The CAPX2020 Model: Part II

FORTNIGHTLY  What’s Xcel Energy’s role in the CAPX2020 project, and how does it fit into the company’s overall transmission plan and resource plan?

MOGENSEN CAPX2020 is very important for Xcel and the region.

You build transmission for many reasons. You’re looking for transmission investments to make sense in meeting whatever your drivers are, and to make sense as part of your financial and investment portfolio. So you’re looking at both sides: does the transmission meet the needs in designing the project and getting it done, and also how does the investment environment look? What’s the recovery opportunity? For Xcel, the CAPX2020 project meets all of those needs very well.

“With broader projects, we must reach consensus on need and value.”
-Teresa Mogensen, Xcel Energy

Our reliability needs as well as those of the generation group were part of the decisions on what was the right kind of strategic infrastructure to put in place. The primary factor driving the project was Minnesota’s renewable energy resource requirement -- particularly for the Brookings project, which opens up a path for the region, not just Minnesota but the entire Midwest ISO, to access renewable energy. [Editor's note: CAPX2020 includes both the Big Stone-to-Brookings and Brookings-to-Hampton projects, collectively “Brookings.”] We get to the point with the bulk transmission system where you just can’t put any more resources on unless you build more network. We’d reached that point, not only to serve Minnesota but to provide the gateway into the broader market.

CAPX2020 fit into all those needs: Is it in the public interest? Is it appropriate? Is it in investors’ interests? Does it help us remain financially viable? Ultimately costs are lower if you’re able to execute them at a good cost.

“In the past, transmission investments were very plant-specific. Today it’s a different story, with utilities wanting to transact for power both for reliability and economic purposes.”

FORTNIGHTLY Although some segments are connecting wind resources from the Buffalo Ridge into the MISO market, some also are expanding capacity to coal-fired power plants in the Dakotas. How do coal resources factor into CAPX2020 development?

MOGENSEN If you look at what’s going on in the MISO planning area, all resources are represented. The transmission network is resource-neutral today. In the past, when it was focused on each utility’s needs, you had a plant in a certain place and needed transmission to get that plant’s generation to the load.

Transmission investments were very plant-specific. Today it’s a different story, with utilities wanting to transact for power both for reliability and economic purposes, and wanting to access a wide variety of different resources.

Diversity affects both reliability and economics. That’s part of MISO’s multi-value planning (MVP) process, which resulted in this first MVP portfolio. The Brookings project is part of it, and so are some other projects that extend into the Dakotas and Iowa, into the western edges of MISO. ‘Multi-value’ includes expanding the opportunity to bring resources from the west into the mix of the broader market. There wasn’t a focus on whether it’s for coal or hydro, but there was a focus for renewables, because most MISO states had an RPS mandate or goal they were trying to reach. That was part of the story of how this set of projects provides value.

When you look at what’s in any utility’s best interests and society’s best interests, it’s good to have a diversity of resources so you have the opportunity to make choices based on what drives your particular utility -- economics, reliability, policy, the whole mix. Providing that opportunity is one of the strategic benefits of a strong grid.

FORTNIGHTLY What do you see as the most important benefits of multi-utility collaboration? Conversely, what are the biggest challenges?

MOGENSEN The key aspect that has been so significant for the project’s success is the collaboration of many great utilities of different stripes and business models, all able to come together and agree on something. That agreement, with that many people behind it, is very powerful.

We all have circumstances that require transmission. We have reliability needs in our local system and at the regional level. We have energy policy driving the addition of renewable resources. We have the need for strategic infrastructure to serve new load and new generation. We could each try to do something ourselves -- which is the traditional model, everyone does their own thing. Or we can realize we’re part of the same region, regulated by the same regulators, and ask whether we can agree on a set of strategic projects that will help us meet all of our needs. We can endorse that collectively rather than fight about it.

“Engagement is really a critical piece of what it takes to get transmission done in this world. If you choose not to engage, you’re just increasing the complexity in the project, because you’ve made everybody mad by ignoring them.”

By getting together and working through all the challenges in terms of technology and relationships, we’ve created a unique and strong coalition that’s resulted in the transmission that’s needed by the whole region to move expediently through the planning and permitting phases and now into construction. The value that’s been brought by collaboration and collective support has been a key factor. From Xcel’s perspective, that’s the model we like, and it’s what we’re doing on other projects in other regions; maybe not at the same scale, but we try to find common ground and work with peer utilities.

