Southwest Generation opposes Xcel RFP for biomass projects

Independent power producer Southwest Generation Operating Co. told the Colorado Public Utilities Commission that Public Service Co. of Colorado shouldn’t be allowed to issue a request for proposals (RFP) targeted just to small power projects using biomass gasification.

On May 20, 2013, Public Service Co. of Colorado (PSCo), a unit of Xcel Energy (NYSE: XEL), filed a petition seeking a declaratory ruling that a forest biomass project selected through a narrow, targeted RFP process would meet the requirements of Section 123 of state law.

“While the targeted solicitation and approach outlined in the Petition may be technically legal, the approach is risky from a policy perspective and inconsistent with the intent of Section 123 and other State public utilities law,” said Southwest Generation (SWG) in an Aug. 14 filing. “PSCo seeks to take from the Commission the primary role of determining whether and what Section 123 technologies should be subsidized. Accordingly, the Commission should deny PSCo’s Petition and discourage targeted Section 123 solicitations unless the need for narrow scope is well justified.”

PSCo’s proposal for a targeted solicitation for a precisely defined technology (only forest biomass gasification projects may apply, leaving even other biomass or other methane sources out of the discussion) and amount (2 MW or less) limits the scope of the commission’s consideration, SWG said.

“PSCo seeks to artificially restrict the Commission’s consideration of the relative costs and benefits by avoiding comparisons with other technologies and project sizes,” it added. “PSCo is seeking to make the decisions that, for example, forest biomass is more important than other biomass, gasification is the only technology to be considered, and biomass should trump other types of possible Section 123 projects. Because the Commission would be exposed to only a narrow range of options and information, it would lack full context and the ability to provide the fullest consideration to Section 123 technologies (as opposed to a single technology). At this point, without bids, the Commission also cannot fully assess whether forest biomass concepts are really ‘new’ and ‘clean,’ as required by the Commission.”

The commission should resist use of Section 123 as a “bootstrap” to justify more expensive projects that PSCo – and not the commission – has “targeted” over possible acquisitions, said SWG.

SWG says other projects could have laudable goals, too

PSCo makes a policy case for focusing only on forest biomass by noting the need to harvest diseased trees and improve forest health and other policy reasons for gasifying forest biomass. SWG said it does not dispute the importance of addressing fuel loads in the mountains of Colorado. However, it said this does not justify using Section 123 as a vehicle for regulated utilities to subsidize only certain “pet projects” they may have.

Other fuel sources have their own issues, it noted. For example, agricultural biomass projects could help Colorado farmers and provide a more consistent feedstock over time. Coal, waste or agricultural methane capture projects could address pressing environmental and safety needs. Combustion carbon capture projects provide the greatest opportunities to provide reductions in carbon emissions, it added.

SWG said it and other independent power producers will be affected by PSCo’s targeted solicitation, developed after six years of discussions with specific biomass technology vendors. First, the targeted RFP keeps SWG from bidding other Section 123 or non-123 small-scale projects that it said may provide a better combination of costs, risks and benefits than PSCo’s pre-selected biomass gasification option. For example, SWG has worked on developing concepts for small scale (1 MW-2 MW) waste methane capture projects in Western Colorado.

The decision to subsidize one or more biomass Section 123 projects would also further reduce the pool of unmet demand that PSCo must meet in its Electric Resource Plan (ERP), in which SWG has tendered both Section 123 and non-Section 123 bids. “While PSCo’s brief mentions a project size of 2 MW per project, it does not commit to just building one project,” SWG noted. “PSCo has sought in the past to downplay the effects on all-source competition from its targeted solicitations. For example, it suggested in the current ERP process that a targeted wind solicitation would only have a nominal effect on competition, basing capacity impacts on an assumption of a 100 MW acquisition. It then came back with a recommendation to proceed with negotiations of over 500 MW of wind.”

SWG added: “The resource need in this ERP has been steadily eroding and, with it, the chance to acquire Section 123 projects that will make a real long-term impact. SWG believes that its Fountain Valley carbon capture project provides the best balance of Section 123 attributes with the best long-term benefits to the ratepayers and State. The Commission should ensure a level playing field for its consideration, rather than PSCo’s approach of seeking to pre-program its acquisitions through targeted solicitations.”

The Colorado Independent Energy Association had its own critical comments to make on Aug. 14 about the PSCo proposal, which it points out comes at a time when the utility is working on an all-sources RFP for new power. The commission has already taken steps in this docket to allow it to consider potential small forest biomass projects in the broader context of all the other resource alternatives available (both Section 123 and more traditional resources), the association said.

“Accordingly, under the circumstances present here, PSCo has shown no urgent need for the Commission to issue in this narrow docket any advisory legal opinion regarding a hypothetical situation that does not in fact exist, namely how to determine cost-effectiveness when there is no broader context or alternative Section 123 and other resources to also consider,” said the association. “All other currently-proposed Section 123 resources are being considered in light of the Phase II bid evaluation report, and there is no compelling reason why that approach cannot now likewise apply to prospective small forest biomass projects.”

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.