Xcel Energy and the future of coal

U.S. electric utilities, including Minneapolis-based Xcel Energy, are at a crossroads with coal.

The federal government wants to limit greenhouse gases and other emissions under regulations that could dramatically reduce the nation's reliance on coal for electricity.

Xcel has been a leader in renewable energy and conservation, and has replaced two of its old Twin Cities coal burners with natural gas-fired generators. Yet Xcel still relies heavily on coal and has no plans to abandon it entirely.

Judy Poferl, CEO for Xcel's Minnesota operations, and Frank Prager, Xcel's vice president for environmental policy and services, recently talked about coal, electricity and environmental policy with the Star Tribune. Here are excerpts.

QWhat is Xcel's environmental policy?

FPOur environmental leadership strategy really comes down to clean energy that works for our customers. We are the nation's No. 1 wind provider, a leader in energy efficiency and conservation and we have dramatically reduced emissions of CO2 and other pollutants across our system, and we have done so at an excellent price for our customers. We believe that especially considering the regulatory challenges we're facing in the next 10 years, the company has saved customers money by being proactive and finding a balanced approach between protecting the environment, serving the customers and maintaining a reliable, reasonably priced product.

QHas the policy changed since Ben Fowke replaced Dick Kelly as CEO last year?

JP No, indeed. When we have talked about environmental leadership it might be easy for people to listen to that and think that all we're doing is trying to be green at any cost, which was never, ever the case. That is why we talk about clean energy that works for our customers. Our strategy hasn't changed, but a strategy moves with circumstances. It's about achieving the best balance between cost and environmental impact.

QRecently, Mr. Prager, you have said that banning new coal power plants is not necessary for greenhouse gas reduction even though many people say the new U.S. Environmental Protection agency regulations will effectively ban new coal plants. Can you explain what you mean?

FPThe EPA is looking very much at a plant-by-plant emission control strategy. What our experience has shown is you can reduce emissions dramatically by looking at the system as a whole. In Minnesota, we were able to actually retire aging coal plants and maintain the operation of existing coal plants, add a lot of renewable energy to the system and at the same time improve energy efficiency and conservation programs and be able to reduce emissions fairly dramatically -- a 20 percent reduction by 2020 in our CO2 emissions. We have actually constructed a new coal plant in Colorado and we are reducing our CO2 emissions between 2005 and 2020 by 29 percent. Ideally what we would like to see is EPA not set energy policy for the United States. We would like to see Congress set a reasonable greenhouse gas program that sets targets we can meet and are flexible, and gives states the ability to use these different clean energy programs to achieve these goals.

QDo you believe that human activities result in the release of gases that cause global warming?

FPIt is clear that carbon dioxide is a greenhouse gas. I don't think any skeptic out there would doubt that carbon dioxide is a greenhouse gas. It traps more of the sun's energy than nitrogen and oxygen. Now the question of whether the burning of fossil fuels is causing the earth to warm and, even beyond that, whether that is causing things like the heat we're experiencing today or particular storms -- that is well beyond my pay grade, and I am not even going to answer that question. But I do know that EPA, and Congress and policymakers are very busy designing policies to address this, so we as a company have to be prepared to address it going forward.

FPWe have three options. We can leave it running as it is and see what happens with environmental regulations, see what happens with customer demand and gas prices, and wait. Second option is we can retrofit it with additional emissions controls. It is already well controlled and we are putting $50 million into it right now, which is reducing its emissions pretty dramatically. We can install the best level of controls available, and do that proactively. And the third option is you can evaluate whether it makes sense to replace it entirely with natural gas. Those are all things we need to talk about.

JPThe notion of doing a study around the future of Sherco 1-2 has been around awhile, and we have moved forward to define what to study. We have defined what the options are on the table, which include, "Do we replace with natural gas?" Given the level of investment, the impact on our customers, the important policy issues involved, this always becomes more of a dialogue than just, "We made a decision and here we go." Our decision gets subject to extensive review and approval by our regulators.

David Shaffer • 612-673-7090