“Integrated Resource Planning” and why doesn’t Minnesota have it?

(Note:  Slightly updated October 13th)

Or:  Xcel Energy out of control.

In the context of electric and gas utility planning IRP means a plan for where our energy services are going to come from over some future time period. Note the word “services.”

Typically, if we want some increment of electricity services—heat, light, motor power, whatever, we can get it by generating it; this is called the “supply side.”

Or, we can get it by using what we have more efficiently. We can invest in more efficient lights, motors, or data centers. This is called the “demand side,” or “demand side management.”

It may seem a bit counterintuitive, but electricity usage in the US is generally flat, or only very gradually increasing, while at the same time we waste much of what we do generate. So the available pool of energy savings is essentially infinite and the need for additional supply is nil.  (This, of course, is not necessarily true in other parts of the world.)  And, saving power (“negawatts”) is usually cheaper than generating it (“watts”), and has obvious environmental and health benefits.

The key to making this happen lies in the “integrated” part. The supply side and the demand side have to be treated (analyzed) fairly, symetrically, “equally” if you like.

This is not a new idea by any means. Amory Lovins and others popularized the idea several decades ago.

A sensible definition is found in federal law at 15 United States code Sec. 3204. The context is gas but the principle is the same:

(9) The term “integrated resource planning” means, in the case of a gas utility, planning by the use of any standard, regulation, practice, or policy to undertake a systematic comparison between demand-side management measures and the supply of gas by a gas utility to minimize life-cycle costs of adequate and reliable utility services to gas consumers. Integrated resource planning shall take into account necessary features for system operation such as diversity, reliability, dispatchability, and other factors of risk and shall treat demand and supply to gas consumers on a consistent and integrated basis. (emphasis added)

Since the demand side is generally cheaper, and has many health, environmental, and job creation benefits, a valid and robust IRP process would lead to the redirection of investment towards efficiency and “demand response” (peak shaving).   (Peak loads, even if they occur only a few hours a year, tend to set the minimum size of the entire system, so there is a lot of economic leverage in reducing them.)

I first intervened in an IRP case in the mid 1990s, in Delaware. After much wrangling with the utility, several alternative scenarios were modeled and, no surprise, the one relying entirely on the demand side to meet future needs had the lowest cost, and, of course, the lowest environmental impact. I felt something meaningful had been accomplished. Then, the Public Service Commission obediently approved the version Delmarva Power thought would be the most profitable. Lesson learned.

IRP is a powerful concept able to yield immense benefits, but  it rarely gets carried out effectively and even less often is it implemented, because of the immense political and economic power of the utilities. Rarely do politicians, judges, and regulators stand up to them effectively.

OK, jump ahead two decades. Xcel Energy files a “resource plan” in Minnesota without any integration of supply and demand resources. Instead, Xcel selects an amount of “Demand Side Management” which just happens to coincide with the legal minimum: 1.5 percent per year of savings.

I go to a “technical conference” and object, but nobody else seems to care. The “conference” is held in the Public Utilities Commission’s Large Hearing Room and has the color and flavor of an official proceeding, but is in fact organized and run by Xcel Energy for its own purposes. Afterwards I write to PUC Executive Director Dale Wolf:

I attended the Feb 10th Xcel Energy “stakeholder conference” on the Xcel Resource Plan filing. The invitation from Xcel read this way:
We invite you to join us Tuesday, February 10th at the Minnesota Public Utilities Commission’s Large Hearing Room at 121 7th Place East, 3rd Floor, from 9 a.m. to noon for an initial stakeholder conference to discuss our Plan and offer your insight on the elements that are important to you.”

I left this event with a sense of unease. The meeting had a private rather than a public purpose—that of promoting acceptance of the as-filed Resource Plan. But, having the meeting at the PUC, in the “Large Hearing Room,” with staff attending and asking questions, tended to give an official coloration to the event.

Can you please advise me as to the PUC’s policies regarding the use of its facilities, including any fee schedules for same? And, if possible, please provide me with a list of private or non-governmental entities that have held meetings in PUC facilities in the last two years.

No response was forthcoming.

Readers of both popular media and the energy-wonk press might get the idea that Minnesota has a “robust integrated resource planning process, etc.” Not so. Electric utility resource planning in Minnesota is laid out in Minnesota Administrative Roles, Chapter 7843 . The word “integrated” nowhere appears, nor does the basic concept of IRP.   So, even though Minnesota agencies use the term “IRP” they are not required to do IRP, or to ask the utilities to do it, and they don’t. The practical effect is that the demand side (conservation, efficiency and  “demand response”), gets only nominal attention, while arguments about fuels and power plants go on and on.

Xcel itself says “If DSM was instead used as a resource that could be picked from various sources, it would compete with resources such as wind and solar and varying levels of DSM [sic].” (Appendix G) And this, of course, is the point. If you do an honest modeling process, optimization can occur and you might learn something.

The Minnesota PUC has limited staff and resources, and generally takes guidance from the MN Department of Commerce, with its bias in favor of the utilities. (Minnesota used to have a Department of Public Service but it was abolished.)

A group of self-described “Clean Energy Organizations” has participated in the current Xcel resource planning docket, but its interest seems to be limited to advocating for the shutdown of two of the three large “SHERCO” coal units. This is a worthy goal, of course, but hardly the whole ball of wax.

