Minnesota utility regulators are facing a controversial choice between solar power and natural gas as the favored energy to generate additional electricity for Xcel Energy Inc.’s 1.2 million customers in the state.

The decision marks the first time these two energy sources have competed head-to-head on price before the state Public Utilities Commission, which is scheduled to decide the question on Thursday in St. Paul.

“You are setting a precedent here that is going to affect future acquisition proceedings,” Eric Swanson, an attorney for Invenergy Thermal Development, told the commission Tuesday during an all-day hearing on the competing bids.

At issue is whether Xcel’s customers will be best served by $250 million in solar power arrays proposed by Geronimo Energy, a renewable energy developer based in Edina, or by adding generating units at power plants in Burnsville, Cannon Falls or Mankato.

Regulators asked for competing bids from energy developers last year because Xcel Energy and state analysts projected a need for more power in 2017-2019, after the remaining two coal-burning units are retired at Xcel’s Black Dog generating station in Burnsville.

That set off a trial-like review before an administrative law judge, who examined the projected need and competing projects’ costs, most of which have not been publicly disclosed because the developers consider them trade secrets.

In an unprecedented ruling three months ago, Judge Eric Lipman concluded that Xcel’s power needs aren’t growing so fast, and recommended Geronimo Energy’s plan to build about 20 solar arrays next to Xcel substations as the best deal. If needed, he said, Xcel could temporarily meet unexpected demand by taking an offer from Great River Energy, a cooperative based in Maple Grove, to purchase its extra capacity.

On Tuesday, commissioners heard hours of arguments from Xcel, which proposes to add a natural gas unit at its Black Dog plant, and other competitors. The two other natural gas proposals are from Invenergy Thermal Development, a Chicago-based company that would expand its existing Cannon Falls plant, and Houston-based Calpine, which proposes another unit at its Mankato Energy Center.

Only four of the five commissioners will decide the outcome. The fifth commissioner, Dan Lipschultz, who was appointed to the PUC in January, has recused himself because of prior representation. Commissioners gave no hint Tuesday about which way they leaned, but made clear the decision won’t be easy.

Geronimo’s solar project has support of renewable energy advocates, one of whom testified that state law requires the PUC to favor renewable energy over fossil fuel. “All of the state policies point in one direction — they point away from fossil fuels and toward renewables,” said Kevin Reuther, legal director of the Minnesota Center for Environmental Advocacy, a St. Paul nonprofit law firm representing environmental groups such as Fresh Energy and the Sierra Club.

Solar also got unexpected support from large industrial power users. Their attorney, Andrew P. Moratzka, said building too much generating capacity in an era of slack electric al demand could further drive up Xcel’s rates. He said the industrial group, which includes big Xcel customers like oil refineries, supports taking no immediate action or building just the Geronimo Energy solar project.

Geronimo Energy’s solar project also would help Xcel meet its state mandate to get 1.5 percent of its power from solar by 2020. The company proposed it before the Legislature enacted the mandate in 2013. The 100 megawatts of solar power would represent a sevenfold increase in the state’s solar generating capacity.

Natural gas developers and Xcel got support from the state Commerce Department, whose Energy Resources Division analyzes utility rates and investments. Kate O’Connell, manager of utility regulation, urged the commission to push ahead with a couple of the natural gas projects, choosing the best-priced units after further commercial negotiations.

“We do think it is important to add solar resources to Xcel’s system,” she said, and endorsed a separate, all-solar bidding competition, which the utility plans to launch next month.

Yet that would force Geronimo Energy — after a year competing in this bidding war — to start over in a new one. Betsy Engelking, a Geronimo vice president, said that would be unfair, and compared it to being ordered to sit at the kids’ table for Thanksgiving dinner. “We belong at the big-kids’ table,” she said.

One dilemma raised by Commissioner Nancy Lange is that the natural gas projects “are very well priced.” If the new natural gas units don’t get built, regulators might regret it in a few years if power demand spikes and Xcel is forced to purchase expensive power off the grid.

“That is a risk to our customers — of being short,” said Jim Alders, Xcel’s director of regulatory strategy.

Source: StarTribune