IREA bets on coal over iffy natural-gas prices despite looming carbon tax

Pit traders at the Chicago Mercantile Exchange. (Photo/artemuestra, Flickr)

Pit traders at the Chicago Mercantile Exchange. (Photo/artemuestra, Flickr)

The volatility of natural gas prices causing a major production downturn on Colorado’s Western Slope is exactly why William Schroeder Jr. of the Intermountain Rural Electric Association says the state’s largest co-op spent $366 million on a new coal-fired power plant.

“The board saw the price of natural gas fluctuating so badly that we couldn’t keep our rates consistent and not have them jump up and down like a rubber ball,” said Schroeder, IREA’s manager of public affairs.

But the IREA’s enormous investment in Xcel Energy’s new Comanche 3 coal-fired plant near Pueblo was a controversial decision for some IREA members who favor more renewable energy over carbon-belching coal, especially in light of a possible carbon tax being debated in Congress as part of a clean-energy bill.

The specifics of a carbon cap-and-trade system aren’t clearly defined in the draft version of U.S. Reps. Henry Waxman and Ed Markey’s American Clean Energy and Security Act, but Colorado-based conservation organizations are pushing for a price-per-ton penalty for carbon dioxide emissions.

“The current draft bill is really silent on [how the cap would work],” said Keith Hay, energy advocate for Denver-based Environment Colorado. “The way we look at it is it’s a price per ton and the dirtier stuff pays more, so coal would certainly pay more than natural gas, which would pay more than nuclear, which would pay more than solar.”

Schroeder, general manager Stan Lewandowski and most of the board members of the IREA, which serves nearly 138,000 customers along Colorado’s south-central Front Range, share the view that global warming is based on junk science and coal makes the most sense because it’s the cheapest, most reliable source of energy.

But coal produces nearly twice the emissions of natural gas, according to U.S. Department of Energy’s Energy Information Administration. In 2007, coal-generated electricity was responsible for 2.154 billion metric tons of carbon dioxide in the atmosphere compared to 1.234 billion tons for natural gas-fired power plants.

That’s all right, Schroeder said, because the price of coal is so much more stable compared to natural gas. Gas is fairly cheap right now, but it’s likely to spike back up once the economy recovers, while coal prices in some regions have stayed fairly predictable during the same period.

Natural gas has dropped from a high last July of nearly $14 per MMBtu (Million British Thermal Units) to below $4 per MMBtu last month. In April 2008 it was trading between $9 and $11 per MMBtu.

Fairly low Btu (British thermal unit) Powder River Basin coal, from one of the world’s largest reserves in Wyoming and Montana, was selling for around $15 a short ton in April 2008 and just about $13 a short ton early last month (it’s now down under $9).

Once Comanche 3 is up and running, Schroeder, a former state senator from Morrison, said the IREA will go from purchasing about 93 percent of its power (much of it from natural gas) from Xcel to just about 43 percent. Schroeder said IREA will then get about 50 percent of its power from the low-cost and more stable coal-fired plant, with a small percentage of hydro mixed in.

Schroeder said IREA currently pays about 6.5 cents a kilowatt hour for Xcel’s natural-gas-heavy supply, but will only pay about 4 to 4.5 cents per kilowatt hour for power from Comanche 3.

If a carbon cap is passed, which he adamantly opposes as an unjustified bid to drive up energy costs, the IREA will still be OK despite a potentially much higher penalty for coal-fired power plants.

“Let’s say if it turns out to be two cents a kilowatt hour,” Schroeder said. “That puts us right back where we are today, and yet still we have stability. If we don’t do this, we won’t have stability and we’ll be at the mercy of the up and downs [of natural gas].”

But under a cap-and-trade system potentially far more aggressive than what’s currently in place in the European Union, Hay says the cleaner the source of the power, the lower the costs of doing business.

“The issue is the cleaner you are, the easier it is for you to come in under your cap and therefore to turn this into an opportunity to make money by selling the extra credits that you have, so that market mechanism would really drive down the costs,” Hay said.

Cleaning up the coal industry may be one of the costliest propositions in American history, according to a “60 Minutes” report last Sunday, and IREA members who recently unsuccessfully tried to run for the co-op’s board on green tickets accused current board members of being in denial on the topic.

Like this story? Steal it! Feel free to republish it in part or in full, just please give credit to The Colorado Independent and add a link to the original.

Got a tip? Story pitch? Send us an e-mail. Follow The Colorado Independent on Twitter.

About the Author

David O. Williams

is an award-winning reporter who has covered energy, environmental and political issues for years. His work has appeared in the New York Times, Chicago Tribune and Denver Post. He's founder of Real Vail
and Real Aspen.

Leave a Response

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>