Xcel Energy was awarded a $41.5 million rate increase Tuesday by state regulators, but one item the utility was denied was charging customers $11.7 million for repairs to the troubled Comanche 3 coal-fired power plant in Pueblo.
In its written decision on the Xcel rate request, the Colorado Public Utilities Commission said Xcel’s subsidiary Colorado Public Service Co. could not recoup from customers the cost of replacing Comanche 3’s finishing superheater (FSH) after only five years of operation.
“Public Service should have recognized the flaw in the design of the FSH before Comanche 3 was completed,” the commission said.
The PUC awarded Xcel a $41.5 million rate increase based on allowing a 9.3% return on equity or investment, equal to about a $1.03 increase on the average monthly residential bill. Xcel had sought a $158.3 million increase.
An Xcel spokeswoman said the company is disappointed by the PUC’s decision. The Comanche 3 repairs, she wrote in an email, were made at a reasonable cost “and were below the cost previously established by the commission.”
The inclusion of the Comanche 3 repairs in overall costs upon which rates are set was opposed by the Sierra Club, with support from the state Office of Consumer Counsel.
“This was a very expensive unit and the representations that Xcel continues to make is that this is a state-of-the-art plant,” said Matthew Gerhart, a Sierra Club staff attorney. “It was galling they would turn around and charge customers for failing equipment.”
Gerhart noted that among the costs that were included in the rate case was a replacement of the finishing superheater at Xcel’s Pawnee Power Station near Fort Morgan – after 30 years of operation.
The $1.3 billion Comanche 3 unit is one the last coal-fired power plants built in the West. It was born out of negotiations in 2004 among state regulators, environmental groups, Xcel and representatives from Pueblo.
With supercritical pulverized coal technology and top-of-the-line pollution controls, the 750-megawatt unit was billed as a cleaner-burning coal plant.
Construction started in January 2006, but the start date was delayed from the fall of 2009, after leaking steam tubes were found in the boiler provided by contractor Alstom Power. Xcel said the problem was welds in the tubes done in Alstom’s shop in the Czech Republic.
Then there was another delay, when the shaft of a boiler-feed pump was damaged. When the plant finally began operating it emitted a high-pitched whine akin to a Shop-Vac that distressed neighbors as far as 5 miles away.
In 2011, its first full year of operation, its operating capacity – a measure of plant output – was at 52%, as it continued to be plagued by leaks. Most coal-fired plants’ optimal capacity is between 70% and 80%.
It turned out that for the tubes in the superheater Alstom had used a metal alloy, which the Sierra Club argued, was prone to exfoliation, where scale builds up inside the boiler tubes blocking the flow of steam. This can cause short-term failures and plant outages.
Comanche 3 suffered 15 outages and a 79-day outage when a new superheater was installed, according to the PUC decision.
Xcel decided to replace all the tubes with stainless steel, and this was the expense they sought to pass on to consumers.
The Sierra Club contended that Xcel should have spotted the design flaw before the plant was built, and in any event should have filed a claim with Alstom during the 24-month warranty period.
In its response to the Sierra Club, filed with the PUC, Xcel said it had reasonably relied upon Alstom to make the engineering decisions for the project. The utility said it sought compensation from Alstom, but it was not covered under the warranty.
“Public Service explains it nevertheless was able to negotiate a substantial discount for the replacement FSH with Alstom,” according to the PUC ruling. “Public Service concluded that it was more cost-effective to work with Alstom to replace the FSH rather than pursue claims against Alstom.”
Xcel said the cost of the repairs was both “reasonable and prudent.”
The PUC did not agree.
“We supported the Sierra Club because we thought they were right,” said Cindy Schonhaut, director of the Office of Consumer Counsel. “They did the engineering research on this. “
Schonhaut said the OCC is constantly challenging costs on the issue of who should pay: shareholders or ratepayers?
“There are some costs and expenses that should be recovered from shareholders, not customers, and cases where they should be shared,” she said. “In this case the PUC decided that it was not customers who should pay the bill. It was the right decision.”
UPDATE: This story was updated at 2:34 p.m. on Feb. 13, 2019, to include a comment from Xcel Energy.