Xcel Energy’s environmental policy approach seeks to balance costs and environmental benefits while maintaining a reliable utility system. We pursue proactive emission reduction and clean energy strategies to improve the environment, control costs and meet the interests of our communities. It is a sensible approach to providing clean energy for our customers.
Our efforts have already reduced considerable future environmental costs to our customers and risk to shareholders. In 2014, we advanced environmental initiatives and opposed some regulations when necessary to protect the interests of our customers, communities and shareholders. We regularly engage in discussions with policymakers, regulators, energy providers, the environmental community and customers regarding environmental issues, with the following principles in mind:
- Xcel Energy strives to comply with all environmental regulations. We have developed and are continually improving our environmental management system to meet the compliance challenges of the next decade, including the growing complexity of environmental regulation.
- On behalf of customers, we have invested substantially in environmental improvements and clean energy. We continue to look for ways to proactively reduce environmental risk. These efforts in anticipation of laws and regulations can offer significant value in the form of lower long-term cost to customers. Xcel Energy’s proactive emissions reduction projects, such as Clean Air-Clean Jobs and the Minnesota Metro Emissions Reduction Project, have allowed us to avoid the cost and disruption seen in other parts of the industry.
- We believe that environmental and climate policy should appropriately recognize the environmental benefits of our proactive efforts.
- Environmental and climate policy should drive forward the development of new, cost-effective clean energy technologies. As the nation’s No. 1 utility provider of wind energy and a leader in solar and energy efficiency programs, we are optimistic about the future opportunities that clean energy technologies present.
- Cascading environmental mandates, such as stack-by-stack or emission-specific compliance requirements, should be coordinated on a system-wide basis to maximize cost effectiveness and environmental benefits.
- Flexibility mechanisms, such as alternative compliance options and market-based environmental programs, should be incorporated to implement rules. Flexibility yields real cost benefits to customers while maintaining environmental benefits.
Policy and Regulatory Developments for 2014
The U.S. Environmental Protection Agency and state environmental regulators in 2014 continued to develop a broad set of environmental rules covering climate, air quality, water quality and coal ash that will likely require owners of many U.S. power plants to modify operations and install new environmental controls in the coming years. Meanwhile, continued low natural gas prices and declining prices for renewable energy have provided utilities with more cost-effective options. Many utilities are considering retiring aging coal plants and replacing them with natural gas-fueled generation rather than adding controls to meet new regulations.
Key policy, regulatory and legal developments this past year included:
- Greenhouse gas rules for electric generating plants
Under the President’s Climate Action Plan announced in 2013, the EPA proposed three separate rules regulating greenhouse gas (GHG) emissions from new, existing and modified or reconstructed power plants. The EPA plans to finalize all three rules in summer 2015.
- The proposed rule for new power plants would set maximum emission rates for coal and natural gas combined-cycle units built after January 2014. It effectively bans the construction of new coal power plants unless about half of the CO2 emissions can be captured and stored. This rule has limited implications for Xcel Energy since we have no plans for new coal plants. Nonetheless, we opposed the carbon capture and storage (CCS) requirement in our comments to the EPA since CCS does not meet the statutory requirement as an “adequately demonstrated” technology.
- The proposed rule for existing coal and natural gas combined-cycle units installed before January 2014 would set interim (2020-2029) and final (2030) maximum GHG emission rates (pounds of carbon dioxide per megawatt hour) for the electric system in each state. This rule, which the EPA calls its Clean Power Plan, is described in more detail in this report. Of the three greenhouse gas rules, the Clean Power Plan will by far have the most impact on our company and the industry.
- The proposed rule for modified and reconstructed sources—existing sources where a modification increases hourly emission rates or where a retrofit exceeds half the capital cost of a new unit—would require a combination of best operating practices and equipment upgrades to meet a lower emission rate. The corresponding standard for modified or reconstructed natural gas combined-cycle units is the same as the standard for new units. The type of changes that might trigger these requirements are not common in the power industry.
- Interstate air quality
The Cross State Air Pollution Rule (CSAPR) addresses long-range transport of particulate matter and ozone by requiring reductions in SO2 and NOx from utilities in the eastern half of the United States using an emissions trading program. For Xcel Energy, the rule applies in Minnesota, Wisconsin and Texas.
