The Northern States Power unit of Xcel Energy (NYSE: XEL) is negotiating with Calpine (NYSE: CPN) and Invenergy Thermal Development over contracts covering gas-fired power, said James Alders, Strategy Consultant for Rates and Regulatory Affairs for Northern States Power.
Alders provided Nov. 14 testimony at the North Dakota Public Service Commission, ahead of a Nov. 26 hearing on the utility’s request for an Advance Determination of Prudence (ADP). That request covers three new 215 MW natural gas-fired combustion turbines (CTs) – Black Dog Unit 6, Red River Unit 1, and Red River Unit 2 – to meet resource needs in the 2017-2019 timeframe. Black Dog Unit 6 would be located at an existing power plant in Minnesota, while Red River Units 1-2 would be built at an unidentified site in the Red River Valley in North Dakota.
Alders in the Nov. 14 filing was largely filling in the North Dakota commission on the status of a parallel approval proceeding at the Minnesota Public Utilities Commission.
Three independent power producers – Calpine, Invenergy Thermal Development and Geronimo Energy – offered alternative proposals, as did Great River Energy, an electric cooperative.
- Calpine’s proposal is to expand its existing Mankato Energy Center in Minnesota from a single CT to a combined cycle facility that would add 345 MW to the NSP system.
- Invenergy proposed two different CT proposals – one for a 150-MW CT at its existing plant site at Cannon Falls, Minn., and the other for two 150-MW CTs at a new site near Hampton Corners, Minn.
- Geronimo offered a solar proposal for 100 MW that would be generated by approximately 20 distributed solar facilities located across the utility’s Minnesota service territory.
- GRE offered a short-term capacity credit purchase of 100 to 200 MW for the 2017-2019 time period.
Except for GRE, all of the resources were proposed to be added to the NSP system as Power Purchase Agreements (PPAs).
Capacity need figures somewhat in flux
NSP’s most current capacity assessment – the September 2013 Update– indicates a system-wide generating capacity deficit of 93 MW starting in 2017, which grows to 307 MW by 2019. However, the update does not incorporate the Midcontinent ISO’s new reserve margin requirements or calculation methodology that was introduced for use in 2013. Instead the updated resource need assessment used the same reserve margin that was used in determining the company’s need in a Minnesota Resource Plan proceeding.
Because changes in MISO’s reserve margin standards could reduce the need to only 26 MW by 2019, the company recommended in its Minnesota testimony that once the least cost resource(s) to meet its anticipated need are identified, the question of the company’s total capacity need and the timing of the selected resource(s) be further reviewed in 2014 and 2015 as more information becomes available.
The Strategist computer model results showed that Black Dog 6 is the lowest cost resource among all the proposals and was selected as a resource in each of Strategist’s top 20 plans. The least cost portfolio includes Invenergy’s Cannon Falls proposal in 2016 followed by Black Dog 6 in 2018. This combination has a total of 358 MW of summer accredited capacity. The next least cost portfolio, consisting of Calpine’s Mankato expansion in 2017 with Black Dog in 2019, delivers 486 MW of capacity and is only $1.8m more expensive on a present value basis than the top plan.
Red River Valley Unit 1 has a comparable net present value to Mankato and Cannon Falls because this company-owned resource has an expected operating life of at least 35 years versus the shorter 20-year contract terms for the Mankato and Cannon Falls PPAs. As a result, Strategist identified Red River Valley Unit 1 in combination with both Black Dog 6 and GRE’s capacity credit proposal as the third least cost plan. The costs of the three top resource portfolios are very close together, and the top five portfolios are separated by less than $10m. The top four portfolios have very similar results, with Black Dog 6 common to all of them.
Black Dog 6 emerges as top option, with a PPA the next likely option
“Our proposed Black Dog CT will provide low cost capacity and long term benefits beyond some of the other proposed projects,” Alders wrote. “Also Black Dog 6 offers flexibility regarding its exact in service date. The Company therefore recommended that Black Dog 6 be selected to meet whatever level of need is indicated by updated need information in 2014 and 2015. Next, the Invenergy Cannon Falls Expansion and Calpine’s Mankato Expansion have very similar costs in the Strategist modeling. Either of these projects could be cost effective resources for our customers. The Company, therefore, recommended proceeding to the contract negotiation stage with both of these proposals.”
He added: “During negotiations we hope to resolve issues regarding specific terms and conditions that are typically not resolved until a bid proceeds to final contract negotiations. At the end of negotiations, the Commission would select only one of the two projects to be awarded a contract with the Company. Because the costs of the two PPAs are likely to be similar, the Company recommended that the contract that offers the most security and flexibility be selected as the second resource to meet our capacity need.”
In the event that neither of these two PPAs proceed after the PPA negotiation phase, NSP recommended to the Minnesota commission that it approve construction of Red River Valley Unit 1 as the back-stop option.
The Minnesota Department of Commerce, which intervened in the Minnesota case, recommended that the Minnesota commission select Black Dog 6, Invenergy’s Cannon Falls project and Calpine’s Mankato project to move forward, and once the negotiation phase for the Calpine and Invenergy PPAs was completed, it said that the commission should determine which two of the three projects to select to meet the company’s need at the lowest cost.
The evidentiary hearings in the contested case proceedings in Minnesota have been completed, and the parties’ briefing on the record evidence supporting selection of their respective proposals to meet the company’s anticipated capacity need will be completed the first week of December. Once the administrative law judge issues his Report and Recommendation at the end of December 2013, the parties will submit to the Minnesota commission any objections they have to the report. The Minnesota commission is expected to consider the matter in February 2014.