HOT OFF THE HEELS OF LAST YEAR'S BLANK CHECK / REGULATORY WORKAROUND LEGISLATION
Xcel Energy’s team of over 45 registered lobbyists are once again shopping for a blank check from the MN State Legislature. In February of 2017, State Lawmakers exempted Xcel Energy from having to get Public Utilities Commission (PUC) permission to spend $1 Billion of their customers dollars on their desired billion-dollar new natural gas facility at the site of their retiring Sherco coal units. Having seen that they could walk away with essentially $1 Billion from the same legislature last year, Xcel lobbyists must have calculated that they thereby have a great shot at pulling off a similar regulatory workaround this year. In response, they have crafted another bill in much the same vain of circumventing accountability to the PUC, this time to allow Xcel Energy to charge its ratepayers $1.4 Billion or more for maintenance and repair costs for its nuclear plants without the usual PUC review processes.
On Monday, March 12th this bill dropped as HF 3708 and got a senate Companion Bill, SF 3504, 2 day later.
Overall, HF 3708 would remove the question of whether Xcel should extend the life of its aging nuclear plants from having to face the standard regulatory process, where the utility must demonstrate that it is the most cost effective option as compared with alternatives.
Similar to the Sherco Gas Plant bill last year, HF 3708/ SF 3504 has already shown an unnerving level of bipartisan support, based on its 3-27-2018 Senate Committee hearing vote.
HF 3708- A BLANK CHECK FOR UNKNOWN FUTURE COSTS
The reason why HF 3708 creates a Blank Check is because it places no cap on the amount of money which Xcel could ask its customers to cover for projects to extend the life of its nuclear plants. While technically there is language on the bill referring to a cap on how much Xcel could spend, it is meaningless because Xcel gets to decide what the cap is.
HF 3708 would permit Xcel Energy to essentially spend as many hundreds of millions their customers dollars as they see fit on a project to extend the life of their Prairie Island Nuclear Plant beyond 2030, EVEN BEFORE ANYONE KNOWS THE FULL COST OF THE PROJECT.
The language of the original HF 3708 creates an artificial 10-month timeline by which the PUC must approve or deny the prudency of huge and perhaps mostly unknown expenses, even if based on almost no information.
UPDATE AND DISTINCTION BETWEEN SENATE COMPANION BILL
It is worthy to note that HF 3708 also has a companion bill SF 3504 that originally had the same language. The Senate Energy and Utilities Finance and Policy Committee amended the original bill language both before and during the bill's March 27th, 2018 hearing, so that its members could justify advancing the bill on a 7-2 vote in the face of overwhelming and broad opposition. However, the language of the House Bill HF 3708 remains unchanged in its very brazen original form (as described above). If HF 3708 and SF 3504 both pass the House and Senate respectively as they are, then a conference committee could strip away any improvements the Senate Committee made in the dead of night where no one will know until too late.
HOUSE COMMITTEE HEARING APRIL 16th
There was no roll call vote taken at the April 16th House Committee Hearing on HF 3708. The fate of HF 3708 will be part of an insider process, perhaps being included as part of a larger legislative package. In order for the bill to be stopped in either chamber, it needs to pick up Republican opposition. Toward that end, two Republican representatives expressed discontent with the bill because it goes against “a free market approach”. Some of the most important takeaways from the hearing:
As far as the public hearing, all of the speakers in support of the bill (besides Xcel and the IBEW) were elected officials representing the host community for the Monticello nuclear plant and how it has become essential to their tax revenue. But interestingly enough there was no one from the host community of the Prairie Island nuclear plant who came to speak in support of the bill.
Bill author Marion O’Neill amended the bill on short notice taking out the language permitting Xcel to use the rider process to keep coming back for more ratepayer dollars specifically for nuclear projects. We saw a similar move in the Senate Committee hearing where chair David Osmek created an amendment on the spot deleting the subsection on riders.