Since the CSAPR was finalized, the rule has been subject to legal review before both the D.C. Circuit and the U.S. Supreme Court. The D.C. Circuit had vacated the rule and remanded it back to the EPA in August 2012, but in 2014, The U.S. Supreme Court overruled the D.C. Circuit’s ruling. Following this outcome, the EPA has begun to administer the CSAPR in 2015. While there are still remaining issues for the D.C. Circuit to rule on in 2015 that could change the status of the CSAPR, the rule is currently in effect and Xcel Energy is complying with the rule.
- Texas/New Mexico. Compliance costs for Xcel Energy’s operations in Texas and New Mexico are expected to be a small fraction of what they would have been in 2012 when the rule was first planned for implementation. Multiple changes to our system in the region have substantially improved our ability to comply at a lower cost of about $7 million annually.
- Upper Midwest. With the retirement of Black Dog Units 3 and 4 in early 2015, we hold enough allowances to comply with the CSAPR in Minnesota at a low cost. However, we remain concerned that the final rule ignored considerable emissions reductions already achieved at the High Bridge and Riverside Plants. For Wisconsin, we have complied with the CSAPR’s predecessor rule since 2009. We plan to cease coal operations at Bay Front Unit 5, which will help us operate within the CSAPR emission allowance allocation for SO2, and we anticipate compliance with the CSAPR for NOx through operational changes or allowance purchases.
- Regional haze and visibility
The Clean Air Act may require power plants to install emission controls to reduce alleged haze and visibility impacts of SO2, NOx and particulate matter emissions on national parks and wilderness areas.
- Colorado. The EPA approved Colorado’s State Implementation Plan (SIP) for regional haze in 2012, which incorporates changes the company is implementing under its Clean Air Clean Jobs project, as well as emission controls installed at our Comanche plant. The changes address all currently known regional haze requirements. In addition, pending in the U.S. Court of Appeals for the 10th Circuit is WildEarth Guardians’ challenge to Colorado’s best available retrofit technology (BART) determination for Comanche.
- Minnesota. The Minnesota Pollution Control Agency (MPCA) issued Minnesota’s regional haze State Implementation Plan (SIP), which identifies as best available retrofit technology (BART) the installation of NOx combustion controls and SO2 scrubber upgrades at Units 1 and 2 of our Sherburne County Generating Plant (Sherco). The EPA has approved the SIP and accepted the emission limits for Sherco. Several environmental groups sued the EPA, asking the court to reverse the agency’s decision approving Minnesota’s haze plan and require the EPA to examine additional NOx emission reductions as BART for Sherco Units 1 and 2. Separate litigation under the Reasonably Attributable Visibility Impairment (RAVI) provisions of the Clean Air Act alleges visibility impairment in Voyageurs and Isle Royale National Parks attributable to Sherco Units 1 and 2.
Based on the current level of controls for particulate matter and the upgraded controls for SO2 at Sherco Units 1 and 2, it is not expected that any further reductions of these pollutants would be required due to implementation of visibility programs. However, for NOx, the outcome of either lawsuit could oblige Xcel Energy to consider either selective catalytic reduction controls (SCR) or retirement for these units. If the Regional Haze litigation results in new revisions to Minnesota’s Regional Haze SIP, the currently selected controls for Sherco Units 1 and 2 might continue to be adequate, or the BART determination might be revised to include SCR on one or both units. If the RAVI litigation results in a new BART determination process for Sherco Units 1 and 2, the currently selected controls might continue to be adequate, or the BART determination might be revised to include SCR on one or both units. In either case, we are concerned that a requirement for SCRs would not strike the right balance between the visibility improvement that might be predicted to occur and the additional cost for customers.
- Texas/New Mexico. Xcel Energy owns two coal-fueled electric generating plants, Harrington and Tolk, located in the Texas Panhandle. These plants are the backbone of our electricity system in the region and a primary reason that our electricity rates are so affordable. Both use low-sulfur coal, and early on, were equipped with particulate emission controls. We have installed low-NOx burners on all units at Harrington and Tolk, and both plants use advanced neural networks that continually adjust operations to achieve efficiency and reduce emissions.
