Utility Grumblings About Reliability Reach the Upper Midwest

Two recent utility filings are raising questions about the role of the Midcontinent Independent System Operator (MISO) marketplace. Both Xcel Energy in Minnesota and We Energies and WEC Energy Group in Wisconsin raise concerns about relying on the MISO market to meet all of their electricity needs going forward. Each filing proposes an expansion of utility-owned generation to address the perceived risk of the MISO market in meeting the total demands of their systems. What is going on here?

IRPs and Load Forecasts

As in most states, Minnesota’s regulated utilities periodically submit an integrated resource plan (IRP) to the Minnesota Public Utilities Commission. The purpose of an IRP is for the utility to provide details about its load forecast and explain how it intends to build or procure enough resources to meet that load forecast. This could mean building a new power plant, signing a contract with a developer for a portion or all of the electricity generated by that power plant, reducing consumption through energy efficiency and demand response, or adjusting the load forecast based on a projected amount of distributed generation, such as community solar and rooftop solar projects. For Xcel, it means looking ahead from 2025 through 2040 to identify the types of resources needed to meet forecasted demand. It could also include the retirement of power plants—particularly coal-fired plants. The utility can also rely on electricity purchases in the MISO marketplace to close any gaps between forecasted supply and demand and what is needed closer to the delivery date. Xcel’s preferred plan intends to build or procure a significant amount of new generation—mostly a combination of wind and “firm peaking” (i.e., natural gas-fired combined cycle and peaking plants) generation.  

Wisconsin, on the other hand, does not have an IRP, so there is no regularly filed document by its utilities outlining its forecast demand and proposed resource solutions. Instead, its regulated utilities must file either a certificate of public convenience and necessity (CPCN) to construct new generation facilities or use a related process, such as an application to acquire the CPCN of a previously approved power plant with the Wisconsin Public Service Commission. In this case, the Wisconsin utilities seek to purchase the CPCN of a 300-megawatt (MW) solar plant and 165-MW battery energy storage system currently owned by Invenergy. We Energies, the Wisconsin Public Service Corporation, and Madison Gas and Electric Company would own this CPCN jointly.  

Minnesota and Wisconsin both require utilities to describe their vision of the energy supply for their service territory and to show how their plan or acquisition is in the public interest. This is what we will discuss here.

Reliability Concerns

Both filings make a similar argument: that the MISO marketplace is increasingly unreliable for maintaining sufficient resources to meet demand. According to Xcel, “an overreliance on the [MISO] market creates substantial risk of high prices and, possibly, that sufficient resources simply will not be available when they are needed” and will be limiting “reliance on MISO market purchases.”  We Energies details changes in the MISO marketplace and states that they “are expected to dramatically impact the way utilities approach resource adequacy and the real-time energy and ancillary services market,” and has “taken these risks into account in its analysis by limiting reliance on the greater energy market.”

One of a utility’s core responsibilities is to keep the lights on. As a result, they are often risk-averse—especially to changes that upset the way the utility has planned and run its system for years, if not decades. Here, the MISO marketplace is undergoing a lot of change, including the retirement of (mostly coal-fired) “baseload” generation plants due to lower-cost natural gas-fired power plants and renewable resources like wind and solar. Operators, planners, and regulators understand that these resources only operate when the wind is blowing and the sun is shining. Though the availability of renewable resources is a constraint, it can be dealt with—after all, one of MISO’s many purposes is to manage the marketplace.

One way in which MISO is addressing this issue is through resource accreditation. For example, if a wind resource has a nameplate capacity of 100 MW, MISO may reduce that number to reflect the more likely available capacity. The utility then has to procure (or build) enough resources to meet expected demand plus a reserve margin. Historically, utilities have met this need by building large power plants. However, today’s resources are far more variable and widespread, which—in the case of distributed energy resources that connect to the distribution grid rather than the transmission grid—increases complexity for both the utility and MISO.  

Adding to this complexity is anticipated load growth through the end of the decade, which will not occur at the same rate across every utility in the United States. For example, Georgia Power Company filed an updated IRP that nearly doubled the expected amount of capacity needed to serve demand from its prior IRP, filed just one year earlier. Xcel, on the other hand, projects a more modest 2.5 percent yearly growth through 2045. Though We Energies is also expecting load growth, the utility redacted its load growth estimates—a long-standing bane for regulatory participants around the country. Nevertheless, utilities and models expect upward of 5 percent load growth over the next five years, which is substantial considering the country’s relatively flat load growth over the past two decades.  

What does this have to do with MISO market purchases?

Both Xcel and We Energies see problems in the MISO marketplace now that it relies more heavily on wind and solar to meet “baseload” needs than in prior years. Previously, the MISO marketplace would have included more “dispatchable” resources like coal. Then, utility planners knew the resources would be available when needed. (Never mind that the failure of coal and natural gas plants caused many of the recent major outages.) Xcel states that replacing baseload power plants necessitates other “dispatchable” generation and capacity, such as a combination of new wind and peaker plants built by the utility.

Additionally, avoiding MISO market purchases allows these utilities to rely on self-built (or self-owned) generation, which means they earn a profit on the capital spent to build the power plants.

Finally, both utilities are discounting the valuable benefit MISO provides by acting as a shock absorber. The great value of a regional transmission operator like MISO is that it expands the pool of resources and participants to help keep the lights on across the MISO footprint. Not only does it keep the system at 60 hertz, but it also creates buffers to soak up and support capacity, generation, and ancillary service needs across MISO. While these utilities look to put as many eggs into their baskets as possible, they may not need to do so.  

Options for Regulators

Neither plan offers much economic analysis comparing its preferences to either market purchase costs or the ability to utilize power purchase agreements (PPAs). Furthermore, energy efficiency and demand response continue to take a backseat to new capital projects. Regulators may want to consider the following options:

• Request detailed comparisons between potential PPAs and utility-owned resources.
• Ask how the utility could more effectively use energy efficiency and demand response, including through direct participation in MISO markets or the use of third-party aggregators.
• Ask if their load forecasts and resource additions take into account the growth of non-utility owned community solar and rooftop solar resources that may reduce the load forecasts or provide an alternative source of electricity.
• Request historical cost inputs from market purchases.
• Insist they make public as much information about their plans as possible.  

Though the MISO marketplace benefits its members and participants tremendously, the fact that two major utilities in MISO North are looking to reduce purchases from the MISO marketplace to mitigate perceived risks threatens the long-term benefits of such a market. Given the strong demand for cleaner energy resources, locking in new gas-fired generation now, in advance of load growth, should be a warning signal for regulators to take a closer look at these plans. Rather than limiting flexibility and allowing utilities to own and build new generation, regulators should consider the greater flexibility and vaster array of resources and geography MISO provides. This is an important time to ask hard questions, because a market that provides lower-cost resources benefits customers while higher costs benefit the utility.