Let’s Grade Your Utility’s Shopping Habits
Over the next decade, vertically integrated electric utilities in the United States will spend up to $750 billion on new resources to meet emerging grid needs. A recent RMI report highlights the necessity of modernizing the way utilities procure these resources to ensure this money is spent wisely, in a way that meets grid needs while supporting rapid decarbonization of the power sector and other societal objectives.
In our report, we recommend that utilities base modern procurements on three key principles — namely, that procurements should:
- be all-source,
- be objective-aligned, and
- prioritize least-regrets outcomes.
Properly implemented, these principles can support both the foundational process improvements and specific procurement activities that lead to utility investment (Exhibit 1).
In recent years, over a dozen utilities across the country have opened all-source requests-for-proposals (RFPs) to acquire new generation assets and, in some cases, demand-side resources like energy efficiency and demand response. In this article, we use the recommendations included in our paper to grade three recent RFP examples and highlight where utilities have done well on integrating the principles in Exhibit 1 — and where there are opportunities for improvement. For each example, we share a brief summary of outcomes and offer more detail in the full report cards that explains how we came to our conclusions using the resources in the paper.
The three examples graded in this report are:
- Xcel Energy, Colorado: In 2017, Xcel Energy’s Colorado subsidiary — the Public Service Company of Colorado — completed an all-source supply-side procurement as a requirement of its Electric Resource Planning (ERP, exhibit AKJ-2) A strong example of a least-cost procurement, the competitive RFP yielded market-leading prices on renewables and storage and will save customers over $200 million when compared to Xcel’s original preferred portfolio from its planning phase.
- CPS Energy, San Antonio: In November 2020, CPS Energy released the “FlexPOWER Bundle RFP,” a solicitation seeking up to 900 MW of solar photovoltaics, 50 MW of battery storage, and 500 MW of firm capacity from unspecified clean or fossil resources. The RFP is part of CPS’s “Flexible Path” planning strategy, which targets 50 percent renewable generation for the utility by 2040.
- Louisville Gas & Electric and Kentucky Utilities Company: In January 2021, Louisville Gas & Electric and Kentucky Utilities Company (LG&E and KU) released an all-source RFP seeking 300 MW to 900 MW of new assets. Driven by coal plant retirement (Mill Creek Units 1 and 2 and E. W. Brown Unit 3), the RFP seeks bids from firm-peaking (including storage), intermittent non-firm renewables (with or without storage), firm dispatchable baseload, and load-following capacity and energy resources. Bids were due in March 2021, the utilities expect to seek regulatory approvals in early 2022, and new resources are expected to go online in 2025.
Case 1: Xcel Energy, Colorado
Xcel’s solicitation exemplified best practices in next-generation procurement through implementing several best-practice process improvements, including linking procurement to a formal planning process and engaging stakeholders through a formal commission proceeding. Xcel has an opportunity to improve future procurements by better supporting distributed energy resources (DERs) and demand-side management (DSM).
Case 2: CPS Energy, San Antonio
The FlexPOWER Bundle RFP’s strengths include its broad resource eligibility, which includes some demand-side resources, and flexible ownership options. CPS has an opportunity to improve future procurements by (1) increasing transparency and making data publicly available and easily accessible and (2) better engaging stakeholders through a formal process that includes clearly defined intervention points and shared modeling exercises.
Case 3: Louisville Gas & Electric (LG&E) and Kentucky Utilities Company (KU)
Strengths of LG&E and KU’s solicitation include broad RFP eligibility open to all supply-side resources and feedback from the regulator on planning, which helps ground the procurement in the long-term planning process. LG&E and KU have opportunities to:
- increase transparency by sharing data and modeling assumptions and results,
- validate portfolio selection through stakeholder engagements or by using an independent evaluator, and
- increase bidder confidence by sharing more explicit criteria for selection.
Shaping Utility Investment in the Decisive Decade
The tools included in RMI’s How to Build Clean Energy Portfolios can make it easier to recognize the strengths and weaknesses of electric utility procurement activities. Recent solicitations, including the three featured in this article, signal that clean energy portfolios are playing an increasingly significant role in today’s electric grid. As utilities and states continue to develop a modern, decarbonized power sector, next-generation procurement practices can help utilities shop smarter by recognizing and capturing value from clean energy portfolios to make low-cost, least-regrets procurement decisions that meet the needs of the grid today and provide the most societal benefit in the decades to come.