From a strict dollars-and-cents perspective, considering only those costs that can both be easily quantified and affect only CSU customers, it might be easy to justify keeping Drake open for the next five, 10, 20 or 100 years.
Coal is cheap, the power plant operates reliably except when it catches fire, and closing it in the near future would cost plenty. Electric customers not only would be saddled with more expensive power, but they’d also have to pay for the stranded cost of recently installed pollution control equipment, as well as decommissioning costs to make the plant and the surrounding area safe for redevelopment.
But those aren’t the only considerations. There are other costs, but last year, councilors decided not to pursue an accounting of the environmental and societal costs surrounding the controversial Drake plant. End of story? Not quite.
So why not know everything you can? You have a hard decision to make (about closing Drake).”
– Richard Skorman
At the request of new Councilors Tom Strand and Bill Murray, the board agreed to reconsider its previous direction. Instead of classifying societal costs as vague, unquantifiable “externalities,” CSU staff would be charged with the task of “determining a monetary value or a range of values for societal costs to be included in the post-analysis of the final three to five portfolios.”
After several residents weighed in on the plan followed by a brief discussion, Chairman Andy Pico polled the board. Jill Gaebler joined Strand and Murray in support of the change. Their six colleagues, by contrast, committed to “staying the course.” They didn’t say so in so many words, but they clearly feared that such direction would give Drake opponents an opportunity to commingle fact with fiction, equating unquantifiable hypotheses with hard costs and benefits.
Drake opponents were dismayed, apparently believing that they had lost a round in the continuing battle over the fate of the coal-fired power plant.
“I don’t know why anyone would ever bother to speak to those people,” said Old Town Bike Shop owner John Crandall. “I’ve been here for 42 years, and we‘ve only had a good Council for two of them.”
Others also expressed dismay at the board’s decision.
“When I was on Council, I always wanted all the information,” said former Councilman and downtown business owner Richard Skorman. “So why not know everything you can? You have a hard decision to make (about closing Drake).”
Later this year, the board will consider an updated EIRP, a strategic plan to guide resource acquisition, conservation and demand-side management decisions. The plan, last updated in 2012, will address “new and changing energy-related factors including the proposed EPA Clean Power Plan, Colorado Renewable Energy Standards, the 2020 Energy Vision, potential fossil-fuel plant decommissioning, fuel prices, load and bill impact, demand response and reliability, as well as new technologies.”
But market forces might have made the decision for the CSU board.[/text_block_nav][text_block_nav title=”The stock market speaks”]The stock market speaks
The plan is expected to offer a variety of possible options to the board, ranging from immediate closure and decommissioning to no action at all. It may be that a majority of the CSU board will support keeping Drake, but millions of investors whose collective wisdom determines the stock market’s direction have already come to a different conclusion.
The market’s message seems clear: Coal is dead.
The three largest American coal companies, Arch Coal, Alpha Natural Resources and Peabody Coal, are all listed on the New York Stock Exchange.
Peabody traded at $88 a share in May 2008 and closed at $2.38 earlier this week. Arch traded at around $75 a share and is now at $0.39. Alpha Natural Resources peaked at $105 a share in May 2008 and now trades at $0.40. Their long decline has accelerated in the past year — according to Bloomberg, the average one-year return on equity of the three stocks has been a negative 88.08 percent.
Why the collapse? It’s not principally due to bad management, EPA regulations, the Sierra Club or the “War on Coal.” It’s because demand is weak, and growing weaker. China, now the world’s largest market, is both limiting coal imports and reducing consumption. Low natural gas prices have encouraged utilities to shut down coal burners, while wind and solar have made inroads as well.
Coming EPA regulations almost certainly will put a price on carbon emissions, dealing coal yet another blow. But even if those regulations are deferred or abandoned, it might not make much difference. Utilities throughout the country have placed their bets on gas.
Combined-cycle gas turbine power plants are easy to permit, easy to build and relatively cheap to operate. They emit far less carbon dioxide per BTU than coal plants, negligible amounts of sulfur oxides and nine times less nitrous oxides than equivalent coal plants. Gas-fired plants don’t require complex, expensive pollution control systems such as those currently being installed at Drake by Neumann Systems Group.
Five years ago, writing before shale gas altered the energy equation, Energy Technology Systems Programme described the advantages of CCGT power plants.
“In comparison with coal-fired power,” ETSAP noted, “CCGT plants offer lower investment costs and emissions (e.g. CO2), shorter construction time, high service flexibility, but also higher fuel costs.”
In 2010, fuel costs were the only negative. In 2015, that’s less of an issue – and investors seem to agree.
Council might incline toward a “wait-and-see” policy, continuing to operate Drake while monitoring the regulatory climate. Yet, as the collapse in coal stock prices demonstrates, inaction is often the worst option.[/text_block_nav][text_block_nav title=”It’s a gas”]It’s a gas; it’s a gas; it’s a gas, gas, gas
That argument may not apply to customers. Weak markets drive producers into bankruptcy, but low commodity prices create opportunity. So far that doesn’t appear to be the case.
Much of the city’s coal comes from Powder River Basin in Wyoming. According to the Energy Information Administration, the spot price of PRB coal earlier this week was $11.55 per short ton. Tuesday, Scotia Howard Weil’s weekly coal report noted that U.S. production had fallen to its lowest level since 1997, and, even more tellingly, reported that “The coal-fired fleet burning PRB coal is uneconomic at current gas prices.”
Does that mean Drake is uneconomic? Maybe not. CSU reported to the EIA that the organization’s delivered PRB coal price (coal and rail costs) in May was $1.59 per MMBtu Term Contract and $1.47 per MMBtu Spot Contract. That’s considerably below national average coal costs, and more than competitive with gas costs.
Council has a difficult job before it. The market tells us that gas is the future, but our pocketbooks may prefer coal. In the end, they’ll have to figure out how to value those pesky “externalities.”[/text_block_nav]