On its way to carbon-free power, Xcel wants to buy a natural gas plant

Source: By Frank Joss, Energy News Network • Posted: Thursday, March 28, 2019

Xcel Energy natural gas pipeline marker/ Flickr / Creative Commons An Xcel Energy natural gas pipeline marker. The utility, which recently announced it would transition to carbon-free power by 2050, plans to buy a 760-megawatt natural gas plant in Mankato, Minnesota.

Xcel Energy says purchasing the Mankato gas plant will help it transition to carbon-free power, but critics aren’t buying it.

Opponents of Xcel Energy’s proposed purchase of a Mankato natural gas plant say the sale would be a bad deal for ratepayers and runs counter to the company’s own pledge of achieving 100 percent carbon-free power by 2050.

The utility announced in November that it had agreed to purchase the 760-megawatt Mankato Energy Center from Atlanta-based Southern Company. The Public Utilities Commission still must approve the $650 million sale.

In comments to regulators, a wide range of critics contend the utility would be overpaying by around $100 million for a power plant that may not be needed as the company continues to make progress on wind and solar generation. They point out that even Xcel’s filings concede ratepayers will not see a price benefit for more than a decade, and perhaps two decades.

Xcel already buys electricity from the plant. In regulatory filings, Xcel said that owning the plant “provides long-term cost benefits for our customers” by mitigating risks associated with two power purchase contracts set to expire in 2026 and 2039.

Owning the plant would also allow for greater flexibility in meeting electricity demands while incorporating more renewable energy, the company said. The company also has plans to build a natural gas plant in Becker, Minnesota, to replace two coal units.

“Mankato Energy Center and the Becker plant will assist us in reducing carbon, with natural gas as a bridge that can help us move from coal to carbon-free electricity,” the company said in a statement. “In addition to helping us lead the clean energy transition, these plants will help us continue to deliver reliable and affordable energy to our customers, key requirements in our overall strategy.”

By 2030, after the plant’s purchase, natural gas would represent 14 percent of Xcel’s generation in the Upper Midwest, about 2 percent more than 2017. Wind and solar would generate 57 percent of energy in 2030.

The company has received support for the acquisition from the city of Mankato, the local regional development agency, and labor unions, many of which have members employed at the plant.

Opponents include the state attorney general’s office, the Minnesota Department of Commerce, large industrial users, clean energy advocates, the city of Minneapolis and a competing natural gas plant.

“Everybody who is a market participant or customer is saying this is a terrible idea,” said John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. The deal favors shareholders, who will receive a rate of return on the capital expended for the deal, rather than ratepayers, who will be exposed for years to highly volatile gas prices, he said.

Utilities buying or building power plants pay for them by charging customers and adding a premium that creates a profit for their investors. The Mankato plant would represent another significant investment in natural gas by Xcel on top of its project in Becker.

Owning Mankato presents a “perverse incentive” for Xcel to use a carbon-producing resource far beyond when the contracts end, Farrell said. Having the contracts stay in place might encourage investment in cheaper, clean energy sources.

Representing large industrial customers, Stoel Rives LLP of Minneapolis argues in a letter to regulators that the $100 million premium Xcel will pay “could be far greater” because it’s unclear whether operations, maintenance and fuel costs are included in the price.

The companies represented are Covia Holdings Corporation; Marathon Petroleum Company LP; Flint Hills Resources Pine Bend, LLC; USG Interiors, Inc. and Gerdau Ameristeel US Inc. Stoel Rives found the proposal not “consistent with the public interest.”

Margaret Levin, state director of the North Star Chapter of the Sierra Club, said the proposal “would lock customers into increased expenses” at a time when clean energy costs are plummeting and efficiency efforts are increasing.

Xcel’s initiative to generate carbon-free electricity has won support from the Sierra Club and other environmental organizations, Levin said. But the Mankato plant runs on fracked gas “which we know is not clean, or safe. We have much better options ahead of us,” she said.

The Sierra Club’s Denver-based attorney, Laurie Williams, questioned Xcel’s assumption it would run the plant more economically than any other owner of the plant and pointed out the company predicts the break-even point in 2035, or 2045. With such a lengthy timeline the benefits may never appear, she said.

The club’s detailed analysis pointed out a high renewable scenario Xcel proposed as a strategy would mean the plant’s power is not needed until 2034, Williams wrote in a regulatory filing. The purchase would bring about a “high risk” of the plant becoming a “stranded asset” that costs ratepayers money because it is no longer needed.

City of Minneapolis sustainability manager Kim Havey called on regulators to defer a decision until an integrated resource plan process gets underway and suggested the commission create a mechanism for protecting ratepayers if it approves the purchase.

In an interview, he said the plant purchase is at odds with Gov. Tim Walz’s plan for a carbon-free electric grid and the city’s goal of being powered entirely by renewable energy by 2050. Continuing the power purchase agreements costs ratepayers less than the Mankato plant purchase, he said, and protects ratepayers from price swings. “Purchasing a utility gas plant we don’t think is prudent,” he said.

Another objection came from a natural gas plant owner that supplies electricity to Xcel through a 30-year power purchase agreement ending in 2027. Owned by a Delaware limited partnership, LSP-Cottage Grove (LSPCG) operates a 245-megawatt plant in the east metro.

The company failed to reach a deal to sell its Cottage Grove facility to Xcel in 2015. “LSPCG assumes that Xcel’s unhappiness with the [power purchase agreement] stems in part from the availability of other capacity and energy resources, including renewable energy resources, in the area,” the company said in a regulatory filing.

Xcel would be paying a per-kilowatt-hour price three times higher for the Mankato Energy Center than it offered LSPCG in 2015. LSPCG would be willing to sell its Cottage Grove facility for “a fraction of the cost” of the Mankato deal. The company also argues its Cottage Grove equipment is equivalent to what the Mankato plant uses and sits much closer to Xcel’s largest electricity load, the Twin Cities.

The Public Utilities Commission is expected to decide whether to approve the sale later this year.