Xcel suggested their bill was entirely about moving determination prudency for their nuclear projects to the front end of the PUC process as opposed to during a rate case at the end of the process…and claimed nothing else about the usual PUC process would be changed. Xcel stated their motive for the bill was to avoid a situation where they have to shutter their nuclear plants because they can’t handle the regulatory uncertainty as opposed to worries about how costly the nuclear projects could become. We also heard passing this bill into law makes it more likely but not a guarantee that the nuclear plants will remain open longer.
XCEL'S DUAL MOTIVATIONS BEHIND THE BILL
There are two major standard procedures in place by which the Public Utilities Commission (PUC) provides a critical safeguard for utility ratepayers. Whenever a utility wants to charge their ratepayers for increased operations or maintenance costs of their power plants, the standard operating procedure is for the utility to both
1:Go through the process of filing a rate case to the PUC and
2: Include it in their 15-year business plan (known as the integrated resource plan or IRP).
Xcel's dual motivations behind the bill represent circumventing both of these PUC processes respectively.
To provide some important context, the current licences of Xcel's two Minnesota Nuclear Plants do not expire until the early-2030's. However, a reason why Xcel wants this legislation now is because they are due to release their next IRP in February of 2019. Xcel wants to be able to craft this entire 15 year business plan around the assurance that the PUC will not reject their upcoming requests to spend ratepayer dollars on extending the lifetime of their nuclear plants.
Xcel's other obvious core motive of the bill is to shareholders from the risk of nuclear project cost overruns, a move which upends the rate case process.
UPENDING CUSTOMER PROTECTION: THE RATE CASE PROCESS
The PUC is Minnesota’s main watchdog agency on preventing utilities from exposing their customers to unnecessary or preventable costs. Under current law, the PUC is the ultimate decider of whether Xcel can charge customers for expenses that it has incurred, and Xcel can only recover costs if it demonstrated to the PUC that its investments were “prudent”. This proposed bill HF 3708/ SF 3504 would make the PUC powerless to say “NO” to Xcel exposing their customers to unnecessary charges associated with extending the life of their aging Prairie Island nuclear plant.
Under current law, the usual PUC process would play out like this:
#1 The PUC approves Xcel's Prairie Island Nuclear project at a certain budget.
#2 The utility does the project.
#3 If the Prairie Island project has cost overruns, the utility will the come back to the PUC with a rate increase request and with an accounting on the total funds they spent on the Prairie Island project and how.
#4 Under the normal process, Xcel Energy has to prove to the PUC that the cost overruns had prudency, meaning that company mismanagement was not the cause for the spike in costs to its customers.
#5 If the PUC reaches a decision that Xcel’s total spending was indeed prudent, then Xcel wins permission to charge those costs to customers.
HF 3708 changes this equation by making prudency in step #4 pre-determined. "Advance determination of prudency" means effectively preventing the PUC from reviewing how ratepayers’ money has been spent. If the bill becomes law, then the PUC would no longer have the power to check to make sure customer money was not spent in inappropriate ways or that costs weren’t too high due to poor management. Under this blank check scenario, anything Xcel were to spend would be automatically charged to customers.
UPENDING CUSTOMER PROTECTION: THE IRP PROCESS
The question on whether to even initially consider a nuclear plant project in the first place happens in the utility's IRP process. That is what allows for a comparison to other electricity options to make sure customers are getting the most cost-effective option. The IRP process is where the utility details how they plans to generate power over the next 15 years such as how much from nuclear, coal, wind, etc.
1: When a utility IRP is under reviews by the PUC, the utility must demonstrate how their preferred proposal (in this case extending the life of their aging nuclear plants) is the most cost-effective strategy to meet customer energy needs, which includes comparing the company's preferred strategy against other energy technology/infrastructure mixes.
2: Once a utility IRP gets approved, the utility decides uses it as a guide on how much to invest in which particular power plants and what repairs and maintenance are needed.
