Is this Michigan Utility’s Resource Plan the Worst Ever?

, Senior Energy Analyst | August 27, 2019, 2:56 pm EDT
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Just a few years ago, Michigan passed a law to guide the state’s utilities on proper resource planning (known in the industry as an Integrated Resource Plan, or IRP). The point of the law was to help promote better utility planning. Utilities, after all, are poised to invest $150 billion in capital this year. When they don’t make smart decisions, it is customers like you who pay the price. Having now reviewed the latest of such plans–DTE’s Integrated Resource Plan (IRP)–I am left wondering if the utilities themselves are listening to the legislated guidance.

I filed testimony—along with James Gignac, Eric Woychik, Kevin Lucas, Will Kenworthy, and Anna Sommer—in the case, and I want to highlight just a few of the glaring problems with the resource plan.

Rigid blinders

DTE, like most utility companies, bought proprietary models to conduct planning analysis, but it doesn’t appear DTE knows how to use them.

So much of the resource plan was “hardcoded” that DTE actually prevented the model from selecting resources that would otherwise provide real economic value to DTE’s customers. This is the exact opposite of the outcome one should hope for when conducting resource planning. Rather than allowing the modeling to illuminate opportunities, the company placed such rigid blinders on the process that it was impossible to glean any useful information from the modeling exercise.

There were a number of ways that the company forced the model to produce a specific set of results. One way that I testified about was their use of the “must-run” designation in the modeling. The must-run designation forces the model to use coal and gas resources, even when it isn’t economic to do so.

When set this way, the model will run uneconomic power plants year-round and prevent the utility from finding opportunities for ratepayer benefits from things like seasonal operation.

When the “Must run” designation is removed, many of the company’s coal plants operate much less frequently

Analysis from the Direct Testimony of J. Daniel. Data scrubbed of any confidential information.

The must run designation is a way to hardcode self-committing into the utility long term plans—a practice utilities should strongly consider stopping given how much it costs customers. Commissions in Minnesota and Missouri are investigating the economics of must-run designations. Maybe Michigan should be the next state to look into it?

“Junk in, junk out”

In my testimony, I outline that there were at least four different ways that the company was underestimating the benefits of energy efficiency, called energy waste reduction in Michigan. What was striking was the cavalier manner in which these underestimations were presented. So much so, that DTE didn’t seem to mind engaging in some cognitive dissonance, with one witness describing higher levels of energy waste reduction (EWR) as being “not cost-effective” while another witness reported that those same levels of EWR produce $2 of benefits for each $1 of costs.

Usually, I would try to quantify the numerical value of the underestimation in a proceeding like this, but DTE’s convoluted and opaque process made that task impossible. I was able to partially unravel how the company underestimated the “avoided transmission and distribution investments” benefit that resources like efficiency can help defer. The company assumed a zero-dollar value in all but one of their analyses and attempted to justify assuming a zero-dollar value by pointing to two reports.

The two reports they cite to justify their assumption both do a better job casting doubt on the assumption than supporting it

The first report (a triennial avoided cost study for the New England states) dedicates nearly a page to debunking the use of an assumed zero-dollar value. The other report, which was specific for Michigan, describes a zero-dollar value assumption for Michigan as “very conservative” and casts serious doubt on the use of such an assumption.

DTE does compute a $7/kW value for use in one of the model runs. This value, however, is far below what other utilities have come up with. A meta-analysis of other utilities’ avoided transmission and distribution (T&D) value found only 2 utilities that used a zero-value, the rest all had values two-times higher than DTE’s “high” value.

A meta-analysis of avoided T&D studies, values adjusted for inflation.

Speaking of wasted energy…

Assembling a utility’s resource plan, conducting the modeling, writing the testimony, hiring experts, and filing everything with the commission, is expensive.

Joe Daniel

A picture of the direct testimony of DTE’s experts.

It is also expensive for those that want to engage in thoughtful critique to try to improve the IRP (like UCS and the coalition we worked with that included Ecology Center, SEIA, Vote Solar and ELPC).

None of these issues outlined above are particularly unusual, though they are intellectually egregious.

Outdated cost data for renewables is frustratingly more common than you’d hope.

