Tuesday, September 15, 2015

Commentary on Xcel's 2016-2030 Integrated Resourse Plan

Dear Mr. Wolf,
After personally attending 3 out of 4 stakeholder meetings Xcel Energy graciously offered in February, April and June related to their 2016-2030 IRP, I am pleased to offer my commentary which I have broken up into 4 sections.
In accordance with the IPCC figures, we must achieve at least 80% reductions in CO2 emissions by 2050, economy wide. This has been the State of Minnesota’s goal since it passed into law in 2007 with the Next Generation Energy Act. The only realistic way to achieve this goal is to (at the very least) start planning right now to the transition away from carbon intensive coal as an energy resource for electricity. The Xcel-owned Sherco coal plant is not only Minnesota’s largest CO2 emitter, but is also the 21st most carbon intensive power plant in the country according to an Environment Minnesota report. However, Xcel Energy’s preferred plan at this time is to not even create a timetable to retire Sherco before 2030. We have to recognize that the core business model of most electric utilities in general is to squeeze as many customer dollars as possible for as long as possible from sunk investments into huge central-station power facilities. Knowing this, Xcel is likely afraid that retiring Sherco 1 & 2 sooner than later would mean stranded assets and they probably have plans to keep Sherco as a bargaining chip if the case of carbon regulations adding additional pressure.
While it was inspiring to read headlines about Xcel’s big clean energy promises, making a long-term commitment to retain or continue to invest in these large­scale power plants is fundamentally incompatible with a future grid dominated by renewable wind and solar on a technical level. Since renewable wind and solar energy are variable in supply, while super-hot coal and nuclear plants produce a static electrical output that Xcel can’t change without risking expensive repairs, we need to phase out these static power plants just for a significantly high penetration of renewable energy to be feasible. From my own observation, Xcel representatives enjoy telling the public about the big plans in their IRP for dramatic increases in solar and wind energy at an affordable cost. Xcel has admitted that their wind power keeps their prices stabilized downward.
The danger is a likely scenario that Xcel will force its customers to pay for expensive upgrades to outdated power plants at the same time as paying for an emerging renewable technology grid system. The manner in which Xcel handled their 114% cost overruns on their Monticello nuclear plan makes it pretty clear that they will try to put their customers rather than their shareholders on the hook to pay off the sunken investment in the old energy system that is redundant and incompatible with a new, clean, renewable system. In that scenario, astroturf front groups who do marketing for the fossil fuel industry will try to blame the resulting rate hikes on a big lie that renewable energy is not cost competitive rather than the real reason of Xcel forcing its customers to pay for 2 redundant and incompatible systems at the same time... even though renewable energy is quite affordable in comparison to the hundreds of millions in Monticello cost overruns. From my own observation, Xcel’s CEO sounds much more amenable to phasing out central station coal plants than nuclear plants, admittingly due to the expectation of future carbon rules but also because of the sheer hundreds of millions recently sunk into their Monticello Nuclear plant. That is why it is more productive to focus on Sherco for this IPR.
I am aware the commission has been receiving a great deal of personal stories and well-known facts about the health & climate hazards coal fired power plants present as well as well-reasoned economic commentary on how investing in coal creates far fewer local jobs than investing the same amount into renewables. However what I think the Public Utilities Commission will find most convincing is pointing out specific observation within Xcel’s analysis on Sherco in their supplementary IRP:
• 1: On pages 14-17 Xcel’s March 16th submission on their IPR, they rank several scenarios side by side for retiring Sherco. However they do not clearly identify how much renewable energy is included in the estimations of those scenarios. Meanwhile, there is an extensive table of renewable energy runs in the index of the report. But for some reason these runs are not correlated with the conclusions they come up with for the Sherco scenarios in the main section of the report. Regardless of Xcel’s intent on organizing the data in this way, that lack of correlation makes it confusing and less than user- friendly for anyone reading the IRP or curious to learn how Xcel’s conclusions were drawn.
• 2: Even within the extensive appendix of renewable energy modeling, the runs make little sense. For instance, Xcel’s numbers for the cost of replacing Sherco with 75% wind, solar, and demand-side management (DSM) are higher than their costs of replacing Sherco with just 75% wind and solar with no DSM at all. How could DSM possibly not be cheaper than adding renewable generating capacity?
