Minnesota commission orders Sherco Units 1-2 retirement analysis

The Minnesota Public Utilities Commission has directed Northern States Power Co. d/b/a Xcel Energy (NYSE: XEL) to file various resource assessments including the merits of shutting down the coal-fired Sherburne County (Sherco) Units 1-2.

The commission on Nov. 30 issued a procedural order in a 2011-2025 resource plan case begun by Xcel in August 2010. During the course of this case, the commission took comments from various parties, including environmental groups. Xcel subsequently revised the plan to take into account various changes, including lower-than-originally-forecasted economic growth, a loss of wholesale customers, changes in its wind procurement strategy, reassessments of its program for refurbishing the coal-fired Black Dog Units 3 and 4 and the Prairie Island nuclear plant, and the anticipated expiration of the Production Tax Credit for renewable energy.

Xcel has revised its five-year action plan and now proposes to do the following:

  • Continue developing plans to either update or replace Sherco Units 1 and 2.
  • Retire Black Dog Units 3 and 4, but cancel plans to acquire replacement power.
  • Reassess the need to complete the uprate of the Prairie Island plant.
  • Reassess the need for more wind-powered electricity.
  • Continue its Solar*Rewards program, but with lower subsidies for enrollees.
  • Continue to use demand-side management to reduce energy sales by 1.3%, and work with stakeholders to achieve a 1.5% reduction in the near term, but anticipate reduced savings in the future as Xcel depletes the most cost-effective opportunities for load management and conservation.

Based on its new analysis, Xcel now projects that its current supply- and demand-side resources will be sufficient to meet customers’ forecasted needs until 2017. Xcel said that between 2017 and 2019 it will need to add 400-600 MW of generating capacity – and perhaps more, to offset the capacity that it no longer proposes to add to Prairie Island.

The commission said it concurs with the contentions of some parties that the latest developments in Xcel’s resource plan require further analysis. “Consequently the Commission will decline to act on Xcel’s resource plan at this time,” said the Nov. 30 order. “Instead, the Commission will direct parties to continue analyzing and developing a resource plan for Xcel – and in particular, to develop the base level of Xcel’s resource needs sufficiently to enable the Commission to identify the size, type, and timing of any new resources required.”

The commission is directing Xcel to make three additional filings:

  • Competitive Resource Acquisition Process – Statute authorizes Xcel to invite outside parties to propose means by which Xcel should meet its resource needs. Xcel has established a process for doing so. Under this process when Xcel identifies the need for substantial new sources of generation, Xcel prepares a plan for notifying potential resource providers – developers of electric generators, for example – of the opportunity to file proposals for meeting the need. While aspects of Xcel’s resource plan remain unresolved, it is clear that Xcel will need to acquire additional resources to meet customer need. Consequently the commission will direct Xcel to prepare and file a notice plan for soliciting proposals from outside parties. This filing will coincide with the deadline for parties to file reply comments on Xcel’s resource plan.
  • Fuel Acquisition and Risk Management Plan – The commission directed Xcel to file by July 1, 2013, a fuel acquisition and risk management plan. Xcel already files an annual fuel procurement plan. But, Xcel’s preferred plan relies heavily on generating electricity with natural gas, which has a history of price volatility. This fact prompted the state Chamber of Commerce to recommend that the commission direct Xcel to solicit proposals for a 20-year fixed price contract for gas. “While that proposal is premature, the Commission finds that the record demonstrates the need for Xcel to explore in greater depth the fuel price risks of its proposed resource plan, and the opportunities and terms available for long-term supply contracts to mitigate those risks,” the commission ruled.
  • Life Cycle Management Study for Sherco Units 1 and 2 – The commission will direct Xcel to evaluate how best to manage the two oldest generators at its largest power plant, Sherco Units 1 and 2, over the rest of the generators’ useful lives. Xcel has stated that it plans to complete a Life Cycle Management Study for Units 1 and 2 by July 1, 2013, but notes that the scope of the study is still evolving. As part of that study, the commission will direct Xcel to examine the feasibility and cost-effectiveness of continuing to operate, retrofit, or retire these units. That includes specific estimates of the cost to install and operate equipment for controlling emissions, and other required investments and least-cost scenarios to reduce greenhouse gasses relative to 2005 levels by at least 15% by 2015, 30% by 2025, and 80% by 2050. Xcel also has to file least-cost plans for replacing 50% and 75% of the capacity of Sherco Units 1 and 2 through a combination of conservation and capacity powered by renewable sources of energy.
  • Xcel’s Next Resource Plan – Consistent with the request of various parties, the commission finds it reasonable to set the date for Xcel’s next resource plan filing at Feb. 1, 2014. This should provide Xcel with enough time to analyze the relevant issues, and to prepare the filing in the manner prescribed by the state legislature and the commission. In this plan, Xcel should include a reevaluation of its decision to acquire new sources of wind power. Xcel had initially proposed to add 100 MW of wind in 2015 or 2016, but is now reconsidering this plan. The commission notes that Xcel’s current portfolio of wind-powered generators and renewable energy credits mean that it currently has no regulatory compliance need for more electricity from wind. And given the uncertainty surrounding greenhouse gas regulations and the extension of the federal production tax credits, the commission finds that Xcel is justified in reconsidering its wind acquisition strategy. Xcel should include a comprehensive section on all U.S. Environmental Protection Agency rules that may affect Xcel’s operations. For planning purposes, Xcel should develop its base case scenario assuming that Xcel will incur $9 to $34 per ton of CO2 emitted, beginning in 2017. Xcel omitted this factor from the base case of its revised resource plan.

A December 2011 Xcel resource plan update assumed that Sherco 1 and 2 would continue to operate after the end of their book lives in 2023. Xcel is verifying this assumption via the Life Cycle Management Study. Xcel stated in earlier reply comments that the preliminary findings of the study suggest Sherco 1 and 2 can be “operated well beyond” 2023. Sherco 1 and 2 both have wet scrubbers for SO2 and ash control, a wet electrostatic precipitator for particulate emissions, and low NOX burners, overfire air, and combustion controls to reduce NOX. To meet near-term compliance requirements, Xcel expects to implement the following emissions control equipment: Activated Carbon Injection to control mercury emissions; Wet Electrostatic Precipitator to further reduce fine particulate emissions; and Sparger Installation Project to further reduce SO2 emissions.

Sherco is a three-unit, 2,400-MW plant. It burns low-sulfur Western coal from mines in Montana and Wyoming. The plant normally burns more than 9 million tons of coal a year. Unit 3 is newer, currently shut for repairs and not affected under the life cycle planning.

With respect to the current resource plan docket, the commission in the Nov. 30 order established the following procedural schedule:

  • Dec. 18, 2012: Deadline to file comments.
  • Jan. 16, 2013: Deadline to file reply comments.
  • February 2013: Commission action and docket closure.

By Jan. 16, 2013, Xcel needs to file a notice plan for soliciting bids as part of its competitive resource acquisition process. By July 1, 2013, Xcel needs to file a fuel acquisition and risk management plan. By July 1, 2013, Xcel has to submit a Sherco Life Cycle Management Study.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.