Wisconsin Electric offers details on alternative to 650-MW Riverside project

Wisconsin Electric Power officials told the Public Service Commission of Wisconsin that they have been able to price the sale of power to Wisconsin Power and Light for six years at a discount to what it would cost if Wisconsin Power and Light were to build its proposed, 650-MW, gas-fired Riverside Expansion project.

The commission is in the middle of a review of the prudency of the Riverside Expansion, and in that case Wisconsin Electric Power says it can supply that capacity to Wisconsin Power and Light (WPL) more cheaply. 

Jeff Knitter, Manager of Planning in the Wholesale Energy and Fuels department of Wisconsin Electric Power, said in Sept. 22 testimony: “The purpose of my direct testimony is to confirm that Wisconsin Electric has sufficient capacity available to cover its future load and required reserves after selling capacity to WPL through the proposed Power Purchase Agreements (PPAs) that witness Christine Akkala describes in her testimony. I also present the economic analyses showing $140 million in PVRR savings for the PPAs compared to WPL building its proposed Riverside plant in 2019.”

Under a commissiion order in the in the Wisconsin Energy/Integrys acquisition proceeding, Wisconsin Electric completed an Integrated Resource Plan (IRP) that looks at the combined capacity position of Wisconsin Electric and Wisconsin Public Service (WPS). That IRP shows that on a combined basis, the combined utilities (Wisconsin Electric and WPS) have sufficient capacity to sell to WPL, Knitter wrote.

He added: “Our approach tried to answer this question: If WPL delays building Riverside what do WPL’s customers gain and what do they give up? The principal benefit for WPL’s customers from a delay in construction of Riverside is that they avoid for six years the cost associated with a $750 million new power plant. On a present value basis, everything else being equal, being able to push costs into the future saves customers money.

“What are WPL’s customer’s giving up if Riverside is delayed? WPL won’t be able to offer the Riverside capacity and energy into the market, so they will forgo receipt of capacity payments and they will forego the margin on the energy sales (the difference between the [locational marginal price] at which Riverside energy is sold into MISO and the cost of producing it). All the analysis I will be describing in my testimony is principally directed to providing additional detail around these conclusions.

“As I have mentioned, the savings from delaying Riverside exceed the cost of delay by roughly $140 million dollars. But to delay Riverside, WPL must have an alternative source for the capacity it needs. A practical alternative does exist – buying capacity from Wisconsin Electric, in effect paying Wisconsin Electric a portion of the $140 million in savings. Part of the $140 million benefits WPL customers and part of it benefits Wisconsin Electric’s customers. That is why we say that customers are $140 million better off.”

Knitter said he performed a life cycle economic evaluation assuming WPL would enter in to a PPA with Wisconsin Electric for a term of six Midcontinent ISO planning years (June 2019 through May 2025). These analyses assumed that the Riverside project’s in-service date would be delayed until 2025. The capacity nomination (MW) of the PPAs was determined based on the capacity deficiency WPL indicated in its Riverside application to provide WPL a balance of capacity resources to meet its reserve requirements. The alternative cases assumed that the Riverside project would be constructed as proposed by WPL in its application. These analyses quantified the economics of delaying the Riverside project six years for both WPL’s customers and Wisconsin Electric’s customers as a result of a PPA between the two companies.

The PPA capacity nominations assumed in the analysis were 200 MW in the first year, then 400 MW in each of the next five years.

Wisconsin Electric offers three PPAs with widely varying details

Christine T. Akkala, employed by WEC Energy Group,  the parent company of Wisconsin Electric, as Vice President of Planning and Marketing in the Wholesale Energy and Fuels Department, noted in Sept. 22 testimony that Wisconsin Power and Light has identified a capacity shortfall of approximately 200 MW beginning in 2019, which rises to about 400 MW by 2025.

“WPL proposes to build the Riverside Energy Center Expansion (Riverside or the Riverside Project); a 650 MW natural-gas fired combined cycle (NGCC) generating facility in Beloit, Wisconsin, to address that shortfall,” Akkala wrote. “The purpose of my testimony is to describe an alternative to construction of the Riverside Project on the schedule WPL has proposed.

“Specifically, Wisconsin Electric has sufficient capacity to offer WPL a Power Purchase Agreement (PPA) that will meet its energy and capacity needs through 2024. Wisconsin Electric has put three options for PPAs on the table in this case. Akkala said that pursuing a PPA will deliver several benefits for Wisconsin. It will save Wisconsin Electric’s and WPL’s customers approximately $140 million in net present value when compared to building the Riverside Project. Those savings will be delivered quickly – customers will see savings of $20 million or more in the very first year. 

