How a PSC Uses IRP to Push Innovation and Protect Rate Payers

Note: the earlier link to the recommended order stopped working.  I have replaced it with a new link that works.  Here’s what the Minneapolis Star Tribune has to say about the ruling.

The WV PSC has recently ruled that both AEP and FirstEnergy, the Ohio-based holding companies that control the WV electrical system, can lock WV rate payers into paying for even more coal-fired generation capacity.  The PSC ventured down this high cost, high risk path to preserve obsolete power plants that can no longer compete in the open electricity markets.  This was a classic case of failed regulation of electric monopolies.

So let’s take a look at how a really effective state regulatory body works.  Take a look at this recent recommended order issued by Eric Lipman, an administrative law judge with the Minnesota Public Utilities Commission.  The first thing that you will notice is that MN has a state law requiring power companies to file integrated resource plans with the MN PUC.  The law also gives the PUC the authority to approve or deny power companies plans concerning new generation resources, to the point where the MN PUC makes the final decisions about design, capacity and impacts.

This particular case concerns the means by which MN power companies are going to meet expected capacity needs in the coming years; exactly the kind of case that the WV PSC faced with FirstEnergy’s Harrison plant and the Amos and Mitchell plants owned by AEP.  But instead of the WV PSC’s sophistic and acquiescent non-decision, the MN PUC renders a clear plan for minimizing risk, lowering rate payer cost and maximizing flexibility in response to uncertain demand and market conditions.

The result is a plan that involves a mix of resources, including expanding wind power to serve in state load, several small gas-fired turbines and a widely dispersed system of grid scale solar generating farms.  In this particular case, Judge Lipman recommends a distributed solar project over the new gas fired plants proposed by holding company Xcel.  As I pointed out in a post last March, this incremental and diverse resource approach is exactly the path that the WV PSC could have taken in the FirstEnergy Harrison case.

Take a look at the MN PUC’s discussion of the Geronimo Renewable Energy solar generation project:

XXI. Impact upon Adequacy, Reliability or Efficiency of the Energy Supply
236. The first criterion under Minn. R. 7849.0120 is whether the proposed resource would have adverse effects upon the future adequacy, reliability, or efficiency of energy supply of the utility, its customers, or to the people of Minnesota and neighboring states.
237. Xcel’s needs for additional capacity are undergoing significant change because of three key factors: (1) lower overall demand; (2) the addition of between 72 and 200 MW of accredited capacity from solar resources, needed to meet Minnesota’s Solar Energy Standard; and (3) new reserve margin requirements issued by MISO.
238. Taking into account only the first two factors – lower overall demand and the new solar resource standard – Xcel projects that it will have a generating capacity shortfall of 93 MW in 2017. This shortfall might conceivably grow to 307 MW by 2019.
239. However, if MISO’s reserve requirements are calculated on the basis of coincident peaks, as they are today, the projected deficit in generation capacity shrinks even further. If all three factors reducing the need for capacity are considered, Xcel does not face a shortfall of generation capacity until 2019. Moreover, this deficit grows only by 26 MW by 2019.
240. Generation from solar power sources is the greatest on sunny days during the summer. Xcel’s peak demand for electricity most often occurs on sunny days during the summer.

241. Geronimo’s proposal includes features – such as tracking system technology, appropriately-sized modules, and distributed sites – to ensure that the project reliably delivers energy capacity.
242. Geronimo proposes to generate energy from approximately 20 different locations across Xcel’s service territory. These facilities will generate between 2 MW and 10 MW of electricity. Each site will be served by separate interconnection facilities.
243. A distributed network of generation reduces the risk of outages at any particular point of the transmission system.
244. A distributed network of generation reduces transmission line losses. This reduction results in a PVSC savings of approximately $9 million.
245. Geronimo proposes an in-service date of December 2016, so as to ensure that its generation capacity would be available to meet any of Xcel’s capacity needs in the summer of 2017.

Later, the PUC stated:

249. The most efficient solution in this circumstance is to select scalable projects that meet Xcel’s near-term shortfalls (as described in Table 4 of Mr. Wishart’s Direct Testimony) and for the Commission to conduct a second procurement for needs which may occur after 2019.

This is exactly the approach I advocated with the FirstEnergy situation in my post last March.  The key word here is “scalable.” If demand is lower than expected, then the proposed generation projects can easily be scaled back to keep rate payers from paying for excess capacity.  If capacity needs turn out to be higher than anticipated, the same generating resources can be scaled up to meet that growth.

The other important feature of this order is how involved the PUC’s staff and experts are in correcting and improving power company projections and analysis.  This is what integrated resource planning is about.  Regulators have the authority to act in the best interests of rate payers and MN citizens in all aspects of generation and transmission planning.  This is exactly how WVU Law School professor James Van Nostrand explained effective integrated resource planning would work if the Legislature required it in WV.

So, in MN, we see a public utility commission judge who effectively uses the tools (IRP and renewable energy credits) provided by the state legislature to control both risk and costs for MN citizens.

One thought on “How a PSC Uses IRP to Push Innovation and Protect Rate Payers

  1. The combination of Integrated Resource Standards and Efficiency & Renewable Portfolio Standards make so much sense. How can we get these ideas out to a broader audience. If anyone is willing to run for office on these and other progressive issues I think it would be important. Maybe not a winning campaign at this point in time but winning in the long run when people see the self destructiveness of buying into short term corporate profit agendas. I’d be happy to help folks willing to launch progressive political campaigns.

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