Minnesota commission approves Otter Tail Power resource plan

The Minnesota Public Utilities Commission on Dec. 5 approved the latest integrated resource plan of Otter Tail Power and set a time for the utility to file a next IRP.

In December 2013, Otter Tail Power filed its 2014–2028 resource plan with the commission. Otter Tail anticipated a capacity deficit beginning in the summer of 2021 with the closure of its Hoot Lake coal-fired power plant and the expiration of certain power purchase agreements. The deficit continued to grow throughout the planning period as projected demand increased. The basic outlines of the company’s preferred plan for addressing this deficit are:

  • Complete pollution-control projects at the coal-fired Big Stone and Hoot Lake power plants to prevent their closure under new environmental regulations;
  • Construct a 211 MW simple-cycle, natural-gas–fired combustion turbine by 2021 to replace the Hoot Lake Plant;
  • Realize annual energy savings of 1.5% of Minnesota retail electricity sales;
  • Develop 15 MW of new incremental summer demand-response capability by 2028; and
  • Rely on bilateral contracts and wholesale market purchases to supply any additional energy and capacity needs. On Oct. 8, Otter Tail notified the commission that it had recently entered into a bilatera purchased-power contract for on-peak energy in calendar years 2019 and 2020. The commission will require the company to file information demonstrating the reasonableness of this contract.

Otter Tail Power is an investor-owned utility headquartered in Fergus Falls, Minnesota. The company serves some 128,000 retail customers in a 70,000-square-mile rural service area in Minnesota, North Dakota, and South Dakota. About 47% of Otter Tail’s retail customers are in Minnesota. Otter Tail’s major generation resources include two jointly owned coal-fired plants, one solely owned coal-fired power plant, three wind farms, long-term purchased power agreements with two more wind farms, a simple-cycle gas combustion turbine, oil-fired peakers, and other purchased-power agreements.

In this case, Otter Tail proposed to add only one new generation resource in the planning period—a 211-MW simple-cycle combustion turbine powered by natural gas. The proposed turbine would fill the capacity deficit left by Hoot Lake when that plant is retired in 2020. However, since the simple-cycle turbine is a peaking resource, it could not cost-effectively replace the baseload energy Hoot Lake provided. To make up this energy deficit, Otter Tail proposed to rely on a combination of long-term purchased-power contracts and day-ahead market purchases.

The state Department of Commerce’s analysis showed that 100 MW of wind generation would be cost-effective for Otter Tail’s system in each of the years 2017, 2019, and 2021. The Department concluded that, since Hoot Lake is still more than five years from retirement, it would be reasonable to require Otter Tail to procure 100 MW of wind in 2017 and to delay a decision on additional wind generation until the company files its next resource plan.

Otter Tail stated that the EPA’s recently proposed Clean Air Act section 111(d) emission guidelines for power plants could have an impact on the size, location and timing of any wind resource addition on its system. Depending on the final rules and resulting state implementation plans, the company could see significant benefits if generation projects are located within certain states. Otter Tail stated that it would not be opposed to including 200 MW of wind in its resource plan as long as the company has flexibility to wait for greater clarity on EPA’s 111(d) rules.

Said the commission’s Dec. 5 ruling: “The record in this case shows that Otter Tail will have a 200 MW capacity need in the 2019–2021 timeframe, coinciding with Hoot Lake’s retirement. Moreover, by 2028, Otter Tail’s annual energy need will grow by approximately 1,000 GWh, or 20% of the Company’s existing system energy requirement. To meet this capacity and energy need, the Commission will require the Company to obtain approximately 200 MW of intermediate capacity (and associated energy) between 2019 and 2021 by constructing the resource itself, by sharing in the ownership of the resource, or by procuring the resource through bilateral contracts, whichever option is most cost-effective. In addition to the 200 MW capacity need, the Department’s analysis shows that up to 300 MW of wind energy in the 2017–2021 timeframe is cost-effective. It is essential that Minnesota electric utilities continue to add cost-effective wind generation to their systems if this state is to achieve its greenhouse-gas reduction goals. Moreover, wind additions could help Otter Tail secure its energy needs while insulating ratepayers from excessive market risk. However, the Commission concurs with Otter Tail that a measured approach to adding wind is most prudent.

“Otter Tail must able to react to market conditions and federal regulations to obtain renewable energy reliably and at the lowest possible cost to its ratepayers. To preserve this flexibility, the Commission will authorize the Company to obtain up to 300 MW of wind in the 2017–2021 timeframe if cost-effective and to the extent consistent with reliable system operation. The Commission will also order Otter Tail to file its next resource plan on December 1, 2015. This will allow the parties and the Commission to revisit the issue of greenhouse-gas reduction in a relatively short period of time, with the benefit of greater clarity on Clean Air Act regulations.”

The commission later added: “In Otter Tail’s last resource-plan proceeding, the Commission approved the Company’s proposal to retire Hoot Lake in 2020. Otter Tail will be filing its next resource plan in December 2015, at which point Hoot Lake’s planned retirement will be less than five years away. Therefore, the Commission will require Otter Tail, in its next resource plan, to file a specific proposal to replace Hoot Lake Plant, including expected dates for filing a formal request with MISO to retire Hoot Lake and for filing certificate-of-need and interconnection applications for the new facility.”

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.