Moody's gives Xcel 'red flag' for water stress because of climate change in Southwest states

Xcel Energy is among the U.S. electric utilities most exposed to an increased risk from climate change, notably its power plants in the West and Southwest, according to a new report from one of the nation's top credit-rating agencies.

Over the next 10 to 20 years, the risks of heat and water "stress" — along with threats from extreme rainfall, flooding and hurricanes — will likely increase in parts of the U.S. due to climate change, said the report by Moody's Investors Service.

"The consequences of climate change will affect every aspect of an electrical power system, from generation, transmission and distribution to end-user demand," the report said. Climate-change hazards "will be increasingly reflected in the capital investment programs of utilities."

Minneapolis-based Xcel and other utilities operating in the western U.S. face the most "water stress" — for example, uncertainty around the long-term availability of adequate water supplies, said the report, which was released last week. Copious amounts of water are needed to cool fossil-fuel generators — particularly coal — and nuclear plants.

"Thermoelectric power generation is the largest U.S. consumer of freshwater," the Moody's report said.

Eleven utilities serve areas in the Southwest and West that have a "red flag" risk of water stress. Xcel — with operations in Colorado, New Mexico and the Texas Panhandle — ranked second highest for "red flag" water risks, the report concluded.

Xcel's coal-fired Tolk plant in Texas, which provides power to that state and New Mexico, already faces water-supply issues. The plant relies on an aquifer that's being depleted faster than expected as agricultural, industrial and residential water demand has increased.

With the diminishing water supply, Xcel has proposed to begin closing Tolk in 2032, 10 years earlier than planned. The company started reducing operations at Tolk last year to conserve water, and said it will continue to do so until the plant is retired.

The Tolk plant "is a unique situation," Xcel said in a statement. "We do not anticipate that water scarcity will lead to the early retirement of any of our other coal plants. In the semiarid and arid states where we operate … we have strategic water resource plans that are updated annually."

While water-supply risks are high in the West, the region also has "robust" wind and solar resources, the Moody's report said. Indeed, Xcel's largest wind-power projects are in Colorado and New Mexico.

The company also is in the midst of adding several new wind farms in the Upper Midwest as it plans to retire four coal generators in Minnesota ahead of schedule.

The Moody's report said that Xcel has some "heat stress" risks due to climate change, though fewer than many other utilities.

Extended heat waves can strain the nation's power grid. The number of "cooling days" — when high temperatures boost electricity demand — is particularly expected to increase in Florida and the Midwest (most notably in Missouri, Iowa and Illinois), the report said.

Generally, "climate change increases financial as well as physical risk for investor-owned utilities," according to Moody's. Still, the rating agency adds that "regulated utilities are well-positioned to manage near-term climate hazards due to regulatory support."