CAPX2020 helps us, relationship-wise, with all the stakeholders, and provides benefits to all of them.

FORTNIGHTLY Over the course of the CapX2020 projects, many parties have intervened to oppose individual segments and the whole initiative. What issues have driven these interventions? How have you handled those issues to allow development to move forward?

MOGENSEN We talk about progress at the macro level, and by no means does that mean we haven’t had a lot of work and challenge at the micro level. With any project, we talk about big, sweeping, regional benefits, but of course when it comes down to the structure-by-structure permitting and construction of a project, it’s all very local. You’re going through a lot of different micro climates, where local stakeholders, government representatives, and local leaders are passionate about different things, whether they’re environmental concerns or something else. It’s different for each element of the project, and there will be local concerns.

We put a lot of time and resources into engagement at many different levels and with many different people, related to the stakeholder concerns associated with any given area of the project. Engagement is really a critical piece of what it takes to get transmission done in this world. If you choose not to engage, or you engage only at the macro level, you’re not dealing with local issues and challenges. You’re just extending the length of time and the amount of complexity in the project, because you’ve made everybody mad by ignoring them.

Engagement takes time, and you have to allow for that time realistically in planning. If you plan for it at the right stage of the project, you can smooth the whole thing going forward. Getting the project done is the goal, not necessarily getting it done at the fastest possible pace.

FORTNIGHTLY What lessons have you learned from this process? What advice can you offer to other utilities embarking on similar projects?

MOGENSEN The first thing is to spend a lot of time gathering information about all the micro climates. When you’re in the very first stages of a project, you’re planning on a macro level: you need a line to carry a certain amount of capacity, to connect endpoints. But when you get past that, you have to ask, ‘What are the realistic implications and considerations? What communities are between the two points?’ Then you do the groundwork. You don’t want to surprise people. You engage people as early as possible so you have the best opportunity to make the project work.

“You can never make everyone happy, but you can get to a point where you’ve done the best job possible, dealing with local constraints and interests, to get this piece of societal infrastructure in place. People generally can support that.”

When you’re trying to engage, and you have something with a societal benefit but a local impact, people have concerns about the local impact. So you have to shape the impact to make it the best possible. You can never make everyone happy, but you can get to a point where you’ve done the best job possible, dealing with local constraints and interests, to get this piece of societal infrastructure in place. People generally can support that, when you’ve worked through the process and engaged.

You learn tactics and strategies and approaches. We’ve learned lessons about the ways that different communities will want to engage, and it’s not always how we thought they’d want to engage. You learn through experience and build trust over time. It takes time and resources to engage, and it takes patience. A corollary to that is working with a lot of different partner utilities, focusing on that relationship and making sure you have open lines of communication and good forums to work through issues, and to work out good agreements to back up your philosophies.

FORTNIGHTLY How has CapX2020 planning been integrated with MISO’s regional planning process?

MOGENSEN The MISO process has evolved over time, as the national focus on transmission and what’s needed has evolved. The MISO process started as more of a bottom-up planning process, in which every participant said, ‘Here are my local needs and plans, here’s what future drivers are coming,’ and then gave that information to MISO, to take a regional look. MISO compiled the local stuff, and then asked whether those components meet the broad regional needs that an ISO is required to meet, as charged by FERC. As MISO evolved, it did more proactive work from the top down, considering policy drivers from FERC and the states, and future scenarios for grid planning.

At Xcel, we’ve participated on both the micro level and the macro level, with the broader stakeholder group. As we got into different stages of planning, the CAPX2020 plans were integrated into MISO’s plans. Through that iterative process, ultimately the needs that were coming out of CAPX2020 planning were validated as appropriate parts of the MISO mix. That continues. The next focus on the MISO level is what happens next. MISO just approved the MVP portfolio that included the last of the CAPX2020 projects. It added the Big Stone-to-Brookings MVP project that extends further to the west, and it brings us to the next stage of planning, with Manitoba Hydro and others. [Editor’s note: Manitoba Hydro has proposed two new hydro plants, Keeyask and Conawapa on the Nelson River, which are expected to add 1,930 MW of capacity, with the intent of selling the output into the MISO market.] What plans do they have, and what resources do the MISO states need? How does that come into play with potential grid expansion? The iteration continues. You continue planning and building projects that come out of those plans, and you take into account the new drivers that come up over time. You just keep doing it.

We support the regional planning process and we remain actively involved.

