[(Clean Air + Clean Jobs + Statute of First Impression)] + [(Natural Gas + Green Coal) x (Northeast Colorado + Northwest Colorado)] ÷ (60 witnesses + 40 Attorneys) = Appeal

Russell P. Rowe, Esq., RoweLaw LLC,

William R. Rowe, Esq., RoweLaw LLC,

and Wendy M. Moser, Esq., Wendy M. Moser LLC

Counsel for Gas Intervenors in CO PUC Case 10M-245E

 The Colorado legislature set in motion a legal tsunami with the bi-partisan passage of House Bill 10-1365, the Colorado “Clean Air--Clean Jobs Act.”[1]  This landmark legislation recognized that Colorado was in violation of, and would continue to violate, federal air quality standards largely due to noxious emissions from the many aging coal-fired power plants used to generate electricity along Colorado’s Front Range. 

In order to avoid the high costs associated with a piecemeal approach to meeting the requirements of the Federal Clean Air Act,[2] to forestall federal action, and in service to public health and the environment, the General Assembly recognized the significant benefits to Colorado’s overall health and economy by requiring rate-regulated utilities in the state, namely Public Service Company of Colorado (“Public Service”),[3] to submit to the Colorado Public Utilities Commission (“Commission”) a plan for toxic emissions reduction that covered 900 megawatts, or 50 percent of its coal-fired electric  generating units in Colorado.  The plan was required, by law, to give primary consideration to replacing or repowering coal generation with lower emitting resources, including natural gas.

Given that coal has historically been a cheap and abundant fuel source for electricity, a state statute preferring natural gas was immediately hailed as landmark legislation amongst environmental groups and met with resistance by coal supporters.  Further, given that Colorado is rich in both natural gas resources (northeastern Colorado) and coal resources (northwestern Colorado), two competing industries with geographically dispersed political bases found themselves at the center of the Commission case.  This saga played out as a “coal versus natural gas” battle, not only before the Commission, but also in Denver District Court and in the media.  Unprecedented personal attacks were  launched against sitting Commissioners based on asserted bias deriving from the Commissioners’ lawful involvement and input during the legislative process,[4] embodied in motions to disqualify, motions to vacate and motions to enjoin the Commissioners from making a final decision.  All motions have thus far been decided in favor of proceeding, and all three sitting Commissioners participated in the final decision.

One unusual aspect of this proceeding was that two state agencies were significant players in implementing the legislation: the Commission and the Colorado Department of Public Health and Environment (“CDPHE”).  CDPHE was tasked with reviewing and shaping the utility’s plan, and advising the Commission as to “reasonably foreseeable” air quality requirements.  Independently, CDPHE and its Air Quality Control Commission were responsible to integrate the emission reduction plan into the State’s air quality plan which would be submitted to the EPA.  Further, Public Service was required to consult and work with CDPHE to design a plan that would meet current and reasonably foreseeable emissions reduction requirements in a cost-effective and flexible manner.  Nevertheless, it was the Commission that had final decision-making authority to approve, deny, or modify Public Service’s proposals by December 15, 2010.  This created a situation where a department-level state agency, the CDPHE, was nominally subject to another state agency’s jurisdiction because the CDPHE was a party to the case before the Commission.  Unlike the Office of Consumer Counsel (“OCC”), a state agency created by statute to routinely represent residential, agricultural and small business users in Commission proceedings,[5] this statute required CDPHE to not only participate in the Commission’s process for the specific purposes of a single statute and proceeding, but also to exercise its own statutory duties in connection with incorporating the Commission’s approved decision into a State Implementation Plan to meet federal air quality requirements.[6]

 Another unusual aspect of the proceeding was the limited time frame for completing an extensive evidentiary hearing process—seven months from start to finish—as compared to what normally would take well over a year.[7]  The Commission opened Docket 10M-245E on May 7, 2010 to address Public Service’s Plan.[8]  Over forty parties intervened in the case, many with multiple attorneys, representing interests from the coal industry, the natural gas industry, environmentalists, utility suppliers, competitor independent power producers, non rate-regulated utilities, trade groups and associations, large business customers, and individual rate payers.