• 3: On page 14 of Xcel’s March 16th submission on their IRP, they list possible scenarios for replacing Sherco with new energy. They conclude that keeping Sherco going is the least costly option according to their current assumptions. However, Xcel’s model scenario for closing down one unit of Sherco in 2020 and another unit of Sherco in 2023 was only 2% more expensive than keeping the whole facility running beyond 2030. And to boot, even that 2% cost was derived using Xcel’s rather odd assumptions on renewable energy. They actually assume that the costs of wind energy will rise steadily, and costs of solar to stay constant which flies in the face of recent trends where industry maturation is driving costs down, especially for solar.
• 4: This goes to show that an IRP is at its most vulnerable in how very dependent it is upon the assumptions it uses to create a forecast such as future fuel costs (coal, natural gas, etc.), development costs, financing and market conditions, and policy regulations. In turn, Xcel’s preferred plan of not even setting a time table to retire Sherco is based on an additional suspicious assumption. Keeping the Sherco Power plant running through 2030 would be nowhere near the least cost option if Xcel was not able externalize the costs of greenhouse gas emissions onto the public. A big part of Xcel’s decision to not set a time table to retire Sherco is because their carbon costs are modelled at only $21.50 per ton, with alternatives scenarios plugged in for $9 and $34 per ton. In fairness, these carbon prices are in line with current proposed regulations, however many climate scientists have estimated the actual cost of carbon at $200/ton or substantially higher. While clean energy organizations have developed a Clean Energy alternative plan to Xcel's IRP using Xcel’s own data and industry-standard modeling, a question still remains on whether it will address change at the structural, systemic level. If that plan is adopted, will Xcel still receive financial rewards for activity that adds carbon into the atmosphere?
• 1: It is hard to broadly dismiss Xcel's IRP as a whole because Xcel does not declare anything that is provably false in the IRP report. What makes this IRP a lost opportunity for something truely in the public interests lies within the omissions that Xcel does not say. They make the mistake of overlooking the extensive examples and comprehensive studies on how renewables are actually a positive factor for energy reliability and predictability of cost. Similarly, Xcel’s IRP downplays the potential for microgrids, distributed generation and energy efficiency.
• 2: Microgrids and smart technologies can help us manage renewable energy loads more efficiently and locally on a distributed energy network. However Xcel strangely defines the scope of what can be considered in an IRP to be macro-level and hence not inclusive of the micro-level smart technologies or micro¬grids. So they use this circular definition as a way to justify continued reliance on large-scale centralized power. Choosing not to talk about microgrids in the IPR has the effect of not making that solution available for consideration. That circular reasoning is wholly unfair because changes in structure on a micro level has undeniable effect on the macro level.
• 3: This IRP does not address distributed generation in a systematic way and as a result assumes a disappointingly low adoption rate of community solar and other distributed generation sources. However, MN State Law (Section 216B.2426) requires that any relevant proceeding must consider opportunities for distributed energy generation.
• 4: Xcel’s actions as a business have shown a clear preference for trying to get renewables to fit their familiar central station model over doing renewables as distributed generation. The consequence of that preference is a conclusion in Xcel’s IRP that adding close to 2,000 MW more natural gas generating capacity will be needed to back up the large-scale renewables when the wind is not blowing or when the sun is not shining along with a far less serious commitment to energy storage. That conclusion is also a result of Xcel’s IRP downplaying or ignoring the possibility of integrating micro¬grid or smart technologies that could help us displace the need for deploying extra natural gas capacity.
• In an apparent contradiction to the new natural gas capacity proposed in their IPR, Xcel CEO Ben Fowke publicly stated at the CEE Policy Forum on January 27th, 2015, that we can displace coal with renewable capacity without a mad dash to natural gas: “Coal is going to go away. It is just a matter of time and you are going to see that in that plan that we start to wean off coal…I am delighted to tell you we believe that by 2030 we can double the amount of renewables in our system to 35%... We also can reduce our coal output together with a renewable increase we can be at 40% carbon reduction by 2030. We can do that and not do the dash to gas…and be 63% carbon-free by 2030. But the best news of that is we can do that at a reasonable cost… not going to be more than 3% more expensive than going with more traditional resources.”