In March 2009, the State of Texas submitted to the EPA a revision to its State Implementation Plan (SIP) for addressing regional haze over the first planning period that runs 2008 through 2018. Texas submitted this SIP revision to meet the requirements of the Clean Air Act and the EPA's rules that require states to prevent any future, and remedy any existing, manmade impairment of visibility to assure reasonable progress toward the national goal of achieving natural visibility conditions.
The EPA proposed in 2014 to partially approve and partially disapprove the revision to the Texas SIP. The EPA’s proposed Federal Implementation Plan (FIP) for Texas would impose costs on our operations in Texas that we believe are not justifiable. By requiring two new scrubbers on our Tolk units, the EPA is proposing that our customers expend hundreds of millions of dollars for a visibility benefit that is estimated to be insignificant.
We believe that the EPA should not require the scrubber installations in this planning period. Instead, the agency should wait on this decision until updated data is available and the effect of new programs is known, rather than continuing to rely on data and modeling that are now more than 10 years old. In addition, by that time, we also would have a better sense of our compliance plans under the EPA’s Clean Power Plan. This would allow for more comprehensive planning to assure the best economic and environmental benefit to our customers, without impacting long-term progress toward the goal of attaining natural visibility in Texas’ national parks.
- Mercury and Air Toxics. Under national standards for mercury and other hazardous air pollutants from power plants, coal- and oil-fueled units larger than 25 megawatts are required to meet new emission limits. The standards apply to mercury, acid gases (hydrochloric acid) and non-mercury metals, such as arsenic, beryllium and lead. Our plants are complying with MATS requirements that took effect April 15, 2015. Some utilities and the mining industry have challenged MATS, but Xcel Energy is not part of this litigation. In November 2014, the Supreme Court agreed to hear the case.
- Colorado. Xcel Energy is well positioned to comply with MATS thanks to our Clean Air-Clean Jobs project. Plus, the remaining coal units on our Colorado system are equipped with controls that meet all MATS emission requirements.
- Texas/New Mexico. To comply with the new rule, we have installed activated carbon controls on the units at Harrington and Tolk generating plants with the goal of reducing mercury emissions by 90 percent.
- Upper Midwest. Xcel Energy is well positioned to comply with MATS thanks to early actions taken under the Metro Emission Reduction Project. Plus, we currently use activated carbon injection to control mercury emissions at Sherco and Allen S. King generating plants in Minnesota. Mercury controls were already required by Minnesota statute, and SO2 control improvements were needed for regional haze requirements. We also will cease coal operations at Unit 5 of our Bay Front Generating Plant in Wisconsin and Units 3 and 4 at Black Dog Generating Plant in Minnesota.
- Particulate matter. The EPA in December 2012 lowered the annual air quality standard for PM2.5 to 12 micrograms per cubic meter (µg/m3) from the prior annual standard of 15 µg/m3. In December 2014, the EPA finalized its area designations for the lower PM2.5 annual standard and did not classify nonattainment areas in any of Xcel Energy’s states.
- Ozone. Ozone, commonly referred to as smog, is formed from the reaction of oxides of nitrogen (NOx) and volatile organic compounds (VOCs) in the presence of sunlight. Ozone levels are highest in the summer months. In 2008, the EPA finalized the current National Ambient Air Quality Standard (NAAQS) for ozone, setting the primary standard at 75 parts per billion (ppb). In November 2014, the agency proposed an updated Ozone NAAQS, proposing to set both the primary (public health) and secondary (public welfare) standards as eight-hour standards within a range of 65 to 70 ppb, and also seeking comment on levels for the primary standard as low as 60 ppb. Ozone levels in our states could exceed the new standard. For example, some areas in Minnesota may not attain a standard of 65 ppb. However, we do not know where the EPA will set the final standard, whether areas of Minnesota will be classified as nonattainment, and if so, whether the Minnesota Pollution Control Agency will seek additional NOx emission reductions from power plants or focus instead on mobile and other sources.
- Water quality. The EPA in June 2013 published proposed Effluent Limitations Guidelines for power plants that use coal, natural gas, oil or nuclear materials as fuel and discharge treated effluent to surface waters, as well as utility-owned landfills that receive coal combustion residuals. The proposal includes eight potential approaches, differing in the number of waste streams covered, size of the units controlled and stringency of controls. More stringent effluent limitation guidelines may go into effect with the final rule, anticipated in September 2015. Under the current proposed rule, facilities would need to comply as soon as possible after July 2017 but no later than July 2022.
