WHOLESALE POWER COSTS TO RISEIREA [intermountain Rural Electric Assoc.] obtains its power supply from three sources: The Western Area Power Administraion, a federal agency that provides hydropower, Comanche Unit 3, the new supercritical pulverized coal plant in Pueblo owned jointly by IREA, Xcel Energy and Holy Cross Energy; and Xcel Energy, which sells power to IREA under a wholesale rate tariff. This year IREA expects to purchase more than 40% of its power from Xcel. The cost of that power is going up.
In 2010 the Colorado General Assembly approved the so-called "Clean Air Clean Jobs Act," legislation that was written behind closed doors in a collaborative effort by the gas industry, Xcel, the administration of former Governor Ritter, and other interests including even members of the Colorado Public Utilities Commission. The legislation was rushed through the General Assembly in only seventeen days, with little debate and no ammendments permitted. The Act established the framework for the retirement of existing, low-cost generation plants and their replacement with new gas generation plants. As called for by the Act, the PUC set up a "fast track" process and in December 2010 approved an Xcel plan to implement the Act. The plan calls for the retirement of five coal generation plants, conversion of two coal plants to gas plants, construction of a new gas plant, the conversion of two shut-down plants to synchronous condensers (needed to maintain transmission voltage support upon retirement of some of the plants), and installation of emissions controls at three coal plants.
Needless to say, this plan will be expensive. Xcel estimated it would cost over one billion dollars, and it appears that estimate may be too low. In a recent PUC filing the company says the new gas plant alone will cost $534 million, with a 20% margin of error. Ratepayers also will continue to pay for the retired plants even after they are closed.
In February Xcel filed an application with the Federal Energy Regulatory Commission for a new "formula rate" wholesake tariff. The new tariff is designed to allow Xcel to automatically pass through its increased costs to wholesale customers.
IREA and other wholesale customers protested the application. We have been negotiating with Xcel to reduce the cost of the new tariff, but there will be additional and recurring increases to our wholesale rate going forward. Since the fall of 2009 IREA has had a fixed rate that does not pass through power cost increases to customers, so the new wholesale rate increases will not have an immediate effect on consumers. We will continue to absorb increases as long as we can without jeopardizing the financial welfare of the Association.