From the “staff briefing papers” dated October 6, produced by the PUC staff (86 pages).  A few excerpts (all underlining is emphasis added by author):

And after two Commission orders directing the Company to do more, Xcel still maintains that more demand response is not sufficiently reliable or economic to be considered as an alternative to even some amount of centralized generation.” (Page 50)

Xcel proposes gigawatts of thermal, centralized generation in the intermediate term; it is difficult to comply with the CN [Certificate of Need] statute which requires that “No proposed large energy facility shall be certified for construction unless the applicant can show that demand for electricity cannot be met more cost effectively through energy conservation and load-management measures” if Xcel can continue to drive the narrative that demand response constantly needs further study to be reliable.” (page 51)

“The fact that Xcel “does not have an estimation of the potential costs or achievements of DSM” beyond 2021 [the “plan” runs to 2030] is very problematic, given that one of the threshold issues in this IRP [sic] is replacement capacity and energy in the mid-2020’s.

The lack of a long-term DSM cost estimate coupled with a dubious claim regarding future energy savings potential might warrant that future acquisition petitions—if filed before the next resource plan—should revisit Xcel’s energy savings in a more realistic and useful fashion.” (page 60)

Since Xcel announced its revised proposal in October 2015, Xcel has regularly presented to its investors that the Company’s five-year action plan is a financial growth opportunity. Of course, investor presentations and filings with the Commission serve very different purposes and are intended for very different audiences. Nevertheless, given Xcel’s recent history of having resource proposals determined to be imprudent in North Dakota on the basis that they are Minnesota policy resources,  staff believes it important to discuss the financial aspects of Xcel’s proposal, in order to balance this notion with the obvious reality that Xcel is looking to improve the Company’s financial health during a period of flat sales. Doing so can hope to avoid the possibility that Minnesota ratepayers might bear an inappropriate, disproportionate share of costs in order to sponsor Xcel’s rate base expansion plan.

Lastly, staff has significant concerns with the development of the modified Track 2 process in the reply comment period and in the Department’s out-of-comment period Supplemental comment period. No party has had the opportunity to weigh in on the appropriateness of this process generally, nor for use for the Sherco replacement resources. The Track 1 and 2 processes developed in earlier IRP proceedings were done so with thorough public input and took over a year to develop and be approved. Here the approved processes are being modified without party input.” [Cutting the public out.] (page 71)

CEOs [Clean Energy Organizations] and CEE [a flagrant Xcel front group] propose a new process altogether—seemingly separate from, but possibly contributing to, a future IRP—which would be done in advance of the next planning phase. The Commission might wish to ask CEO and CEE how this alternative process could affect the timing of Xcel’s acquisition proposals and the timing of Xcel’s next IRP. It is not entirely clear, either, whether the alternative process would be a multi-stakeholder effort and ultimately be brought before the Commission for consideration, or if it would be a joint effort among a few select stakeholders. [=”enviros” aligning with Xcel to cut out the public.] (page 71)

We could go on and on, but this stuff, while scandalous and revealing, isn’t light reading.  The PUC staff deserves credit for injecting some notes of reality, notes that are absent from the work products of the Department of Commerce.    The commissioners didn’t seem as interested as they ought to be.

Xcel has a variety of schemes going, this “resource plan” docket being only one. Another is a big “rate case,” intended to greatly increase electric bills when they rightfully should be decreasing—and are decreasing in many other states. In that rate case Xcel makes out a flagrantly bogus case for needing more money. Nothing surprising here:  Xcel is a private, money making corporation.  But in this resource planning docket, Xcel says:

“ … the Company has experienced declines in its avoided energy and capacity costs. All of these factors reduce the impact that utility-sponsored DSM programs can have on energy usage and demand and make it more difficult for the Company to meet aggressive DSM goals.” (Appendix G, page 1)

In plainer language, Xcel admits electricity (at the wholesale level) has gotten cheaper so—Xcel claims—it’s harder for efficiency investments to compete.

Wholesale prices down, retail prices up, equals Xcel profits up.

“Rate Base” is a key concept.  In general, “regulated” utilities are allowed a certain rate of return on investment, sometimes called Return on Equity, regardless of whether the investments are actually needed.  This rate varies but today is around ten percent, far higher than the cost of borrowed money.  This gives utilities like Xcel a powerful incentive to inflate growth forecasts, and build generating capacity and transmission lines that aren’t really needed.  The bigger the rate base, the bigger the profits.

The commissioners, appointed by the Governor and confirmed by the Senate, often seem negligent, essentially rubber stamping scheme after scheme and scam after scam. The utility asks for twice what it can justify, gets half, both sides declare victory, and the next scam is teed up …..

But, in fairness, the commissioners, appointed by the Governor and confirmed by the Senate, know very well that they have less clout than Xcel, and if they don’t deliver what the company expects–which might be different from what it filed for– Xcel will go to the courts and the Legislature and very likely get what it wants there.

But, who is protecting the public????  The Attorney General’s office has been active in the rate case, but not in the “resource plan” case.

See this from 2009:

Public Utilities Commission soaked in conflicts of interest

And this

Minnesota: A wholly owned subsidiary of Xcel Energy? #1 in a series.”

On October 7th, I went with Carol Overland (legalectric.org) to a PUC meeting on the “resource plan.” We were privileged, in a tiny way, to be on the agenda–five minutes between us.  The meeting began at 9:30. There was a lot of talking, most of it from the commissioners, Xcel’s reps, and the Department of Commerce.  Seven and a half hours later, At 5:00 we got our five minutes.  Most people had left by then and the webcase apparently turned off.

We said the Xcel resource plan was no good and should not be approved as is.  the commissioners didn’t have any questions.

(Disclosure:  I have testified at two hearings on the abovementioned rate case but not written much about them.  The cast of characters is slightly different but one gets the same sense that the fix is in.)

What do you think?

Alan Muller

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