cindy Hertel,

communications coordinator for Sunflower, in a posting on the association’s web site.

Sunflower did not respond to an interview request.

Tri­State representatives, in a January appearance in Denver, predicted they will clear all

regulatory hurdles in several years. On Friday, Environmental Protection Agency Region 7

administrator Karl Brooks released a letter to Kansas Department of Health & Environment

officials seeking a dialogue regarding the Holcomb plant and expressing concern that the

state’s permit is too lax on emissions of nitrogen oxides and sulfur dioxide.

But Tri­State hasn’t put all its eggs into this one basket. After the initial decision to reject

the Holcomb permit, Tri­State purchased 220 megawatts of natural gas generation. At least

partly in response to renewable energy mandates in Colorado and New Mexico, it invested in

a 30­megawatt solar farm on Ted Turner’s Vermejo Park Ranch near Cimarron, N.M.,. The

company also agreed to a long­term contract for output from a 51­megawatt wind farm near

Kit Carson, Colo. And member co­ops have developed 11 megawatts of renewables on their

own.

Energy efficiency is getting more attention. For example, LED street lights have been
installed in Ouray and Durango, on the edges of Colorado’s San Juan Mountains. The budget

for demand­side management programs this year doubled, to $5.5 million.

Tri­State expects these measures will see it through a much slower growth rate over the next

several years. From a high of 5 percent growth during the last decade, energy demand has

even declined during portions of the recession.

The association has also assembled 17,000 acres and 20,000 acre­feet of water for a power

generation site near Holly, just inside the Colorado state line and about an hour west of

Holcomb. Tri­State says the land and water could be used for coal, nuclear or renewables —

perhaps even a combination. All options remain on the table for the long haul.

Last year, the Colorado Public Utilities

Commission started making the argument that

it held regulatory authority over Tri­State, a

notion that the co­ops stoutly contest. It’s

anybody’s guess who would have prevailed in

court. Instead, Tri­State structured a process

agreeable to Western Resource Advocates, the

environmental group, causing the PUC to back

off. Bruce Driver, a WRA representative, credits

Tri­State staff members with being “very

professional, forthright and open.”

Driver said the company’s staff “understands the

fact that the energy world in which Tri­State

operates has been evolving, and the cost of renewable resources has come down,” and that

carbon dioxide emissions could eventually be more stringently regulated or taxed by federal

authorities.

“They also understand that there is a very large resource of energy efficiency,” Driver said.

“But I suppose the unknown factor for us on the environmental side is: ‘Where is the board

of directors in terms of these issues?’ We’re not sure,” Driver added.

The board consists of one member from each of the 44 cooperatives, and each has an equal

vote. The co­ops vary greatly in size. Wyoming’s Garland Light and Power, based in Powell,

has 2,000 members/customers. Colorado’s United Power, which serves an expanding

population on Denver’s northwest side, has 66,000 customers.

The co­ops also differ in motivations. At Telluride, a ski resort in Colorado’s southwest corner,

concerns about greenhouse gases at times have become paramount.

Even when cost remains a key factor, philosophies differ. That was evident in 2006, when TriState asked members to extend their commitments to buy Tri­State power until 2050, in

order to ensure favorable financing for the Holcomb coal plant. Two of the 44 refused: Carson

Electric of Taos, N.M., and Delta­Montrose Electric, of Montrose, Colo. Both worried about

getting too far ahead of demand, as occurred in the 1980s.

At Delta­Montrose Electric, directors wanted to chart a different path, emphasizing homegrown electrical generation, such as by harnessing power from irrigation canals. They have
begun to do so, portraying it as something of the ultimate Chamber of Commerce campaign

to shop­locally. But examining their options, directors there now admit uncertainty at just

how completely they can unhitch their wagon from coal after 2040.

With a shorter planning period, Tri­State assembled 24 models based on assumptions of slow

and more rapid growth coupled with moderate and severe weather. In those scenarios,

reports Driver, only one scenario sees Tri­State needing pulverized­coal generation – and

even then, just 302 megawatts, and not until 2027. Driver contends that scenario lacks

credibility. It is based on robust growth and no demand­side management whatsoever, he

says.

Western Resource Advocates wants Tri­State to divest its interest in Holcomb, but Tri­State

resists.

“That’s the burr under our saddle,” Driver said.

One possible reason: Tri­State, as of late 2009, had already invested $51.3 million into

developing Holcomb, not including land or water.

Driver speculates that board members “may be thinking about building and owning Holcomb

2 and selling the output, or most of the output, into the Western grid for their members.”

Tri­State did not respond to Drivers’ speculation.

Tri­State’s Integrated Resource Plan, which was released in November, suggests a more

imminent need for major additional electrical capacity within a decade – assuming robust

demand growth. But Tri­State spokesman Lee Boughey cautions against making too much of

the resource plan. It provides value for only the next six years, he says. Longer­term

forecasts are based on assumptions that may or may not prove well­founded. Because of this

uncertainty, Tri­State believes it must retain options for all fuels and technologies.

“We will not take anything off the table,” Boughey said.

That includes coal.

A key challenge for all coal plants are the carbon emissions. Tri­State has contributed

$300,000 toward a $11 million experiment in carbon sequestration near Craig, Colo., as well

as other experiments in Wisconsin and West Virginia. It has talked about potential for using

carbon emissions for algae production, although the technology remains in a developmental

stage. It hopes to integrate concentrated solar power with an existing coal plant in New

Mexico.

“Coal is an affordable and plentiful resource, but it does come with challenges – and we are

looking to different technology that can address some of those challenges while continuing to

provide a reliable and affordable power supply,” Boughey said.

“Some critics believe we shouldn’t be looking at resource options that include coal, and even

nuclear technology,” Boughey added. “We believe it would be irresponsible not to consider

these fuels or technologies as part of an affordable, reliable and responsible resource

portfolio.”

One estimate suggests Tri­State would pay about $1.8 billion, if the Holcomb plant is built at

895 megawatts of capacity.
Leave a Reply

— Allen Best reports on water, energy, and other issues in Colorado, the Great Plains, and

the Intermountain West. A fourth­generation Coloradan, he has worked as a journalist since

the 1970s. Since 2002, he has published a newsletter, called Mountain Town News, which

offers news both brief and with in­depth analysis, from ski­anchored resort valleys of the

North American West.

For now, Holcomb looks to be on hold, as everything else is shifting: regulation, fuel prices

and technological innovation. The price of natural gas is a particularly significant variable.

But it’s possible that Tri­State could pursue options that weren’t modeled in its planning

process, according to Boughey.

For its part, Western Resource Advocates sees evidence of change.

“But we’re not convinced the organization has embraced what we call the new energy

paradigm, which is natural gas, renewables and lots of energy efficiency,” said Driver.

So, coal remains an option for Tri­State, but hardly the only option.

While coal production held up last year, it’s hardly the growth industry it once was. Perhaps

most sobering to the miners at Gillette is this statistic released by the Sierra Club this week:

since 2002, the number of coal plants defeated or abandoned now stands at 150.

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