“Nobody wants to pay for benefits they don’t believe they’re getting. That’s the root of the cost-allocation issue. The broader you try to make the base, the more difficult it is to reach consensus.”

FORTNIGHTLY How has CAPX2020 managed cost-allocation issues?

MOGENSEN Cost allocation remains an extremely contentious issue and is probably the number-1 barrier to broad regional projects. Everyone understands the idea that if I have a local need I should pay for a project to serve that local need. Everyone gets that. What they don’t necessarily get is that a project in the western end of MISO provides significant benefits to customers on the eastern end of MISO. With historic regulations being set up on a state-by-state basis, and a utility-by-utility basis, historically it lined up for utilities to pay for exactly what they need in their local area.

Now, with broader projects, we must reach consensus on need and value. Within the Minnesota footprint, CAPX2020 is all under Minnesota regulation and policy implications, and surrounding states have needed to come to agreement as to what’s the benefit for their piece. For CAPX2020, the philosophy is to ask whether these projects serve the needs of our customers. Do they make economic sense? Can we agree our customers should pay a share in support? The CAPX2020 utilities united in support of that, and with CAPX2020 under MISO, that provided another vehicle for cost allocation for MISO members under the same concept. Parts of the CAPX2020 projects have focused on the more traditional need-benefit story, with the bulk of costs shared by the utilities that were involved in those projects. That went smoothly, and because of the support of states and endorsement of utility investors, it didn’t end up to be much of an issue.

When you look at projects like the Brookings line that are judged to have a broader regional benefit, the question is how do you have a corresponding contribution by utilities in the region? Working through the MISO MVP process, the stakeholders came together and had some really epic battles on what was a fair way for these projects to move forward and for everyone to share the costs. There were various appeals, and the outcomes weren’t alw ys to every stakeholder’s satisfaction; that will probably always be the case. But it was resolved to MISO’s satisfaction and was approved by FERC, asking customers to pay to support a broader regional need.

That’s an iterative process and will continue to be. It’s built on consensus and agreement of mutual needs and benefits. The success of any cost-allocation approach is built on consensus about mutual needs and benefits. If you don’t have that, you run into trouble because nobody wants to pay for benefits they don’t believe they’re getting. That’s the root of the national and interconnection-wide issue. The broader you try to make the base, the more difficult it is to reach consensus.

“We tried to make the financial circumstances as comparable as possible, within the bounds of whatever regulatory and financial structures are in place for any entity.”

FORTNIGHTLY With so many different types of utilities involved, I would guess some of the cooperatives and municipals would object to investing in assets that would produce profits for investor-owned utility shareholders. How did you handle that issue?

MOGENSEN We tried to make the financial circumstances as comparable as possible, within the bounds of whatever regulatory and financial structures are in place for any entity. An entity that isn’t an IOU might be able to propose a hypothetical capital structure that provides for that entity something similar to a return on investment for Xcel. Other aspects involve purely the ability to invest in a project of this magnitude. For some of the smaller entities, they’re getting an opportunity to invest in large infrastructure that they’d never be able to do on their own.

Ultimately everyone involved is trying to make sure the investment makes financial sense for their stakeholders, the equivalent of their investors, and that it meets the objectives of public service. People have determined that being part of it makes sense, and they get as reasonable of a benefit from being involved as Xcel does.

FORTNIGHTLY Now that the Monticello-St. Cloud segment has been energized, what’s next for Xcel in terms of transmission development?

MOGENSEN We’re continuing to plan for customer needs on a utility basis, as well as a collective CAPX2020 basis and with MISO. And through MISO, we’re part of the broader Eastern Interconnection planning that’s going on.

At this point, we’ve gotten the first level of broader regional projects approved, and the question in everyone’s mind is what’s next? It’s going through the iterative planning process: ‘What are our needs, and ultimately is this fair, and should I be paying for this?’ We’re at the cusp of planning for the next wave, essentially, and we’re in the process of implementing the projects that have been approved.

FORTNIGHTLY Will CAPX2020 extend beyond the year 2020?

MOGENSEN Answering that question is part of the iterative process. Nothing specific has been decided yet, but we continue to value the partnership and collaboration. We want to build on the success we’ve had.

ABOUT THE AUTHOR Michael T. Burr is editor-in-chief of Public Utilities Fortnightly. In the first installment in this series of interviews about the CAPX2020 initiative, he spoke with Will Kaul, v.p. of transmission for Great River Energy.