By Peter Slevin
Washington Post Staff Writer
Monday, August 18, 2008
DENVER -- When Colorado voters were deciding whether to require that 10 percent of the state's electricity come from renewable fuels, the state's largest utility fought the proposal, warning that any shift from coal and natural gas would be costly, uncertain and unwise.
Then a funny thing happened. The ballot initiative passed, and Xcel Energy met the requirement eight years ahead of schedule. And at the government's urging, its executives quickly agreed to double the target, to 20 percent.
In Colorado -- a state historically known for natural gas and fights over drilling -- wind and solar power are fast becoming prominent parts of the energy mix. Wind capacity has quadrupled in the past 18 months, according to Gov. Bill Ritter (D), and Xcel has become the largest provider of wind power in the nation.
The politics and economics of energy are shifting here in ways that foretell debates across the country as states create renewable-energy mandates and the federal government moves toward limiting carbon emissions. One advocate calls Colorado "ground zero" for the looming battle over energy.
Despite a continuing boom, oil and gas companies here are on the defensive. They are spending heavily as they try to prevent the repeal of as much as $300 million in annual tax breaks that would be shifted to investment in renewables and other projects.
The industry, already facing a rebellion among some longtime supporters angered by its toll on the environment, also finds itself in a fight against new regulations designed to protect wildlife and public health from the vast expansion in drilling. Beyond the merits, the proposals reflect the strengthened hand of environmentalists and their friends who feel that the fossil-fuel companies have held sway too long.
"Now is a terrific time for renewables to launch. I hope they get all the capital they need, and all the great minds and talent. But I don't want it to come at the expense of the oil and gas industry," said Meg Collins, president of the Colorado Oil & Gas Association. "As goes Colorado, so goes the West, as far as this energy policy debate."
State leaders are thrilled with the economic benefits that have come with the hundreds of new research and manufacturing jobs in pursuit of alternative power. Yet the fledgling renewables industry is also facing challenges, from a desire for tax credits of its own to a need for a stronger transmission grid that will make power more portable.
"The future in Colorado is building wind farms in wheat fields," said Ritter, a former Denver prosecutor, recalling the 2006 campaign pitch that helped carry him into the governor's office. "Quite frankly, it's how we should have been thinking for 10 years."
Ten years ago, Xcel began offering wind-generated electricity, but it was a niche market for eco-conscious customers willing to pay extra. That changed in a significant way after 2004, when Xcel lost the referendum fight.
After legislative efforts failed, proponents of renewable energy turned to the ballot that year. The initiative, Amendment 37, required the state's biggest utilities to generate 10 percent of their electricity from renewable sources. Advocates found themselves facing off against Xcel, which said it feared for its bottom line.
"We ended up opposing that amendment. In retrospect, I wish we hadn't," said Frank Prager, Xcel's vice president for environmental policy. He said utility companies are inherently conservative, yet find themselves facing a transformation in an industry that, as he put it, has changed little since Thomas Edison's time.
Voters rejected the utility industry's arguments and approved the measure, making Colorado the first state to mandate renewable-energy use at the ballot box. Today, legislatures in more than 25 states have set prescribed levels, known formally as "renewable portfolio standards."
"It was one of those cases where the public was ahead of the politicians," said Tom Plant, Ritter's top energy strategist.
Once Xcel executives began to come to terms with the new rules, they discovered that federal tax credits made wind power affordable, especially in relation to rising natural gas prices. The cost of wind power is relatively constant and provides a hedge against future emissions regulation, such as the cap-and-trade approach favored by presidential candidates Barack Obama (D) and John McCain (R).
"It was good for the system," Xcel's Prager said, referring to the utility's mix of energy sources, "and it was good for the customer."
By the end of 2007, Xcel had met Amendment 37's goal and endorsed Ritter's request to double it to 20 percent by 2020. That measure passed the Colorado legislature easily: With the utility on board and public sentiment clear, the bill collected 50 sponsors in the 65-member House.
Executives at publicly traded Xcel stress their twin desires to make money and to insulate the company from the risks of unproven technology. As Prager put it during an interview in the company's downtown Denver headquarters: "It's absolutely essential that the state offer us something that makes it worth our while to be green."
Amendment 37 allows utilities to collect a fee from customers to invest in renewable fuels; it averages $12.72 a year for a typical homeowner with a monthly bill of $73. When the renewables goal doubled last year, so did the fee. Prager said the fee has provided Xcel $37.6 million between March 2006 and July 2008 for capital investment in wind and solar.
Colorado is adding wind-power capacity at a higher rate than any other state, its hundreds of turbines delivering one gigawatt of generating power at the end of 2007. That is triple the total of 12 months earlier. Six states produce more than one gigawatt with wind, with Texas far in front and California second.
Solar power remains a small part of the equation in Colorado, in part because concentrated solar generation is expensive. Xcel is sponsoring an 80-acre field of photovoltaic panels in the San Luis Valley, a project expected to provide 8.2 megawatts of electricity, enough to power about 1,500 homes. But only 4 percent of Xcel's renewable megawattage is required to come from solar.
Meanwhile, Xcel's latest plan, filed with the Colorado Public Utilities Commission, calls for retiring two of its aging coal-fired power generators.
"We've reached this critical point where we're seeing the deployment of these technologies accelerate," said John Nielsen, an energy analyst with the nonprofit environmental group Western Resource Advocates. "There was slow progress over the last decade, and you're now seeing this tipping point."
Among the signs is the arrival of Vestas, a Danish wind turbine company, which announced Friday the construction of two more manufacturing plants and 1,350 new jobs, bringing the company's total in Colorado to 2,450. ConocoPhillips announced this year that it will locate its alternative-fuels research operation in the state. The Colorado-based National Renewable Energy Laboratory is adding 100 jobs.
Colorado's growing political and economic commitment to renewables is causing fear in the oil and gas industry, which is fighting to keep its tax breaks and its influence over state rulemaking.
"We're not feeling very cherished," said Collins, whose oil and gas association represents more than 30 companies. The group objects to an initiative on the ballot in November; it would eliminate the industry's 87.5 percent property tax exemption, estimated to cost the state treasury $230 million to $320 million a year.
If the ballot rule passes, the tax money will be channeled to renewable fuels, wildlife conservation and education. The industry also objects to proposed rules that would require greater public health and environmental protection in areas where drilling takes place.
"It could have been done in a different way, and things wouldn't have gotten so heated," Collins said.
Alice Madden, the Democratic majority leader in the Colorado House, looks at the oil and gas industry today and recalls Xcel before the passage of Amendment 37. She has little sympathy for Collins's arguments, especially at a time when oil and gas profits are soaring.
"It's Chicken Little all over again: 'The sky is going to fall,' " said Madden, who also chairs Western Progress, an advocacy group. "The oil and gas companies see the writing on the wall, the shift to renewables. They want to make as much money as they can, right now."
Looking ahead, supporters of alternative fuels are counting on securing some advantages their fossil-fuel predecessors have enjoyed. One request is the renewal of a federal tax credit set to expire this year. Another, Prager said, is "some clear rules on the national level, especially on climate policy."
With 34,000 active gas wells in Colorado and 28 new permits issued each day, there is no chance that the oil and gas industry will fade away soon. And, as powerfully as the wind blows and the sun shines, the transmission grid for renewable energy is limited and the strength of the current is unsure.
"Unlike a coal plant or a gas plant," Prager said, "you can't flip a switch and make the wind blow."