Minnesota PUC picks Calpine, Geronimo and Xcel projects to meet Xcel’s needs

The Minnesota Public Utilities Commission on Feb. 5 issued a final order approving a power contract between Xcel Energy and Calpine for an expansion of the Mankato power plant and also a gas-fired project at Xcel’s Black Dog project, but rejecting a power contract with Invenergy.

The commission approved Xcel’s draft power purchase agreement with Calpine’s Mankato Energy Center II LLC, approved the Black Dog 6 proposal as a resource that fits Xcel’s need and declined to select Invenergy’s proposal. All three situations involve new gas-fired capacity, in the Invenergy case at its existing Cannon Falls power plant.

In November 2012, the commission initiated this docket in a resource case of Northern States Power d/b/a Xcel Energy, requiring Xcel to solicit proposals from project developers to provide the additional resources needed to serve Xcel’s customers. The commission later found that Xcel had demonstrated the need for an additional capacity of 150 MW by 2017, increasing up to 500 MW by 2019. These findings provided the context in which project developers submitted their proposals. 

After lengthy proceedings, on May 23, 2014, the commission directed Xcel to negotiate draft agreements with selected parties covering four rival proposals:

  • Geronimo Energy’s collection of distributed solar generators to be installed at various locations throughout Minnesota, with an accredited capacity of 72 MW;
  • Calpine’s Mankato Energy Center II, a 345-MW gas-powered generator to be installed in Mankato;
  • Invenergy Thermal Development LLC’s Cannon Falls II, a 178.5 MW gas-powered generator to be installed in Cannon Falls; and
  • Xcel’s Black Dog Unit 6, a 215 MW gas-powered generator to be installed in Burnsville at an existing power plant.

Specifically, the commission selected Geronimo’s proposal for implementation, provided the parties could negotiate a power purchase agreement that was consistent with the public interest. The commission also stated that it would review the finalized agreements for Calpine’s and Invenergy’s proposals, and price terms for Xcel’s proposal, to determine which, if any, would best address Xcel’s remaining system needs. Calpine, Geronimo, and Invenergy each formed subsidiaries – respectively, Mankato Energy Center II LLC; Aurora Distributed Solar LLC; and Invenergy Cannon Falls II LLC – for the purpose of owning and operating their proposed projects.

On Sept. 23, 2014, Xcel made the compliance filing required by the May 2014 order. The filing contained: a draft power purchase agreement (PPA) that Xcel had negotiated with Geronimo for generators to begin operations by 2016; draft agreements that Xcel had negotiated with Calpine and Invenergy, and a statement reaffirming terms Xcel had previously proposed for Black Dog Unit 6, for generators to begin operations by 2018 or 2019; and Xcel’s updated assessment of need, now predicting that Xcel would not require additional resources until 2024.

Citing its revised need assessment, Xcel’s recommended that the commission refrain from selecting any gas-powered generators at this time, and instead authorize Xcel to re-negotiate the agreements to establish terms for a later implementation date. And Xcel recommended, in effect, that the commission refer consideration of Geronimo’s proposal to a separate docket for solar-powered generators.

On Sept. 25, 2014, the commission initiated two dockets – one covering the Geronimo Energy solar matter, and the other for the three gas-fired projects. On Dec. 12, 2014, Xcel filed proposed revisions to Geronimo’s power purchase agreement that were agreeable to both Xcel and Geronimo, in response to the commission’s concerns about the agreement’s language governing cost recovery. In addition, Geronimo and Xcel filed joint comments addressing these concerns.

Three out of four final proposals picked by the commission

Consistent with the May 2014 order, Xcel developed terms for the following four proposals:

  • Geronimo proposes to erect photovoltaic panels at about 24 sites adjoining substations along Xcel’s transmission or distribution lines, each site with a capacity of up to 10 MW for an aggregate capacity of up to 100 MW (or 72 MW of accredited capacity);
  • Xcel proposes to install a 215-MW combustion turbine generator, powered by natural gas, at Xcel’s existing Black Dog Generating Station in Burnsville (Black Dog Unit 6). This would be a peaker;
  • Invenergy proposes to install a natural gas combustion turbine generator adjoining its existing 357-MW generator in Cannon Falls. While initially proposing to install a 178.5 MW generator, Invenergy had in the meantime committed that generator to another project. So Invenergy proposed a substitute generator with a capacity of 209 MW;
  • Calpine proposes to install a gas-powered combined cycle generating plant – that is, a combustion turbine combined with a heat recovery steam generator to extract more energy from each unit of fuel burned. Calpine proposes to build its new Mankato Energy Center II (MEC II) adjoining the existing 375-MW Mankato Energy Center (MEC I). This addition would provide at least 55 MW of peaking capacity plus at least 290 MW of intermediate capacity. Intermediate generators, having higher construction costs but lower operating costs, are designed to run more frequently than peaking generators.

Said the commission in the Feb. 5 order approving the Calpine PPA: “Calpine provides the greatest flexibility of any of the proposals under consideration. It offers both peaking and intermediate power. With at least 345 MW, it offers the greatest capacity of any single generator. And this capacity could be coordinated with the capacity provided by the existing Mankato Energy Center, which Xcel already has under contract.”

The commision said that Black Dog Unit 6 is Xcel’s least-cost generator under a variety of scenarios, including if gas costs are lower than forecast, or the unit is dispatched less often than anticipated. Xcel’s proposal offers attractive terms, including the option of retaining the benefits of any construction savings, and the option of continuing to derive useful life from the plant beyond its first 20 years. But its most unique attribute is that Black Dog Unit 6 has the option of providing dispatchable capacity by 2018 due to its ability to use the transmission capacity from some of Xcel’s retiring generators at the Black Dog site.

The commission said that the terms of Invenergy’s proposal are consistent with the public interest and consistent with the prices and terms used to evaluate its bid in this process. “Moreover, Invenergy proves to be the least-cost generator under scenarios in which demand for electricity is lower than anticipated, and when the generator selected in this docket is dispatched less often than anticipated,” it added. “However, it compares less favorably under scenarios in which gas prices are lower than anticipated, or if the generator were required to operate more often than anticipated. And when the [state Department of Commerce] identified the least-cost package of generators to meet Xcel’s forecasted need, it did not include Invenergy’s proposal as part of the package. The Department concluded that Invenergy’s proposal was competitive with the other proposals in this docket – under the assumption that Invenergy would operate with an interruptible gas supply. Securing fuel on an interruptible basis is cheaper, but exposes the generator to a risk that the fuel supply would be cut off, especially during periods of peak demand for natural gas. It is unclear how well a 28-hour supply of fuel oil would offset this risk, especially in extreme cold when demand for gas is likely to be at its highest. And prospectively, it is unclear how MISO will accredit generators that rely on interruptible gas supplies.”

The final order said: “In selecting the gas-powered generators to meet the remainder of Xcel’s needs, the Commission strives to identify a portfolio that will provide the best combination of benefits at least cost. In brief, the Commission finds that Calpine’s proposal provides the greatest operational flexibility and lowest operating costs, while Xcel’s proposal provides the greatest reliability in securing an energy source with transmission access. These generators, combined with Geronimo’s proposal, meet all the capacity needs demonstrated on the record. For the foregoing reasons, the Commission will select Calpine’s Mankato Energy Center II power purchase agreement and Xcel’s Black Dog Unit 6, subject to its price terms, as resources that fit Xcel’s need. Consequently the Commission will approve the power purchase agreement and the price terms. For the same reasons, the Commission will decline to select Invenergy’s proposal.”

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.