3: Customers end up paying for those investments after the fact through rate increases, via the rate case process — but only if the PUC determines that those investments were prudent (under current law)
In SF 3504, line 2.6 lower case b under subdivision 2, the bill identifies some vague process to bring “additional proposals” for nuclear plant spending. There is no language assuring that the “additional proposals” will fall within the usual IRP process…or any language which offers any standard that the PUC could use to evaluate those “additional proposals”. In this way the bill creates a moving target, that would make it difficult if not impossible for the PUC to judge whether the nuclear investments would be cost effective…(or do cost-comparison studies).
In SF 3504 Sub 3 latter C, the bill also gives Xcel the option to withdraw its proposal for nuclear plant investments at the end of an integrated resource planning process, if the company doesn’t like the modifications that the PUC makes through that process. So it gives Xcel the final say over whether or not to accept the PUC’s budget changes. However, in practice it is unclear how such a withdrawal would work, since at that point the nuclear plant would be an integral part of the utility’s overall IRP. So it is unclear how the language of SF 3504 would stop Xcel from coming back to update the budget to an unlimited amount of ratepayer dollars.
NUCLEAR PLANT COST OVERRUNS- NOT A CONVINCING TRACK RECORD
HF 3708 is particularly concerning in light of the previous time Xcel won permission to upgrade a Minnesota nuclear plant, their Monticello plant. About a dozen years ago, Xcel Energy estimated to the PUC that the Monticello project would cost $320 Million. By the time the Monticello project was completed however, the actual costs clocked in at $748 million, more than twice their initial estimate.
A few years ago, a state administrative law judge found that Xcel repeatedly mismanaged their Monticello Nuclear Plant upgrade and deserves blame for the Monticello nuclear project running $428 Million over budget. The PUC, the Department of Commerce and the Attorney General all determined Xcel Energy's "imprudent management" as the substantial reason for the cost over-runs.
The PUC ultimately decided that Xcel rate-payers as opposed to Xcel shareholders will pick up the entire $428 Million tab for the cost over-runs. But Xcel spokespeople nevertheless reacted angrily in response to the PUC's already sweet deal for them. Xcel wanted their shareholders to actually make a profit on these cost-overruns and the PUC prohibited Xcel from collecting revenue they need in order to do so. Interestingly enough, the proposed bill HF 3708/ SF 3504 also removes the PUC's authority to prevent Xcel Energy from making a profit on the cost-over-runs for nuclear plant upgrades.
In an August 27th, 2014 Star Tribune article (quote also found here ) Xcel's Regional Vice President partially justified the Monticello cost overruns by admitting that nuclear upgrade projects across the country have virtually without exception required substantially more cost than initially anticipated. So if this is true of virtually all nuclear power plant upgrades, then how is it possibly consistent or wise to legislatively enable the company to determine rate-payer cost effectiveness based on their initial estimate?
It is clear that Xcel lobbyists wrote the bill in anticipation of costs above the initial budgets for nuclear plant investments. And the blank check that would allow Xcel to increase its spending beyond the original budget amount is captured in the “additional proposals” section of the bill language.
HF 3708 NO ACCOUNTABILITY FOR MISMANAGEMENT OF EXPENSIVE PROJECTS
The utility regulatory compact which we have had for decades already gives a generous deal of cost recovery privileges to investor owned utilities like Xcel. Utility customers are already considered to be "on the hook" to pay off the costs of their utility infrastructure investments via monthly utility bills. The least we could ask for in this regulatory compact is that Xcel has to make responsible business decisions and the current system requires this. But HF 3708 takes away accountability for utility company mismanagement.
HF 3708 diminishes the PUC’s power to protect Minnesotans because it undermines the PUC’s ability to even consider obligating Xcel shareholders to cover some of the costs associated with this extended operating of its nuclear power plant (with a return to Xcel shareholders). So Xcel customers will be on the hook to pay whatever cost over-runs may occur in the future even if there are vastly cheaper options available. HF 3708 amounts to 50% plus 1 or more state legislators making that decision for the PUC and essentially forcing Xcel customers to cover any costs their utility deems as necessary, with an added profit, even if Xcel mismanages its nuclear facility upkeep projects as it has in the past.