There is plenty of institutional inertia fighting against designating coal plants as “must run.”

And underestimating the benefits of energy efficiency (EE), well that’s damn near a time-honored tradition among utilities.

What makes DTE’s IRP unusually bad is just how hard it was for the experts in the case to reveal these issues. More often than not, these issues are sitting in plain sight not buried three layers deep.

In all my years of reviewing IRPs the DTE IRP might be the worst. The only thing preventing me from using more definitive language is that I’m not entirely certain it qualifies as an IRP.

Why?

Well, because if the company corrected for every error, misstep, and poor assumption identified in our coalitions’ 100’s of pages of testimony it would have had zero impact on DTE’s planning. Why is that? Well to answer that question I’ll have to quote expert witness Keven Lucas:

“The answer is simple but astonishing.  DTE did not base its [plan] on any modeling runs in this case, but instead based on a now-dated [levelized cost of energy] analysis from its 2018 Renewable Energy Plan… which was in turn based on even-more-dated 2017 cost estimates.

That’s right, this multi-billion-dollar a year corporation spent hundreds of thousands of dollars conducting what turned out to be a sham analysis which results were predetermined by an outdated calculation.

Verdict: Michigan Customers deserve better than “not the worst

At the end of the day, I’m not sure if DTE’s resource plan qualifies as a resource plan, certainly not by standards set forth by Michigan IRP laws. With intervenor testimony now filed, there is a mountain of evidence laid out that suggest there were deep and meaningful flaws to DTE’s “IRP.” And while reasonable people can disagree about what “the worst IRP” would look like, I would assert that Michigan deserves better than “not the worst.” And better than what DTE has put forward.

DTE’s plan favors its own expensive power plants over a truly robust process to ensure cleaner and more affordable energy for Michigan customers. I’ve seen utility commissions reject resource plans for far less egregious missteps. The Michigan Public Service Commission should send this plan back to the company and insist that DTE take seriously its obligation to fairly evaluate all resource options, especially earlier investments in renewable energy and energy efficiency.

Many other groups have now called for the Commission to reject the utility’s IRP, which would hopefully force the company back to the drawing board and precipitate a more thoughtful and robust resource plan.

Is DTE’s plan the worst IRP you’ve ever seen? Think you’ve seen worse? Then @ me on twitter (@electronecon) and tell me who wins your vote for worst utility IRP.  

This blog has been updated to correctly identify the AESC as a triennial report.  

Geniuserp

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  • EnergyTruth

    “Is DTE’s plan the worst IRP you’ve ever seen? Think you’ve seen worse?” Any generation resource plan that relies on a regulated monopoly utility is a bad plan! The retail choice model is a much better, market based approach to add new generation resources. With the retail choice market model, new renewable generation can be built to directly serve the growing requirements of individual customers without the regulated utility standing in the way and deciding if it is ok. Additionally the generation owners take on the financial and performance risk of the new generation versus the resource planning like the regulated monopoly utility DTE where the customers bear the bulk of the risk from bad planning. And regardless of how the regulated utilities try to convince the regulators and legislators in their states in order to protect their monopoly, the retail choice model works. Here’s an example from PJM:
    New power projects advance to address US generation shortfalls, Wednesday, August 7, 2019 4:05 PM ET
    By Steve Piper, Market Intelligence. “Aided by supportive capacity markets and continued expansion of competitive and reliable natural gas supply, new combined-cycle gas turbine plants are making their way into Ohio. A total of 1,700 MW of capacity is now likely for 2021 in-service, helping to offset planned coal retirements such as Bruce Mansfield. Between now and 2023, Market Intelligence projects 6,300 MW in peak capacity from new construction in PJM to offset 16,700 MW of firm retirements and capacity reductions over that period. Market Intelligence further projects retirements of an additional 2,500 MW of conventional generation by the end of 2023, offset by a renewables build-out of 16,280 MW, or about 4,800 MW in firm peak contribution, along with an additional 650 MW expected to be needed in Ohio.”
    So the question we should be asking is not which individual utility has the worst IRP, but why are states still relying on an outdated monopoly utility model for resource planning instead of a more efficient retail choice market model?