Our Current Plan Meets the Challenges of the Changing Future

As we continue to retire coal and add renewables, our modeling continues to show the need for some firm, dispatchable resources. To date, the Sherco CC has been a central component of our plan to help mitigate reliability concerns and support the transition away from coal and toward a zero-carbon future.

What we need to support the system are resources that have high capacity values (i.e.

grid scale), long duration, and are affordable. Our Alternate Plan proposes to add hydrogen-ready CTs (and/or other dispatchable peaking technologies, such as large-scale batteries, as they become commercially viable) in the future which provide the same reliability and resilience benefits as the Sherco CC, but does not require the same significant natural gas infrastructure investment, reduces the dispatch of natural gas resources on our system, and results in lower overall emissions. Additionally, firm dispatchable resources provide numerous benefits needed to stabilize the system

during peak demand periods. These include near-instant availability, making them the ideal suppliers of peak power and the best backups for intermittent wind and solar generation. They can also be turned on and used for short periods of time to meet temporary increases in demand. They are also capable of operating for extended periods if necessary. These capabilities provide the Company with a measure of insurance to address peak load and operate reliably in rapidly-fluctuating power market conditions. If a spike in prices suddenly occurs, we can quickly ramp-up the firm dispatchable resources to minimize costs for our customers. Finally, new CTs, are critical to the transition as we do not currently have other options that meet our high capacity, long duration, affordability needs. Additionally, CTs, which can be hydrogen-ready, can be converted to carbon free fuels or used for storage and, therefore, may also play a significant role in our efforts to reduce carbon emissions and transition to clean energy. Given these attributes, CTs and other technologies with similar attributes are the ideal complement to high penetrations of intermittent renewable resources.

In this Resource Plan, the emergence of new technologies, such as storage, has been an ongoing consideration. We are in favor of utilizing storage for certain

circumstances such as peak shaving or extending solar generation’s capabilities.

However, the ability of storage to provide the same attributes as CTs is not yet economically feasible or fully understood in this climate zone. For example, the capabilities of the storage resource predominantly modeled by parties in Comments – conventional lithium-ion batteries – are currently limited to four hours. Four-hour batteries are simply not sufficient to meet our reliability needs in all cases, particularly when needed in substantial amounts for multi-day contiguous periods.⁸ For example, on January 30 and 31, 2019 our CT fleet dispatched for a period of 45 contiguous hours – a critical time period during the 2019 polar vortex.

The pattern of our full NSP system CT dispatch activity is shown for the entire 45-hour period in Figure 2-5 below. Even assuming very optimistic operating conditions, a larger amount of four-hour lithium ion battery system capacity would be required to provide the same level of power for this 45-hour period as compared to the amount of CT capacity in operation during the multi-day event.⁹ Not only is installing a larger amount of storage capacity less economical at this time, but the Company’s additional

8 The challenge of short-duration storage providing adequate coverage on multi-day events was also noted during a recent CAISO presentation: CPUC Advanced DER & Demand Flexibility Management Workshop, May 25, 2021.

9 Such optimistic operating condition assumptions include temperature, economic conditions, and any other grid constraints. This also assumes 100% depth of discharge with no penalties and no parameters on average daily state of charge. Since MISO had initiated grid emergency procedures during this time frame it is assumed the batteries were not allowed to charge during the hours of the CT dispatch shown in Figure 2-5, as that would have increased the stress on the greater system.

reliability concerns, including those raised by extreme weather and restoration capabilities, would remain unaddressed.

Figure 2-5: NSP System CT Dispatch Profile During Multi-Day Polar Vortex Event – January February 7-8, 2021

In addition, batteries provide limited value in system restoration, which we discuss in more detail in Section 3 System Restoration and Blackstart. While some batteries can provide blackstart or system restoration services in certain limited circumstances, the portion of the battery reserved for this purpose would provide very little, if any other grid value because it must maintain its charge at all times to be prepared for a

restoration event.¹⁰ In addition, if the system becomes unstable and goes back down after the initial start, the battery must be prepared to again blackstart and support other generating units repeatedly until the system stabilizes. For extreme weather conditions in which the grid is still stable, moreover, such as the February 2021 cold spell, batteries providing restoration services would likely be unavailable for providing much-needed energy to the bulk power grid.

10 The battery referenced by the Sierra Club in its comments from the Imperial Irrigation District (IID) is not reserved specifically for blackstart. Rather, it blackstarted a gas unit on one occasion. Attempts to reach IID directly were unsuccessful; however additional information is presented by IID staff in a 2021 Utility Dive webinar: Don’t Be Left in the Dark – Embrace BESS for Black Start Recovery | Utility Dive (last accessed April 2021). A similar example from another utility can be found here: Hybrid solutions: GE Completes First Battery Assisted Black Start of a GE Heavy Duty Gas Turbine | GE News.