Virtually all of the legislators have far less of the background knowledge about energy needed to determine "least cost option" than the PUC commissioners and are liable to be swayed by campaign donations.
WHY IS THIS LEGISLATION EVEN "NECESSARY" ACCORDING TO XCEL ?
Even without this legislation, there is nothing in standard utility regulation procedures preventing Xcel from getting a cost recovery on making another round of upgrades to their Prairie Island nuclear plant. In addition, this proposed legislation is not a requirement or guarantee that Xcel Energy extend the life of its Prairie Island nuclear plant. The natural question which arises is “Why this bill is even necessary?”. Mayor Jacob Frey asked Xcel upper management that very same simple question multiple times during the March 15th, 2018 Clean Energy Partnership Board meeting.
Despite giving a lot of misleading & circuitous answers, the most direct answer Xcel spokespeople gave as to why they want this blank check legislation is to get ‘advance determination of prudency’ for their next 15-year Integrated Resource Plan. Xcel is due to file its next 15 year IRP in February of 2019 and they would like to be able to write that IRP with the certainty that the PUC will give them permission to extend the lifetime of their nuclear plants. They are arguing that they need to have greater certainty in order to keep the nuclear plants open in their long-term plans and that it would less paperwork and easier for them that the usual process.
To provide some context, the end of life for both of Xcel’s remaining coal plants AND their nuclear plants are slated to happen at about the same time within the next 10 to 15 years. This is no doubt a big deal and it an opportunity to totally change the course of Minnesota’s energy future if visionary thinking is allowed to have a say. Several clean energy organizations are meeting with Xcel figuring out a prudent way for them to meet their stated goal of 85% "carbon-free" electricity by 2030. The IRP process in place that enables a means to incorporate good ideas. Once Xcel's 15-year IRP is filed in early 2019, it will be open to comment for much of the year. However, if Xcel can go to the legislature and get what they want ahead of time, it will take away the leverage which clean energy organizations can use to negotiate a good bargain with the company in their upcoming IRP for 2019-2034.
There is an independent engineering report coming out in the next few weeks about the costs of repairing Xcel's nuclear plants. We can expect the report to have some figures as for the total costs of keeping both nuclear facilities open. Any rush to approve this bill before these this study is released points toward suspect motives.
XCEL BOGUS ARGUMENT #1: BASELOAD POWER AS IF NUCLEAR IS COMPATIBLE WITH WIND AND SOLAR
At the March 15th Clean Energy Partnership board meeting, the Xcel side of the Clean Energy Partnership further defended their proposed bill by advancing an argument that has become a standard line among monopoly utilities. Their assertion is that coal and nuclear plants are necessary to provide stable, consistent "baseload" energy supply when adding in lots of new renewable wind and solar power capacity. However, this is a bogus argument because by definition, nuclear power facilities are a poor match for renewable wind and solar, which vary in production quickly. Renewable wind and solar thus needs to be matched with power sources that can be ramped up and down quickly. Nuclear power plants can not adjust their output quickly without risking damage and expensive repairs. The link here is a short video, which explains this concept very well (though it highlights natural gas plants as the alternative, whereas we see the real solution as a combination of 1. distribution and diversification of clean energy, 2. renewable variable back-up like small hydro/bio-gas, 3. storage, and 4. demand management/shifting usage to match production).
XCEL BOGUS ARGUMENT #2: DISMISSING ENERGY STORAGE
Xcel’s claim about nuclear plants being a long-term necessity to provide baseload power prompted the next obvious question. At the March 15th Clean Energy Partnership Board meeting, Ward 11 Council member (and new Clean Energy Partnership Board Member) Jeremy Schroeder suggested energy storage technology paired with renewables as a viable solution for energy reliability. Xcel regional Vice President Laura McCarten essentially dismissed the idea of energy storage as "The cost feasibility of storage is not with us today". Not only is that argument is problematic because the decision at hand effected by this legislation is about what technology will be cost effective in the mid-2030’s. The claim about energy storage technology not being ready or cost-effective yet is increasingly false even right now.
