N.M. coal power faces uncertain future

ALBUQUERQUE — Rural New Mexicans’ electric bills could jump substantially if the company that supplies their power continues to rely on coal rather than renewable energy sources or conservation, a Wall Street market analysis firm said in a report issued this week.

Innovest Strategic Value Advisors says some form of carbon tax will likely be enacted in the near future, either by Congress or the western states, which will drive up the cost of coal-fired electricity and make wind, solar and other forms of renewable power more cost-effective than coal. The report focuses on plans by Tri-State Generation and Transmission Association Inc. to spend billions of dollars on a new coal-fired power plant in the region, which the report calls a poor investment and bad for Tri-State’s rural customers.

A Tri-State spokesman called the Innovest report “flawed and inaccurate” and told the Independent that Tri-State is moving ahead carefully with both its customers’ needs and the environment in mind.

Tri-State isn’t a single utility, but rather 44 rural electric co-operatives that have banded together to produce, buy and distribute power from southern New Mexico to Wyoming. Of the 16 electric co-ops in New Mexico, 12 are members of Tri-State, including those that supply power to to Taos, Grants, Socorro and Mountainair.

Unlike urban electric utilities, Tri-State is unregulated. If the utility that serves Albuquerque and Santa Fe wants to invest in a new power plant, it must convince the state Public Regulation Commission that the investment makes economic sense for both the utility and its customers. Tri-State can invest however its 44 member utilities want, and it can pass the costs on to its customers.

And that’s the concern, said Theo Spencer of the Natural Resources Defense Council (NRDC), an environmental advocacy group that funded the Innovest report. Tri-State is one of the best-known and politically powerful of the rural electric providers, he said. “We wanted to see how they were balancing the needs of their customers and seeing if they were up to speed on clean energy technology,” such as wind, solar and energy-efficiency. “They don’t seem to be taking advantage of that,” he said.

Tri-State had proposed to add a 700-megawatt, coal-fired addition at the Holcomb Station power plant in western Kansas, alongside a second 700-megawatt addition from which it planned to buy power. Both projects are in limbo after Kansas officials refused to grant the necessary permits; Tri-State’s appeal is pending in the Kansas Supreme Court.

As an alternative, the association also has proposed building the power plant in southeast Colorado and is starting to purchase the necessary agricultural water rights, said Tri-State spokesman Jim Van Someren. If the coal plant falls through, the water could also be used for a nuclear plant at the same site, he said.

While coal historically has been the cheapest electricity in the arid West, that’s about to change, according to the Innovest study. For one thing, the cost of coal has been rising over recent years, as has the cost of power-plant construction.

And then there’s Washington, D.C., the study notes:

Consensus within the utility industry indicates that federal legislation on climate change is impending. President-elect Barack Obama has pledged to implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions by 80 percent by 2050. The proposed Obama-Biden cap-and-trade policy would require all pollution credits to be auctioned. In addition, members of the 110th Congress have introduced climate change legislation at a faster pace than any previous Congress. As of July 2008, lawmakers had introduced in excess of 235 bills, resolutions, and amendments that address climate change and GHG [greenhouse-gas] emissions. Furthermore, in 2007, the Supreme Court ruled that the United States Environmental Protection Agency (EPA) has the authority to regulate carbon dioxide and other greenhouse gases as pollutants under the Clean Air Act.

The upshot is that the price of pollution from coal-fired power plants will rise. The only question is how much. Innovest says that because 70 percent of Tri-State’s power comes from coal, the average Tri-State customer could soon have to shell out an extra $82 to $450 a month for power, depending on how the carbon tax is structured.

On the other hand, all or part of the revenue raised by the carbon tax could be returned to consumers to help defray those additional costs. That’s another detail yet to be worked out by lawmakers.

It makes more sense, according to Spencer, for utilities to invest in renewable energy and conservation than in coal and to use natural gas to help fill the daily and seasonal changes in demand. “Right now it’s free to emit global-warming pollution, but very soon it won’t be,” he said.

But is it the end of the coal era? No way, says Tri-State’s Van Someron. “We think it’s a viable fuel for the future,” he said.

Because there’s nothing concrete yet about carbon legislation, he said, it’s too early for Innovest or anyone else to know what effect a cap-and-trade plan would have on electricity rates. And while plant construction costs remain high, the cost of coal has started to drop, he said.

Perhaps most important, Van Someron said, variable winds can’t replace the steady electric output of a coal plant. “We need baseload power 24/7, 365. Even if you could create enough wind turbines, it’s certainly not baseload.”

He said the Innovest report should be taken with a grain of salt. “It was funded by a special interest group (NRDC), so you can’t expect it to be balanced or accurate.”

At least one of Tri-State’s customers has some concerns about the future, however. Luis Reyes, manager of Kit Carson Electric Cooperative in Taos, said his utility has been pushing Tri-State to broaden its energy portfolio to include more renewable energy or to allow Kit Carson to buy power from other producers so it can meet the state’s renewable energy requirement — 10 percent by 2020.

“We think Tri-State needs to get aggressive and work out a renewable energy program for its members,” Reyes said. While Tri-State has been expanding its own renewable energy portfolio, he said, “Our frustration is that we don’t think they’re moving fast enough.”