Akkala described the first PPA option as: “Under the Port Washington PPA, capacity will be priced initially at a fixed value equal to 65% of the Riverside Capacity Price and will escalate with inflation. Energy will be priced at the cost of the Port Washington Generating Station and provided at the Port Washington Commercial Pricing Nodes (CpNodes) whenever either of the Port Washington Units operates. In effect, if WPL executes PPA Alternative 1, it will be as if it owns a share of the Port Washington Generating Station. Whenever the plant runs, WPL will receive a share of net energy revenues resulting from that operation. … The Port Washington PPA offer is as if WPL constructed a combined cycle power plant, but at a discount. The utility receives the energy of a combined cycle generating station (the Port Washington Generating Station) at a 35% discount to building Riverside. It also allows WPL to avoid the risk of future construction and cost over-runs associated with a large construction effort.”

Akkala said that under PPA Alternative 2, capacity will be priced at a fixed value equal to 75% of the Riverside Capacity Price and will escalate with inflation. Energy will be priced at the projected heat rate of the Riverside Project multiplied by a defined Gas Index plus a “Basis.” The Basis is the daily variable delivery cost associated with transportation service on the pipeline that serves Wisconsin Electric’s generation assets from the Chicago City Gate to Wisconsin, as expressed in dollars per dekatherm.

Alternative 3 is a financial arrangement under which Wisconsin Electric’s and WPL’s customers share economic savings on an ongoing basis. Under this PPA, the capacity rate charged to WPL varies with market conditions, but never exceeds the Riverside Capacity Price. The benefit from selling energy is then split between Wisconsin Electric and WPL customers. Alternative 3 provides the benefits of a low to moderate capacity market to WPL and its customers. If WPL believes that the price of capacity in MISO will remain low to moderate until 2025, this alternative would provide the greatest savings to its customers.

Wisconsin Power says Riverside expansion is the right project for several reasons

Terry Kouba, employed by Alliant Energy Corporate Services as Vice President–Generation Operations, was one of the witnesses to file Sept. 22 testimony with the commission in support of the Riverside Energy Center Expansion (RECE) project. In this position, he works for Alliant Energy’s (NYSE: LNT) wholly-owned utility subsidiaries, Wisconsin Power and Light and Interstate Power and Light.

“Over the past several years, WPL has anticipated the retirement of certain generation facilities in its fleet and worked to develop a plan to address the energy and capacity shortfall that will result,” Kouba wrote. “By 2020, WPL’s energy portfolio will have diminished by approximately 641 MW from what it was in 2013, owing to the retirement of older, less efficient coal and natural-gas resources. Mindful of the generation shortfall approaching, WPL is proposing to expand its existing Riverside Energy Center through the construction of a state-of-the art, nominal 650 megawatt (MW), combined-cycle, natural-gas-fired generating facility (RECE project).

“By December 31, 2018, WPL will have retired several older coal-burning units that together provide approximately 470 MW of capacity. By the end of the 2019/20 MISO planning year, an additional 170 MW will be retired. When combined with WPL’s peak- and annual-energy growth estimates of approximately 0.6% and 0.5% per year, respectively, the math is simple: these retirements will create significant capacity and energy shortfalls for WPL in 2019 and beyond. In fact, by 2020 WPL will be between 315 MW and 482 MW short on available capacity. This shortfall increases to between 360 MW and 839 MW by 2030.”

Kouba said the estimated capital cost associated with constructing the RECE project at the preferred (west) site is approximately $750 million. This estimate is inclusive of costs associated with the facility’s design and construction, WPL’s electric interconnection facility costs, natural-gas pipeline facilities and WPL owner’s costs.

Kouba said that Wisconsin Electric did not respond to WPL’s initial request for proposals (RFP) for new capacity that was released in June 2014. Wisconsin Electric didn’t let WPL know about its offer for replacement capacity until the prehearing conference in this docket, which occurred on July 22, almost a year after the RFP responses were due. Wisconsin Electric formally proposed its PPA terms on Sept. 10 and so Kouba said that WPL has not had the time yet to fully analyze the PPA terms. He said WPL will provide testimony responding to the proposed PPA terms at a later date.

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.