• 5: As far as energy efficiency, Xcel’s IRP identifies a 0.4% per year increase in energy usage from now through 2030. (Note: on a national basis, electricity use peaked in 2007 and has fallen about 6%). While substantially lower than projected growth rates Xcel used in the past, actually projecting growth in energy use indicates Xcel does not anticipate further innovations in efficiency and does not recognize that any Rocky Mountain Institute-style deeper energy use reductions are feasible.
Xcel’s IRP should instead model energy efficiency as a resource and include creative to make their energy efficiency programs relevant and accessible to renters, multi-family building residents, and small businesses. The Minneapolis Clean Energy Partnership, (the first of its kind in the nation) provides guidance on such creative new energy efficiency strategies and innovative ways of financing clean energy at the municipal level. Now that the Clean Energy Partnership Board has adopted its work plan for 2015-2016, and it’s time for Xcel to finalize a version of its 2016-2030 IRP that reflects the Minneapolis Clean Energy Partnership and its significant changes to the utility’s business model. Xcel by definition has already agreed to the Partnership’s 2015-2016 work plan. As long as Xcel actually intends to do what they had already said they would do, it is hard to see any honest reason for them to say no to including the approved Partnership Work Plan into their IPR.
My understanding about the IRP process is that Xcel selects the best approach by taking into account all components which would significantly affect energy usage. Minneapolis is 13% of Xcel’s rate base in Minnesota and that is a bit too large to be dismissed as too micro scale to include in an IRP allegedly focused on the Macro scale. Nevertheless, I have heard one of Xcel’s Vice President’s recently tell the Minneapolis Clean Energy Partnership board that the scope of the IRP is too macro-scale and hence does not have the capacity to factor in municipal-level energy data considered to be micro-scale. This is the same circular reasoning previously mentioned similar to how Xcel considers microgrids too “micro-scale” to get taken seriously in a macro-scale IRP regardless of how application of the technologies can have a hugely positive effect at the macro level. At the time Xcel’s Vice President was doing a presentation to Partnership board on the most inspiring clean energy goals of Xcel’s IPR while making no voluntary mention of the Partnership Work Plan the very same board approved, until a Minneapolis City Council Member on the Board posed the question.
Assuming they fully intend to be honest energy partners with the City of Minneapolis and its energy goals, the main argument which Xcel’s Vice President put forth either exposes a fundamental circular rasoning flaw in the IRP process or the exposes need to update some seriously outdated data systems. Here are some positive reasons why the Partnership’s 2015-2016 work plan deserves to be included into Xcel’s IRP to an extent greater than marginal recognition on the side.
1) The Minneapolis Clean Energy partnership can change the game of what is possible for Xcel by combining policy levers, community outreach and energy data. The Clean Energy Partnership programs can raise participation in energy efficiency programs to higher than historic levels by making them accessible and relevant to low-income communities and groups from many cultural backgrounds that need them the most. In addition, the Partnership promised in its work plan to identify additional lending sources to finance energy efficiency and renewable energy projects. These strategies will empower Xcel to increase the number of residents and businesses participating in renewable and energy efficiency programs enabling them to exceed conservation savings and renewable generation currently projected.
2) Regardless of the specifics of the Minneapolis Clean Energy Partnership, the city-utility partnership model must be recognized as a possibility for expanding the core part of Xcel’s business model. A city and an investor owned utility who serve it can have far better tools for accomplishing our energy future, when they work together and combine their strongest aspects as opposed to the previous status quo where the city and its utility worked largely in isolation from each other. Energy efficiency programs will be most effective in reaching renters and multifamily building residents when the city can integrate its neighborhood engagement systems and its regulatory authority over housing / businesses with the utility’s programs, incentives, financing methods, and infrastructure.
Language describing each of these Work Plan items is contained on pages 11-16 of the Minneapolis Clean Energy Partnership 2015-2016 Work Plan as adopted at the May 29, 2015 Clean Energy Partnership Board Meeting (https://cleanenergypartnership.files.wordpress.com/2015/05/cep-15-16-final-work-plan-attachment-b.pdf). This language should be incorporated in its entirety in the above captioned document, as a separate chapter entitled “City/Utility Partnerships.”
Once again, thank you so much for the opportunity to share and I hope my input is helpful in bringing awareness to some key issues, Lee Samelson