- Waters of the United States. In April 2014, the EPA and U.S. Army Corps of Engineers proposed a new definition of what water bodies and topographic features are considered Waters of the United States (WOTUS). This definition is the basis of the federal regulatory agencies’ jurisdiction under the Clean Water Act and triggers numerous permitting and spill prevention requirements. For instance, any person that discharges dredged or fill material into WOTUS must obtain a permit. The revised definition could impact permitting and wetland mitigation requirements for infrastructure projects and complicate the siting and construction of wind and solar facilities. Xcel Energy submitted comments on the EPA’s proposed re-definition by the November 2014 deadline, and the agency is expected to issue a revised definition sometime in late spring 2015.
- Coal combustion residuals. In spring 2015, the EPA published its final rule for coal combustion residuals (CCR). The rule regulates CCRs or coal ash as a non-hazardous waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA-D). The rule establishes minimum national standards for the design, operation and closure of landfills and surface impoundments. Beneficial use of CCRs as defined in the rule is exempted. The rule is unusual because it is self-implementing, with the EPA exercising no direct permitting or enforcement authority. Based on our initial review of the final rule, we believe our costs for the management and disposal of coal ash will not significantly increase under the new rule.
- Cooling water intake. The EPA has been developing rules for cooling water intake structures under section 316(b). Cooling water intake structures that previously met state site-specific Best Professional Judgment determination likely face more stringent regulations and require additional equipment to protect aquatic biota. Under the final rule released in May 2014, closed-cycle cooling towers are not mandated, but all power plants using more than 2 million gallons of surface water per day are required to take measures to reduce aquatic impacts. This could have significant impacts and costs at some Xcel Energy power plants.
Xcel Energy’s Response to the EPA’S Clean Power Plan
In the absence of comprehensive national climate legislation, the EPA is using its Clean Air Act authority to develop regulations for new and existing power plants. Xcel Energy has been working with the EPA, our state clean air agencies, other utilities and environmental stakeholders, advocating for efficient and effective policy based on our experience. After all, our clean energy strategy serves as a model for how states and utilities can work together to reduce emissions at the lowest cost to customers. With all that Xcel Energy has accomplished for customers, we want to ensure that these potentially far-reaching regulations recognize the value of state clean energy programs and Xcel Energy’s environmental leadership position.
The EPA’s Clean Power Plan is the proposed rule for existing power plants under section 111(d) of the Clean Air Act. The proposal sets emission rate targets for the overall electric system in each state based on four building blocks that include:
- Coal unit efficiency improvements
- Shifting generation from coal to natural gas combined-cycle units
- Expansion of renewable energy and preservation of “at risk” nuclear capacity
- Energy efficiency.
State environmental agencies are required to submit implementation plans by summer 2016—with possible extension to summer 2017 or summer 2018 for states working jointly with other states—or else accept a federal plan the EPA designs. The proposed rule provides some flexibility, since states are not required to use the same combination of building blocks to achieve their goals as the EPA used in setting their goals.
Xcel Energy has significant concerns with the rule as proposed:
- It uses a 2012 baseline and effectively sweeps away credit for the proactive reductions Xcel Energy and its states achieved prior to 2012. It sets more stringent targets for clean energy leaders than for states that have done relatively less to date. This in effect punishes our customers, since the next increment of reductions in the proactive states is likely to be more expensive, and sends the signal that utilities and states should have delayed taking action until mandated to do so. The rule also has relatively weak incentives for further reductions prior to 2020.
- It imposes relatively stringent interim targets that require many states to achieve most of their 2030 goal by 2020 or soon thereafter. This could cause greater economic disruption, premature plant retirements and reliability issues, since the necessary infrastructure (gas pipelines, transmission, new power plants) cannot be built in such a short time after state plan approval.
- The building blocks are not technically feasible in all states, and the EPA has not fully considered the interactions among building blocks.
- The rule has significant legal shortcomings, representing an approach to regulation unprecedented under the Clean Air Act.
- The rule generally fails to recognize the integrated, interstate nature of the electricity system, and sets high barriers for states to collaborate. Emission reduction measures implemented in one state often have effects in other states, and cross-state collaboration may be desirable to take advantage of the lowest-cost CO2 reduction opportunities across a region.