Public Service originally identified 300 possible scenarios for retrofit or retirement of ten of its coal-fired generation plants along the Front Range.  On August 15, 2010, it submitted a “Preferred Plan” extending into 2022, along with at least fifty other potential refinements or adjustments, but offered options of retirement and replacement, refueling or emission controls that could be put in place at different times until the statutory deadline of December 31, 2017.  CDPHE was required to offer its perspective on the Preferred Plan to the Commission and did so in addition to commenting upon each scenario that different parties to the case championed, evaluating whether the scenarios were consistent with reasonably foreseeable requirements of the Clean Air Act.[9]  As the case proceeded, Public Service was forced to abandon its Preferred Plan when it was judged to be noncompliant with the 2017 statutory deadline.  Public Service then adopted a new “reluctantly recommended” scenario to comply with the law, resulting in additional rounds of testimony, discovery, and hearings.  The evidentiary hearing in the case ultimately involved thousands of pages of prefiled testimony and exhibits, extensive motion and discovery practice, and was tried during thirteen extended days of hearings.   

 The Commission’s role was to implement a final utility plan that achieved the necessary toxic emissions reductions while preserving the reliability of the electrical grid and ensuring reasonable costs.  Public Service was entitled by law to recover its costs that it would prudently incur, including the “costs of planning, developing, constructing, operating, and maintaining any emission control or replacement capacity constructed pursuant to the plan, as well as any interim air quality emission control costs the utility incurs while the plan is being implemented.”[10]  Therefore, the Commission was also tasked with evaluating the mechanisms by which costs would be recovered.[11]

The Commission rendered an initial 88-page decision[12] on December 15, 2010, modifying the reluctantly recommended scenario ultimately adopted by Public Service.  Basically, the Commission ordered the retirement of four coal plants in the Denver metro area:  Cherokee 1, Cherokee 2,[13] Cherokee 3 and Arapahoe 3.[14]  Two other coal plants in the Denver metro area, Arapahoe 4 and Cherokee 4, will be converted to natural gas generation.  Valmont 5, near Boulder, will be retired and emission controls were ordered for the Pawnee coal plant located in northeastern Colorado near Brush, and the Hayden 1 and 2 coal plants located west of Steamboat Springs.  The Commission’s decision will result in Public Service’s system running on approximately 50% coal-fired generation, 30% natural gas generation and 20% renewable energy sources (such as solar and wind), returning the state to about the same balance of generation resources that existed before Public Service launched  the last of its large Comanche coal plants near Pueblo in 2010.

The Commission rejected Public Service’s request for an automatic bill surcharge; instead, Public Service will be required to seek cost recovery in a general rate case.  Public Service was allowed to use deferred accounting for accelerated depreciation and removal costs associated with the coal-fired electric generating units retired in the case.  A long term natural gas contract between Public Service and Anadarko Energy Services Company was approved, and Public Service was required to seek additional long term natural gas contracts to the extent that volumes under the Anadarko contract were insufficient to meet natural-gas-fired generation requirements.

Applications for Rehearing, Reargument, or Reconsideration (“RRR”) were filed by Public Service, Peabody Energy Corporation, the Colorado Mining Association and the Associated Governments of Northwest Colorado, jointly, the Colorado OCC,  natural gas company intervenors Chesapeake Energy Corporation, Noble Energy, Inc., and EnCana Oil & Gas (USA), Ms. Leslie Glustrom (individual ratepayer), and the American Coalition for Clean Coal Electricity.[15]  On Feb. 3, 2011, the Commission granted in part and denied in part RRR applications filed by Public Service and the Gas Intervenors.  All other RRR applications were denied.[16]  Early appeals were already filed on the same day in Routt County District Court[17] by Peabody Energy Corporation and the Associated Governments of Northwest Colorado.  If no party files an additional RRR application by February 23, 2011, the Commission’s decision becomes a “final decision” and is subject to an appeal within 30 days of that date, or by March 25, 2011.[18]  There is no doubt that the appeal process will begin in earnest once the Commission decision on RRR becomes a “final decision.”

