Xcel had proposed building 1800 MW of gas-fired turbines in Colorado over the next four years to help it meet a growing demand for energy along the populated eastern base of the Rocky Mountains. But, what it did not want to build was a wind plant proposed by Enron Wind for a site near Lamar in the south-east corner of the state.
Environmental groups challenged that decision, arguing that the utility applied penalties to wind that drive up costs the utility will not incur. John Nielsen of the Land and Water Fund of the Rockies said Xcel levied extra "ancillary service" penalties on the Lamar wind farm -- load-following and spinning reserves -- for when the wind stops blowing.
"We agree with some impacts of an intermittent resource on the system, but [Xcel's] methodology overestimates the cost by a factor of about five," Nielsen said. "They say the cost is in the $60 million range. We think it should be about $10 million." Nielsen adds that wind, which has no fuel costs, should be used as a hedge against high gas prices which have more than doubled in Colorado over the past year. Xcel, previously Public Service Co of Colorado, expects gas prices will temper somewhat over the next few years, however.
The company's David Eves argued that the intermittent nature of wind cuts the real capacity of the Lamar project about two-thirds to around 49 MW. That means the utility must have other generation for when the wind stops blowing -- and that will cost more than wind advocates are willing to admit. "From a cost standpoint, it doesn't fit," Eves said. "It's not an economical resource at this point even under the highest gas price scenario."
Following the PUC decision, however, Xcel will now open negotiations with Enron Wind on the 162 MW project, says, the company's Steve Roalstad. The utility is not happy with Enron's bid, however. "We keep price information confidential, but I can say we've been able to acquire wind purchases at costs markedly below what has been proposed here," Eves says. Xcel wanted to issue another bid for the wind power, but the PUC said no.
Roalstad says the difference between Xcel's arguments and those of the environmentalists hinge largely on the numbers, both the estimates of future gas prices and the costs of ancillary services. "The PUC said if Xcel's numbers turn out to be more correct, it has given its permission for us to come in and recover those costs," he adds.
The commission agreed with its staff, which supported the wind bid, saying Xcel's view of its own wind projects in other states was more favourable and the penalties Xcel put on wind had not been agreed to by any government agency. In approving the 1800 MW of gas generation, it ruled that Enron's project was a cost-effective bid and should be included in the company's resource portfolio.
"We believe this is a reasonable plan that, with the addition of the wind project, will result in the lowest cost of electricity to Colorado ratepayers over the next five years," says PUC chairman Ray Gifford.