Xcel itself just put out a bid for wind+storage and solar+ storage that delivered bid prices as low as $21/MWh for wind and $36/Mwh for solar. This are historically low storage prices and are from Xcel's own bid request a couple months ago. Compare these numbers to $97/MWh to $136/Mwh for nuclear from this Lazard report (note that this report is from late 2016, and costs for wind and solar have declined further since then). There's a lot more detailed data in the full article about the report.
At the March 27th Senate Committee hearing, Xcel president Chris Clark also echoed the same claims that wind and solar with battery storage just aren't ready to fully replace the nuclear power plants deemed necessary to provide baseload power 24-7.
In addition, There is an independent engineering report coming out in the next few weeks about the costs of repairing Xcel's nuclear plants. We can expect the report to have some figures as for the total costs of keeping both nuclear facilities open. Any rush to approve this bill before these this study is released points toward suspect motives.
THE MAIN CHALLENGE TO THE LEGISLATION: WHY OPPOSE EVEN LOOKING AT ALTERNATIVE PROPOSALS?
In lobbying for SF 3504, extending the life of their Prairie Island Nuclear plant beyond 2030 is obviously Xcel’s preferred option for meeting that its stated goal of 85% carbon free.
If they are actually confident in such claims that utility scale energy storage does not have cost feasibly, then why would they be nervous or worried about the PUC processes obligating them to consider possible less-cost alternatives? Wouldn’t Xcel upper management be brimming with confidence that another round of upgrades to their Prairie island nuclear plant would be less costly than the energy storage path? A statement like “the cost feasibility of storage is not with us today” suggests the possibility that utility-scale energy storage could very likely be at cost feasibility 10 years from now in 2028 when the decisions relevant to Prairie Island would actually be made. If that is the case then why not study it?
Even to the extent that the energy storage is still difficult to cost effectively integrate at scale now, it is still no justification to preemptively make a decision that nuclear power path will be the more cost effective choice through the end of the life of Xcel's nuclear power plants (in the 2030s). If energy storage will likely be far more affordable a dozen years from now, then why fast- track a decision on Prairie Island a dozen years ahead of time? Xcel spokespeople may be able to make a (increasingly weak) case that energy storage is expensive now. But can they make a case that the energy storage path will still be too expensive in 5 years? 10 years? or even in 3 years? The bill Xcel energy is lobbying for bill essentially takes away the power of we the people to hold them accountable to making them answer that question.
A properly designed modern system of distributed renewable energy strategically placed throughout the grid matched with energy storage and efficiency can cover all but the densest of industrial loads. But this bill takes away the power of we the people to hold Xcel accountable to having to consider that possibility.
The proposed bill seeks to remove the evaluation of nuclear operation and maintenance costs from the regular rate case/ integrated resource plan process in which Xcel must compare the costs of their nuclear plants against other alternatives.
If Xcel management was actually confident that nuclear power will be the cheaper option throughout the next 15-18 years, then they would not have a motive to lobby for this bill. Even in the highly unlikely scenario that their nuclear power path really remains cheaper than storage throughout the next 15-18 years, the already existing rate case/ integrated resource planning processes will still ensure Xcel gets to recover these costs. The only purpose of this bill is to remove comparison of the costs against alternatives to ensure that Xcel can keep charging customers for the costs of maintaining its nuclear plants even if and when cheaper alternatives become available.
Why interfere with market forces having a say in which energy technologies get deployed? Why back legislation to protect obsolete technology from market forces?
NUCLEAR POWER PLANTS AS "CARBON REDUCTION FACILITIES"?