 Given the Commission’s decisions for coal plant retirements, natural gas conversions, rate recovery and other issues, there must be ongoing Commission dockets in 2011 and beyond to fully implement the requirements of Colorado’s Clean Air-Clean Jobs Act.  Against the backdrop of a 7-year implementation time frame, the strongly litigated positions in this docket, two fiercely competing energy industries, and the foregone conclusion of a full appellate process, PUC Docket 10M-245E is just the first melee in what will be a continuous battle of industry players as Colorado moves toward cleaner air, federal air quality compliance, and improved economic benefits for the state.

 


[1] Colorado’s Clean Air--Clean Jobs Act, that was signed in to law by former Colorado Governor Bill Ritter on April 19, 2010, is codified at Colo. Rev. Stat. § 40-3.2-201, et. seq.

[2] Federal Clean Air Act, 42 U.S.C. § 7401, et. seq.

[3] The other rate-regulated utility in the state that was affected was Black Hills/Colorado Electric Utility.  However, the Black Hills case was largely uncontested, dealing with the closure of its single coal-fired generation plant, Clark Station (42MW), located in Canon City.  Black Hills ultimately proposed to replace this coal fired generation plant with a natural gas plant at a Black Hills existing site near the Pueblo Airport, the Pueblo Airport Generation Station (“PAGS”).

[4] Colo. Rev. Stat. § 40-6-122(5) does not prohibit ex parte communications during a rulemaking proceeding or discussions on pending legislative proposals.

[5]Colo. Rev. Stat. § 40-6.5-102.

[6] Simultaneously with the evidentiary proceeding, once the utility plan was filed, the Air Quality Control Commission (“ACCC”)(a division of CDPHE) was required by the statute to initiate a proceeding to incorporate the air quality provisions of the final Commission determined utility plan into the regional haze element of the State Implementation Plan.  Once the AQCC adopted the Commission determined utility plan, the AQCC then submitted the final plan back to the legislature for consideration as part of the Colorado State Implementation Plan related to regional haze, which legislatively approved plan would then be submitted to the Federal Environmental Protection Agency (“EPA”) for determination of compliance with its federal regulatory requirements.  Absent a State Implementation Plan, the EPA would devise its own Federal Implementation Plan and impose its requirements on the state in order to bring Colorado into compliance with the federal requirements.

[7] Colo. Rev. Stat. § 40-6-109.5 normally allows the Commission as much as 300 days to conduct hearings after an application has been deemed complete, a time limit which can be waived by the Applicant.  Usually in complex cases, the time limit is routinely extended to allow the Commission adequate time to complete its review, resulting in cases lasting more than a year; in this case, the Commission was limited to seven months.

[8] Black Hills Plan in Compliance with H.B. 10-1365, 10M-254E (Colo. Pub. Util. Comm’n June 9, 2010) (docket opened).

[9] Colo. Rev. Stat. § 40-3.2-204(2)(b)(II).

[10] Colo. Rev. Stat.  § 40-3.2-207(1)(a).

[11] Colo. Rev. Stat. § 40-3.2-207, et. seq.

[12] Public Service Company Plan in Compliance with H.B. 10-1365, Decision No. C10-1328 (Colo. Pub. Util. Comm’n Dec. 15, 2010) (final admin. review).

[13] Id. at 39-40. Cherokee 2 was designated for reuse as synchronous condensers and installation of a capacitor bank for system stability and emission reduction purposes.

[14] Id. at 42. Arapahoe 3 was designated for reuse as synchronous condensers and installation of a capacitor bank for system stability and emission reduction purposes.

[15] The Colorado Independent Energy Association (“CIEA”) late-filed a RRR and the Commission deemed it to be untimely filed. Public Service Company Plan in Compliance with H.B. 10-1365, Decision No. C11-0121. (Colo. Pub. Util. Comm’n Feb. 3, 2011) (order addressing application for rehearing, reargument, or reconsideration).

[16] Id.

[17] Routt County District Court is in Steamboat Springs.  Routt County is the home of  “the Twentymile Mine” which is expected to run out of coal by 2013 (See Tom Ross, New coal mine planned for West Routt, Peabody Energy's construction of Sage Creek facility could begin in 2010, Steamboat Today, Sunday, April 5, 2009, available at http://www.steamboattoday.com/news/2009/apr/05/new_coal_mine_planned_west_routt/.)

[18] Colo. Rev. Stat. § 40-6-115.