In short, the Clean Power Plan is unlike any other environmental rule in that compliance involves not the installation of a control technology, but an overall shift in energy policy toward lower-emitting resources. Compliance would be analogous to state- or regional-level integrated resource planning, shifting toward more renewable energy and energy efficiency, increased natural gas use, reduced use and/or retirement of coal plants.
In response, Xcel Energy has proposed to the EPA targeted fixes that could better recognize early action by leading states and utilities, provide stronger incentives for further early action, and avoid the risks posed by the interim targets. We have urged the EPA to:
- Recognize the retirement of coal plants occurring prior to the 2012 baseline
- Account for the effect of renewable energy on the dispatch of natural gas combined-cycle plants
- Grant states the flexibility to establish their own emission reduction glide paths to the 2030 goal
- Allow leading renewable states to bank renewable energy for use in meeting their 2030 compliance obligations
- Fix technical problems in the rule that harm clean energy leaders
The EPA plans to finalize the Clean Power Plan in the summer of 2015. In the meantime, we have begun to work with the responsible agencies in several of our states to discuss key questions in the design of state implementation plans.
Environmental Considerations with Natural Gas Production
Xcel Energy relies on a consistent supply of natural gas for generating electricity and for distributing to customers for use in their homes and businesses. We are not a natural gas producer but purchase gas as a commodity. Our gas purchases are generally not tied to any specific well or production technique since generally all the gas produced combines as it flows into the national pipeline system.
Our customers are currently benefiting from low natural gas prices. Lower fuel costs have enabled us to make system improvements that contribute to the safety and reliability of our natural gas system with less impact to our customers’ bills. For instance, we are adding natural gas-fueled generating plants that will modernize and diversify our power plant fleet while also enhancing our ability to integrate more variable renewable energy.
The use of natural gas to produce electricity has lower emissions than coal, producing about half the carbon dioxide emissions for each megawatt-hour generated while also significantly reducing sulfur dioxide, nitrogen oxides, mercury, particulate matter and other emissions. From a resource standpoint, natural gas-fueled generation also significantly reduces water use on a per-megawatt-hour basis compared to coal and it produces no waste byproducts, like coal ash.
Today’s reduced natural gas prices are the result of production methods that have significantly increased supply. Hydraulic fracturing, commonly referred to as fracking, is a technique gas producers use to fracture shale rock to stimulate the flow of natural gas to the well bore so it can be more easily obtained. Fracking along with horizontal drilling—a technique that allows for the extraction of natural gas along sources that run horizontally such as shale rock—allow producers to reach a significant supply of natural gas that was previously inaccessible with conventional drilling.
Natural gas production is governed by federal, state and local regulations, with additional regulations under consideration. Natural gas producers currently face intense scrutiny around these techniques and continue to refine their practices while the U.S. Environmental Protection Agency (EPA) and other scientific groups conduct more analysis around water safety, air emissions and gas production.
We expect the natural gas that we purchase and distribute to be produced responsibly and in compliance with the law. We encourage gas producers to adopt best practices and continue to reduce the environmental impact of natural gas production. It is important that additional regulation be done in a reasonable manner that assures continued access to affordable natural gas. We have seen evidence that this is possible, particularly at the state level.
We continue to work with the gas industry and environmental organizations to understand methane emissions from the natural gas delivery system. Participating in research studies is important so that we fully understand the potential issues associated with providing our customers energy service.
In 2014, we signed on to the Natural Gas Downstream Initiative, a collaborative effort with other major gas utilities, facilitated by MJ Bradley & Associates. It will support the work of leading natural gas local distribution companies to identify and encourage advanced programs that accelerate infrastructure investment and lead to the effective management and reduction of methane emissions within natural gas distribution systems. The initiative is focused on opportunities that can substantially reduce methane emissions and support safe, reliable and cost-effective service.
In 2013, Xcel Energy was one of 12 utilities that participated in a major study to measure methane emission rates along the natural gas distribution system. The study, led by researchers at Washington State University and the Environmental Defense Fund, found that upgrades to metering and regulating stations, changes in pipeline materials and better instruments for detecting pipeline leaks have led to methane emissions that are from 36 to 70 percent lower than current Environmental Protection Agency estimates. Results of the study were published in Environmental Science & Technology in early 2015.
Learn more about hydraulic fracturing.