The Minnesota Public Utilities Commission on March 2 approved the 2011-2025 integrated resource plan of Interstate Power and Light (IPL), a unit of Alliant Energy (NYSE:LNT).
IPL has over 500,000 electricity customers in over 100 counties in Iowa and Minnesota. IPL owns (partially or entirely) generating facilities in both Iowa and Minnesota capable of producing about 2,600 MW of electricity. IPL’s energy portfolio includes coal plants, intermediate or combined-cycle natural gas units, a 200-MW wind farm, and power purchase agreements with wind and nuclear generators, including the Duane Arnold Energy Center (DAEC) nuclear plant.
Minnesota rules generally require electric utilities to submit proposed resource plans to the commission every two years.
The Minnesota Department of Commerce recommended approval of IPL’s resource plan with modifications. Chief among the department’s concerns was IPL’s plan to rely on wholesale market purchases of power to address its anticipated power and energy need shortfall. IPL proposed to purchase 50 MW in 2019 and 2020, 100 MW in 2021 and 2022, and 150 MW in 2023 and 2024. The department’s modeling recommends investment in natural gas generation to avoid the need for IPL to rely on the purchase of wholesale energy to meet its anticipated need. The department also recommended that IPL add 1,500 MW of wind over a period of years and that it renew its power purchase agreement with DAEC, assuming the prices are reasonable.
IPL agreed with some of the recommendations of the department and other intervenors. IPL agreed to report on the cost of adding new environmental controls, and on the flood risk to its Prairie Creek plant. IPL agreed with the department that adding a combined-cycle plant would be an option in place of relying on several consecutive years of wholesale power purchases, but disagreed with the department analysis that led to the conclusion that wind generation would be most cost effective to address anticipated power needs.
IPL also stated that it may not elect to renew the DAEC power purchase agreement, the commission noted in the March 2 order. The department contended that, in light of the uncertain future of the DAEC power purchase agreement in IPL’s resource mix, the commission should require IPL to conduct a reliability analysis considering the DAEC power along with other demand- and supply-side alternatives.
Commission finds too much reliance on wholesale power purchases
The commission agreed with the department that IPL’s proposal to rely on short-term wholesale energy purchases for six consecutive years before investing in a new generation facility is unreasonable. “Reliance on wholesale purchases to meet anticipated need can serve to bridge a time where need is not quite sufficient to justify a longer-term investment,” the commission order said. “But using wholesale power purchases as a ‘bridge to a bridge’ for an extended period leaves ratepayers unreasonably exposed to price and reliability risks. The commission concludes that the extent of IPL’s plan to rely in the long-term on market purchases is not reasonable for resource planning purposes.”
The commission said it will not require IPL to renew its power purchase agreement with the DAEC or to invest in wind in order to meet its anticipated need, but will require IPL to consider both options in the course of identifying the most cost-effective way to meet its anticipated need. The commission will require IPL to keep the commission apprised of developments in its resource mix, including request-for-proposals results, resource planning decisions, and related filings in other jurisdictions such as Iowa.
The commission concurred with the intervenors’ and department’s concerns regarding the specificity of, and justifications for, IPL’s resource plan assumptions. “Greater detail and transparency in the premises underlying resource plan models and conclusions serves the public interest by contributing to meaningful resource plan evaluation and feedback,” the commission ruled. “The commission will therefore require IPL to include in its next resource plan several modeling and analytical revisions, discussed below. IPL will be further required to meet with the department to discuss forecasting concerns.”
The commission has established, at the direction of the Minnesota legislature, a range of anticipated likely costs for CO2 regulation. The commission said it believes it is in the public interest for utilities to incorporate the anticipated costs in their base case for resource planning purposes. Including CO2 costs in the base case ensures that the resource planning process is consistent with the statutory requirement to include CO2 costs as a factor in resource acquisition proceedings. The commission will therefore require IPL’s next resource plan to incorporate in its base case the mid-point of the commission-approved range for CO2 costs.
IPL must also justify its assumptions regarding the performance of its Tier II (mid-life) plants, and detail the cost and purpose of adding environmental controls to its Tier I (newer) plants. In its next resource plan filing, the commission said that IPL will also need to include scenarios reflecting a broad range of coal and natural gas prices. These modifications are necessary to ensure that IPL’s resource planning allows for meaningful and transparent forecasting of the company’s resource mix, which is in the public interest. IPL’s next resource plan will be due by Nov. 1, 2013.
The commission will require IPL to conduct a baseload diversification study within nine months to clarify and permit evaluation of IPL’s needs and supply options. The commission agreed that there are significant resource decisions imminent in IPL’s plan that justify a fresh look at IPL’s resource mix, but do not require a new, full-blown resource plan.