Finally, regarding the ability of standalone, four-hour, lithium ion batteries to operate during cold weather – very little literature and existing operational data from climates similar to the NSP System is domestically available on this topic. For example, neither NREL ATB 2019 or 2020 make explicit assumptions about cold weather parameters or thermal management systems for standalone storage, nor are battery-specific topics yet found in the MISO Winterization Guidelines.¹¹ Although many utility-scale storage assets would have HVAC or thermal management systems to help maintain temperatures within safe operational limits, no common-denominator, publicly-available protocols or best practices are fully defined for operation in our region. Additionally, once defined, costs would need to be inclusive of these assumptions, including any costs and operational impacts from required auxiliary HVAC systems.

Based on our analysis, battery energy storage systems (BESS) without dedicated thermal management or HVAC systems, such as some distributed storage systems, may not be able to operate at all when temperatures drop below minus 22 degrees Fahrenheit, much less operate efficiently or anywhere near their installed capacity levels. While we expect that more operational data will become available, and likely changes in operational limits or winterization guidelines will occur as the technology continues to mature, currently, BESS is simply a less predictable alternative to CTs and other firm dispatchable generation.

I. Risks of Relying on MISO to Fulfill Gaps in Our Customer’s Energy Needs

As mentioned in the modeling section, the Company’s load comprises approximately 50 percent of MISO’s Local Resource Zone 1 and 7 percent of MISO’s overall load.

Given our size proportional to the MISO system, and that we are responsible for mitigating both economic and reliability risks, it is likely not possible to rely exclusively on MISO to fulfill gaps in our electric service needs.

As a member of MISO, we should and do rely on market energy purchases when other MISO resources can provide energy cheaper than our own resources and we do in fact rely on the MISO market to fill some of these needs. In this way, relying on MISO helps reduce economic risk to our customers. However, purchases from the MISO market are considered non-firm; in other words, they do not provide capacity that we can use towards meeting a key reliability planning requirement; our annual fixed resource adequacy planning (FRAP) obligations as a market participant within

11 Midcontinent Independent System Operator (MISO), 2018 MISO Winterization Guidelines287888.pdf (misoenergy.org) (last accessed on June 22, 2021).

MISO. Since compliance with FRAP obligations is only for single year periods at a time, and because the acquisition of new generation capacity often takes multiple years, our least cost and most responsible course of action is to plan several years in advance for the acquisition of generation capacity. Simply using the MISO Planning Reserve Auction as a means of securing capacity for single year-periods is also

insufficient as a resource planning option. Pursuant to Minn. Stat. § 216B.2422, we have to demonstrate that we have enough capacity to serve our obligations for a five-year period. In addition, in a catastrophic scenario where we were unable to secure sufficient capacity in the Planning Reserve Auction for a given year, our customers, and potentially other MISO regions, could face reliability and price spikes similar to what Texas experienced this past year – as it would be unlikely we could build new generation within a single-year period.

In fact, in the recent past, such as during Winter Strom Uri in Minnesota, there have been time periods when customers did not experience a system-wide disruption to their service in part because we have sufficient responsive capacity and duel fuel capabilities (i.e. onsite diesel as an alternate fuel) on the system to accommodate net demand over sustained periods, as well as provide power to our neighbors as we are able. Indeed, during Winter Storm Uri, all of our units that had dual fuel capability utilized diesel fuel during the storm.

We believe there is substantial risk to planning for a static MISO reliability construct.

It is imperative that we continue to plan for a system that has sufficient capacity to meet our customer’s needs. There is a technical import limit of approximately 2,300 MW into our system from the broader MISO area, although the available

import/export capacity can vary significantly by the hour. To the extent we are forced to rely on MISO resources because we do not have adequate capacity to serve our load on an hourly basis, we are exposed to uncapped market risk because we do not have a resource hedge to mitigate our exposure. Our ability to purchase our theoretical import limit at any given moment depends on timely available excess generation from our neighboring utilities or merchant generators in MISO. However, excess generation may not be available in the market to meet an internal shortfall on our system. This is especially true if the energy shortfall results from weather events which would impact the same regional area that we serve. As such, it is incumbent upon us to analyze the likelihood of shortfalls for each capacity expansion plan we consider and be prepared for situations where excess generation is not available. The Reliability subsection in the Modeling section of these Reply Comments provides additional details about this analysis.

In addition to the potential lack of availability, relying solely on MISO to meet internal shortfalls may expose customers to drastic price spikes or load shedding events

because there is an increasing likelihood that other load-serving entities in the NSP geographic system would have internal shortfalls during the same time periods. Figure 2-6 below shows a recent increase in the number of MISO-declared grid emergency events; these are the very times when drastic price spikes and load shedding events are the most likely to occur.

Figure 2-6: Number of Days with a MaxGen Alert, Warning, or Event

Over reliance on the MISO market is an unacceptable financial and reliability risk to our customers. Given that the 2021 NERC Summer Reliability Assessment indicates a chance of capacity shortfalls for MISO in scenarios with above-normal load levels this very summer, this is not an imagined or future concern, but one that impacts us now.¹² As a result, our goal is to maintain enough responsive capacity to hedge risk to our customers and minimize the number of hours in which we are unable to serve our customers due to insufficient native capacity.

J. Maintaining Stability Along the Sherco Gen-Tie Line in the Alternate