New power plants should be open to competitive bids

By CHIP ESTES,

The business model of Mississippi Power Company (“MPC”) and Entergy Mississippi (“Entergy”) requires that the Mississippi Public Service Commission (“MPSC”) balance the interests of ratepayers and shareholders. The MPSC has opened a proceeding to consider rules that will, if properly designed and implemented, protect the interest of all stakeholders. In order to create such a level playing field, it is necessary to implement a mandatory integrated resource planning (“IRP”) process that defines all of the utilities’ needs combined with a commission-overseen competitive solicitation process via requests for resource proposals (“RFP”). The IRP must be completed prior to a utility filing for approval at the MPSC in order for competitive resource alternatives to be considered. Such options would include wind, solar, biomass, battery storage, distributed generation, and energy conservation along with traditional power plants. In the RFP portion, the utilities would “bid” their own constructed and operated assets in competition with others via purchased power agreements (“PPAs”) with the utilities.

The Mississippi Public Service Commission (“MPSC”) and Mississippi Public Utility Staff (“MPUS”) are to be commended for their leadership in seeking input from all stakeholders in the best interest of ratepayers. This effort has the potential to create a rule that captures the best practices of other southeastern states in order to create a model rule for Mississippi. In fact, Entergy and numerous stakeholders spent years of efforts in crafting and implementing the Louisiana IRP/RFP rules. Under these guidelines, Entergy Louisiana has since constructed and purchased numerous power plants in addition to selecting wholesale PPAs with little or no contested approval proceedings. The Louisiana Public Service Commission IRP/RFP rules can easily serve as a template for implementation in Mississippi with relatively minor modifications.

Mississippi electric utility history has proven that in the absence of such a transparent and fully competitive IRP/RFP process, both ratepayers and shareholders have absorbed enormous financial losses due to poor IOU decisions. However, the resultant financial “pain” is relatively short-lived for shareholders, while it typically lasts for decades for ratepayers.

For example, the results of the Kemper Lignite Gasification Facility (“Kemper”) and the Grand Gulf Nuclear Station (“Grand Gulf”) could possibly have been significantly mitigated or eliminated by an IRP/RFP process that weighed all resource options in a transparent manner and on a level playing field. Instead, the Kemper resolution took over a decade to be resolved, and the settlement required shareholders to absorb over $6 billion dollars in write-offs, while ratepayers must pay for an approximately $1 billion inefficient natural gas plant built outside MPC’s service area. The Grand Gulf plant took nearly two decades to resolve, and a settlement signed in 1989 required shareholders to absorb around $900 million and ratepayers pay a staggering 60 percent rate increase.

The next opportunities for possible utility debacles began in 2018. Entergy Corporation announced plans to spend around $46 billion over the next 12 years that, if allowed by regulators, will result in a significant increase shareholder returns at ratepayers’ expense. Currently, the entire company’s market capitalization is nearing only $17 billion.

 

As part of this enormous spending effort, Entergy Mississippi plans to spend almost $1.75 billion by the end of 2021, which doesn’t include the Mississippi portion of $405 million in Grand Gulf capital spending plans. Entergy recently filed two CPCNs at the MPSC that total approximately $550 million. Of that amount, $441 million is to purchase an existing natural gas plant that only has 13 years of useful life remaining of the stated 30-year life of the combined cycle natural gas plant.

In addition to the “used” gas plant, Entergy plans to spend more than $153 million to own a 100 MW solar installation because “the company believes it should be in a position to offer energy solutions consistent with evolving customer preferences.” This facility will likely only produce 50 MW of electricity but almost zero in the winter. And even if solar made sense as part of an overall needs analysis, it is harmful to ratepayers since no open and transparent RFP for all competitors occurred. The selection process was limited to only solar projects that were already in the Midcontinent Independent System Operator (“MISO”) interconnection process because it takes more than 500 days to go through that process. Therefore, this MISO-created hurdle was used to eliminate companies that have already built, operate and sell the output from utility-scale solar facilities to other utilities in Mississippi.

An RFP for all of Entergy’s current and future generation needs should be conducted where all resource options are considered so that ratepayers will be afforded the most cost-effective decisions. Entergy has failed to adequately expose the significant operating challenges and ratepayer risks that exist given that approximately 1,700 MW of their 3,400 MW of generation are from plants that are 43 to 59 years old. Additionally, Nuclear Regulatory Commission reports indicate that Grand Gulf (1,443 MW) has been having significant operational issues since 2016 and has only operated at full power approximately 52.5 percent of the time since 2013. Furthermore, on January 17, 2018 and September 15, 2018, MISO was one step from declaring “Firm Load Shedding” (rolling blackouts) due to over 17,000 MW of generation being unavailable to produce electricity in the MISO South region. On January 17, 2,867 MW of the roughly non-operational 17,000 MW were in Mississippi.

A properly designed and fully competitive IRP/RFP process would first identify utility resource needs and then provide all qualified providers an opportunity to fulfill those needs. The creation of an IRP/RFP process for Mississippi similar to Louisiana’s has the opportunity to prevent utility debacles such as Grand Gulf and Kemper. These catastrophic outcomes and a looming tsunami of costs to ratepayers from announced utility spending sprees should serve as motivations for the immediate implementation of such a process. Without open and transparent procedures combined with competitive solicitations that are overseen and ultimately approved by the MPSC, history will certainly repeat itself. And the negative ramifications of failed utility strategies on Mississippi ratepayers will continue for decades to come.

Chip Estes is a Flora developer and energy consultant.

 

 

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