IPL issues request for power supplies
In a Feb. 7 supplemental filing in the IRP case, the utility filed a copy of a request for proposals (RFP) issued on Jan. 30 seeking firm long-term supplies of non-intermittent capacity and energy delivered to IPL’s electric service area. IPL projects an electric capacity need of about 550 MW by June 1, 2016. IPL said it issued the RFP soliciting ownership and/or long-term purchased power agreement proposals for new or existing resources, or access to a portion of the output of a system of resources, to supply all or a portion of its long-term electric capacity and energy needs. IPL has retained Concentric Energy Advisors to manage the RFP process.
“IPL seeks to acquire new supplies of capacity and energy that, at a minimum, meet established industry-wide reliability and performance criteria,” said the RFP. “IPL’s preference is for a resource that will be viewed as a long-term supply resource for IPL, provides avoidance or mitigation for unknown or unknowable environmental risks during the term, is capable of high availability factors (preference is 80% or greater), and is able to be delivered on a non-curtailable firm basis to IPL’s load zone, regardless of potential changes in MISO deliverability provisions.”
IPL is seeking proposals from facilities that can provide non-intermittent firm generation capacity to the system. For a project to be eligible under this RFP, it must: have a net summer rated capacity greater than 50 MW, however the company has a preference for larger capacity commitments; be a non-intermittent firm thermal resource: and deliver capacity via firm network transmission service to the Alliant-West load zone within MISO.
Coal-fired capacity targeted for gas switch, shutdown
In a Jan. 20 supplemental filing, IPL outlined the status of some coal-fired generation. In its original November 2010 IRP filing, IPL indicated that the Sutherland Generating Station Unit 1 (SGS1) was a Tier III unit. IPL also stated in the 2010 IRP that Sutherland Generating Station Unit 3 (SGS3) was a Tier II unit. IPL also identified a retirement date of Dec. 31, 2014, for SGS1. “IPL will continue to evaluate the prudency of that retirement and date in light of changing circumstances in the industry,” said the update.
Because SGS3 was identified as a Tier II unit, IPL stated that, depending upon the stringency of potential U.S. Environmental Protection Agency rules, SGS3 may not be able to economically withstand the burden of full environmental controls. Also, IPL stated that its Tier II units, including SGS3, could be candidates for fuel switching, retirement, replacement, or might continue to operate if low-cost emission control options become economically available.
As part of the 2010 IRP, IPL assumed that SGS1 would continue to operate as it historically has, using coal as it primary fuel until its 2014 retirement date, while SGS3 unit would also continue to operate as it historically has, using coal as its primary fuel. The unit can also burn gas on an intermittent basis, based on the historical configuration.
In September 2011, SGS3 experienced a generator failure that resulted in an extended outage. In December 2011, IPL determined that it would continue to move forward with plans to repair SGS3 and utilize natural gas as a primary fuel source for both SGS1 and SGS3.
IPL analysis also indicated that it was not in the economic interest of customers to install emissions control equipment on SGS3 to comply with future environmental rules and, as a result, SGS3 cannot operate on coal beyond 2014, the update said. Once IPL has completed the SGS3 repairs, IPL will use coal as a fuel source at SGS3 until the coal inventory is exhausted, which is expected in April 2012. Thereafter, IPL will complete a minor modification to SGS3 to allow it to continuously operate on natural gas in a safe and reliable manner. IPL expects the modification to be completed by the second quarter of 2012. IPL does not expect this modification work to impact the reliability of the SGS3. Because SGS1 is already capable of operation on natural gas, no modifications are required for SGS1 to operate on natural gas.
IPL has decided to operate SGS3 on natural gas until the unit is retired. No decision on a retirement date for SGS3 has been made at this time.
From a system-wide perspective, IPL continues to evaluate alternatives for its entire generating fleet and expects to have an update in the second quarter of 2012, the Jan. 20 update said.
“IPL’s November 2010 IRP began a process of retiring Dubuque Generating Station Units 3 (29 MW) and 4 (32 MW) and Sutherland Generating Station Unit 1 (28 MW), and indicated IPL would evaluate the operating impacts of proposed environmental rules on Sutherland Generating Station Unit 3 (59 MW),” said Alliant’s Feb. 27 annual Form 10-K about this process. “In 2011, IPL switched the Dubuque Generating Station to a natural gas-fired facility and no longer operates the site as a coal-fired unit. IPL expects to switch the Sutherland Generating Station to a natural gas-fired facility in the first half of 2012.”