Independent monitor for Xcel wind RFP awards mostly good marks

Accion Group, selected by the Colorado Public Utility Commission as the Independent Evaluator (IE) for Public Service Co. of Colorado’s (PSCo) 2013 PTC Wind Request for Proposal (RFP), said in a report to the commission that the utility, with some exceptions, handled the process properly.

Accion also found that the utility’s request to seek re-bids on the initial, disappointing wind power bids was a good one, and that it is appropriate for PSCo to negotiate power purchase agreements (PPAs) with the three unnamed final bidders. The IE will submit final comments to the commission on this RFP on Sept. 23.

Notable is that the public version of the initial report lacks many of the details of a confidential version. The report is officially dated June 11, and it was posted in the commission docket on June 21. PSCo is a unit of Xcel Energy (NYSE: XEL).

The IE was engaged after the so-called “Phase 1” portion of the proceeding, during which the scope of the RFP and the role of the IE was determined. So, the IE was not involved in fashioning the RFP, defining the role of the IE, or drafting of the RFP documents.

“The IE believes PSCo dedicated the necessary resources to the evaluation process,” Accion wrote. “The duration of evaluation was due to the complexity of identifying the best offers for this system. PSCo attempted to create an information system that provided for easy exchange of information and access to Bid information for authorized individuals. The IE notes that the process devised by PSCo for the sharing of information was still under development as the RFP process was underway and continued until June 7, 2013. While the IE is unaware of any instance where the information retention and sharing process adversely affected the evaluation process, the IE is unable to attest that the process was error free. The IE expects to have a more thorough assessment of PSCo’s fidelity to the RFP protocols, and the Company’s ability to meet its commitments, as part of the Final Comments on September 23, 2013.”

On May 9, the IE met with PSCo personnel to review preliminary ranking of the initial bids. During the review, PSCo personnel provided a scatter chart that compared did pricing with recent regional wind prices. Based on this information the IE agreed that bidders should be invited to “refresh” their bids in order to determine if they would reduce prices, and thereby provide greater value to PSCo native load customers.

“The IE remains skeptical that the curtailment factor employed by PSCo (1%) adequately captures the risk and, in turn, overstates the value of wind Bids,” Accion said. “The IE is unaware of PSCo exercising bias towards or against any Bidder. However, as noted elsewhere, the process employed by PSCo required the IE to rely on information provided by PSCo and, therefore, the IE is unable to confirm that the PSCo processes function reliably. The RFP process employed was needlessly convoluted and was being created as the RFP was conducted, making review of the ongoing process difficult. It should be noted that PSCo personnel responded to every question posed by the IE, but the close working relationship the IE is accustomed to have with utility evaluation personnel was never achieved.”

Accion: the final bids look good based on current benchmarks

Accion added: “The results of the evaluation suggest that the Bids recommended for contracting by PSCo offer substantial value to ratepayers. However, the IE recognizes that there are a number of assumptions that lead to this result that are subject to substantial risk. If gas prices drop substantially or wind curtailments become a more substantial issue in the future, the projected benefit of nearly $300 Million can be dramatically reduced. The IE believes the base case fuel price forecast provided by PSCo to be adequate, but is less sanguine about the prospects of the low wind curtailment forecast materializing. To address the risk in these assumptions, PSCo ran a fuel price sensitivity at the direction of the Commission and ran a wind curtailment sensitivity at the suggestion of the IE. The IE believes that both of these sensitivities are relatively extreme and should reflect near worst case scenarios. In both of these scenarios, the recommended Bids continue to offer value to ratepayers. Given that these portfolios provide significant value in a wide distribution of future scenarios, and assuming that all relevant information was made available to the IE, the IE believes the Bids selected by PSCo were appropriate.”

Accion noted how evaluations of wind capacity, and wind curtailments, are changing as the wind market matures.

“Wind curtailment has been a significant issue in Colorado in recent years,” Accion wrote. “Increasing penetration of wind exacerbates this issue, although it is mitigated by the retirement of inflexible coal units. As the resource mix changes, the system will more easily be able to address the volatility of wind output. However, wind curtailments due to both generation and transmission constraints will be a frequent concern for many years. The Wind Limits study commissioned by PSCo suggests that at very high concentrations of wind, annual curtailment of wind resources could result in dumping a meaningful percentage of the projected output of incremental wind projects. While the proposed projects would not bring the penetration of wind to the 3,000 MW-4,000 MW levels that were considered in the Wind Limits study, curtailments in recent years have represented less than 5% of total wind production. Recognizing that when measured on an incremental basis, curtailment is higher for the last project than for the first project, this should be carefully considered in the evaluation.”

Given that natural gas prices have been lower lately than previous forecasts, the IE believes it is important to consider the possibility of long term gas prices that are lower than the base case forecast. PSCo performed simulations for the system including each bid separately with sensitivities around gas prices. In the low gas price sensitivity, the portfolio of bids shows a small net cost to the proposed portfolio of wind bids of $2.20/MWh. The low gas price sensitivity uses a gas price of $2.42/MMBtu in 2015 escalating to $6.88/MMBtu by 2050 which the IE believes to be a very conservative estimate. The IE said it believes this scenario to be a very low likelihood possibility and an acceptable risk to take given the substantial expected value offered by the wind bids.

“In summary, Accion concurs with the PSCo recommendation to proceed with the procurement of the 3 identified projects,” said the Accion report. “In addition, another project was identified [REDACTED] as a backup for the [REDACTED] project since their injection points are both at the Missile Site. Accion also concurs with moving this project to negotiations as a backup as suggested by PSCo.”

PSCo asked the Colorado commission on May 30 to let it move forward with talks with parties that offered 548 MW of total wind capacity in this March 15 RFP. The RFP was designed to find wind generation that can go intro construction ahead of the Dec. 31 expiration of the current version of the federal production tax credit (PTC).

On April 30, PSCo received 25 initial bids offering a total of about 6,500 MW of new wind facilities. Offers were received for both PPAs and company ownership of new wind facilities. Bidders offered facilities located in both Colorado and Wyoming.

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.