Here is the basic circular argument which Xcel lobbyists use to justify this bill. Because Xcel is formalizing plans to retire its coal generating plants, they think they should be allowed to continue operating its baseload nuclear plants regardless of the cost to ratepayers (in part because of the argument that baseload is essential to match variable renewables, see above and dismissing energy storage as a viable option, see above). This circular reasoning relies upon not challenging Xcel on their 2 above bogus arguments.
Interestingly enough, the tagline description of the bill as noted on the state legislative website is "Carbon reduction facility designation for certain nuclear energy electric generating facilities."
In addition this bill essentially allows Xcel to get designation of a nuclear power plant as being a "Carbon Reduction Facility" essentially on the sole evaluation criteria of whether or not it is in fact a nuclear power plant. This argument parallels a growing trend among nuclear utilities to argue that their unaffordable nuclear power plants should be bailed out/ subsidized because they are 1. baseload and 2. low-carbon (or deceptively "carbon free"). That might as well be a third bogus argument because making a claim of "carbon free" conveniently ignores the amount of carbon consumed in the process of refining uranium ore into nuclear fuel.
However, getting in the weeds about possible merits or drawbacks of Nuclear Power in regard to carbon reduction misses the main point.
The main point is that Xcel Energy is looking to once again circumvent the near century-old procedures and traditional processes put in place to protect customers. Watching Xcel trying to exempt themselves from even having to consider any possible less costly alternatives is quite disturbing because they do not have a good track record in this specific regard of cost overruns at the nuclear facilities.
DUPLICITOUS ATTITUDES ON PUC OVERSIGHT
The reason why the Public Utilities Commission was formed about a century ago was to prevent energy utility monopolies (who provide an essential public service) from gouging their customers.
Since the electric grid is a natural monopoly, energy utilities are monopolies in their service territories who face no competition for customers (in most states including Minnesota. As a result, utility monopolies limited incentive for cost-effectiveness when left to their own devices with no oversight.
The standard PUC procedures (See Above), provide abundant opportunities for consumer and clean energy advocates and other experts to contest Xcel’s preferred plan and to provide alternative scenarios to the PUC.
This series of "regulatory workaround" legislation Xcel has pushed marks an interesting shift in the company's approach to regulatory authority. In the run up to creating the Clean Energy Partnership agreement with Minneapolis in 2013, Xcel spokespeople were quick to point out that whatever memorandum of understanding on City energy goals taking place between Minneapolis city leadership and utility has to be approved by the PUC, and continually emphasized that they are ultimately answerable to the PUC as opposed to the energy goals of individual local governments.
What is changed since that time is that the PUC has become something more than simply being a rubber stamp on utilities' initial first-choice proposals. Public Utilities Commissioners have increasingly been calling Xcel's bluff and requiring Xcel to do far more studies of renewable energy, energy efficiency, and demand management than Xcel intended because it can all be demonstrated to be more cost-effective alternatives for rate payers. Xcel lobbyists would not be doing these regulatory workarounds if they were comfortable about having to submit to a studies whose results would likely upend the big central station paradigm of utility management and clear the path for toward distributed renewable power which calls their market share into question.
A DISTURBING TREND OF NUCLEAR BAILOUTS NATIONWIDE
This proposed legislation is part of a disturbing trend of nuclear bailouts. In the state of Illinois, Exelon (the nation's largest nuclear utility) managed to win a massive rate-payer subsidy on the threat of closing its nuclear plants because they have become unprofitable. The big difference is that Illinois has a competitive energy market where utilities can actually lose money on unaffordable plants, as opposed to in MN, where the utility just has to convince the PUC and then are allowed to recover costs. Here's a few articles about the Illinois nuclear bailouts: http://www.chicagobusiness.com/article/20170802/NEWS11/170809972/how-exelon-will-keep-getting-bailout-money-in-illinois-whether-it-needs-it-or-not, (this one from a conservative free market guy) http://www.insidesources.com/states-shouldnt-bail-nuclear-plants/. Here's also a fact sheet responding to a bailout attempt in Pennsylvannia that sites additional relevant examples: http://nonukebailoutpa.com/bailoutpa.html