+ SMMPA 2.0

• What is SMMPA 2.0? The “2.0” vernacular commonly refers to an upgraded version of an original – and that is the case with SMMPA. We are building on a legacy of safely providing reliable and affordable energy to our seventeen members to address issues of sustainability and take advantage of new opportunities to better serve our member communities. SMMPA 2.0 creates a strategic direction to make an already successful organization poised for even greater success and service to our members in the future.

• Why undertake this initiative now? The convergence of many factors and events made now the right time. The planned retirement of Sherco 3, the improved cost of renewable resources, increased societal focus on climate change, the potential of electric vehicles and changes in SMMPA membership are some of the major factors that led to this initiative.

• What role did climate change play in creating this initiative? It is a major factor, but not the only factor. Technological improvements, changing market dynamics and pure economics would have led us to pursue many of the elements of the SMMPA 2.0 strategic initiative even absent considerations of climate change. That said, climate change is increasingly an issue of concern to our member communities and their stakeholders, thereby making it an issue of significance for SMMPA.

• What role did economics play in creating this initiative? Like climate change, it was a major factor but not the only factor. We are fortunate that the elements of the SMMPA 2.0 initiative align to meet economic, reliability and environmental goals.

• Aside from changing SMMPA’s generation portfolio, what else is included in SMMPA 2.0? A continued focus on economic development in our member communities, maximizing the potential of electric vehicles, supporting and preparing for even more technological advances in the electric industry while maintaining our long-standing commitment to reliability, affordability and safety.

• Why is economic development important? Economic growth is vital to our member communities. It supports the underlying infrastructure and quality of life in our Greater Minnesota cities. Smart growth can also help the economics of the electric service we partner with our member utilities to provide to those communities.

• Doesn’t that run contrary to energy efficiency efforts? Not at all. With our members, we strive to help every consumer use electricity as efficiently as possible. For our business customers, helping them be as energy efficient as possible improves their competitive position, increasing the likelihood that they will maintain and grow employment and investment in our member communities.

• What is “beneficial electrification” and why is it important? Beneficial electrification is a term for replacing direct fossil fuel use (e.g., propane, heating oil, gasoline) with electricity in a way that reduces overall emissions and energy costs. The electric industry in general and in Minnesota in particular has made great strides in reducing the carbon footprint of the power sector. Improved technology and efficiency have made powering transportation, home heating and other services with electricity not only a cost-effective proposition, but also an important tool in reducing the carbon footprint of other sectors of the economy.

• Is this a strategic initiative or a rebranding exercise or both? Both. The depth and breadth of the SMMPA 2.0 strategic initiative led SMMPA to also consider rebranding the Agency. SMMPA’s first generation project over 30 years ago was to participate in the construction of a large coal plant. Since then, SMMPA has evolved to be much more than that, but we viewed the combined factors that led to this initiative as a major inflection point for SMMPA. Such inflection points are often an appropriate time to consider rebranding, so SMMPA decided to take advantage of that opportunity.

• Why the new logo? A new logo is often an integral part of a rebranding effort. We maintained portions of our last two logos in the new one to respect our very powerful legacy. The arrow points up and forward – the direction we are headed with this new strategic initiative. The blue semi-circle is part of the universal power button – our business. The blue and green are a nod to our increasing portfolio of renewable resources. The new tag line captures our role as a partner in creating a better tomorrow.

• Why the new tag line? Increasingly, SMMPA does more than “Bringing Power to Your Life.” SMMPA’s role with its member communities is to partner with them and further harness all the benefits of successfully executing the SMMPA 2.0 initiative. SMMPA believes “Your Partner for a Bright Energy Future” captures the spirit of this new version of SMMPA.

• What isn't changing? Our dedicated staff, our headquarters location, our focus on our member communities and our dedication to safely providing reliable and affordable wholesale power. Our generation mix will change, and our member programs will change but our guiding principles will remain the same.

+ Resource Roadmap

• Why a new resource plan now? Like Xcel, SMMPA has been reviewing its resource plan for several years, acknowledging that coal-fired electric generation retirements are becoming quite common. The changing economics of the electric power wholesale market dictate that moving away from coal and into low and no-carbon resources makes sense. With a planned retirement of Sherco 3 in 2030 and an expected change in SMMPA membership in that same timeframe, this is the appropriate time to create a more specific long-term resource plan. While ten years out may seem like a long time, the analysis is complex and the process for building or contracting new generation resources requires a long lead time.

• What will be the impact on reliability of this resource plan? With more sophisticated markets, increased experience with higher levels of intermittent renewable resources, and the operating flexibility of smaller natural gas-fired engine plants, our members will continue to experience the same high levels of reliability they have come to expect and deserve from SMMPA. SMMPA also acknowledges that system reliability depends on collaboration and coordination of all the participants and stakeholders in what is a very complex electric grid.

• What will be the impact on cost of this resource plan? SMMPA’s analysis indicates in nearly all future plausible scenarios, retiring Sherco 3 and replacing it primarily with renewable resources is a more cost-effective option. At current and projected low market energy rates, there are scenarios where simply relying on spot market purchases could be less expensive. However, being completely exposed to spot market prices without sufficient market hedges such as those provided by generation resources, including renewable resources, results in a level of risk that is not acceptable to SMMPA’s members.

• Can this resource plan be implemented without major new transmission investment? SMMPA is a relatively small player in a very large energy market, so the individual resource decisions of SMMPA are unlikely to have a measurable impact on overall system reliability. However, collectively the decisions of more and more utilities to pursue a lower carbon generation portfolio may impact overall system reliability. It is for that reason that SMMPA is an active participant with other utilities and the Midcontinent Independent System Operator (MISO) to analyze, plan and build the necessary transmission infrastructure to support this transition.

• Why keep natural gas and diesel generation in the mix? Wind and solar are both intermittent resources, meaning they generate electricity when the wind blows or the sun shines – and there are times when neither is occurring. Natural gas and diesel-fueled plants are “dispatchable,” meaning they can be turned off and on as needed to meet customer demand. SMMPA has found that its smaller natural gas-fired engines complement intermittent renewables. They are an important part of maintaining reliability and meeting SMMPA’s requirement to have adequate capacity to meet customer demand. They run relatively few hours per year but are critical when they are called upon. The diesel generation rarely runs but is available to run when necessary. This was experienced most recently during last year’s polar vortex when wind generation was shut down due to the cold and natural gas was in high demand for home heating. Effectively, these natural gas and diesel generators facilitate the move to higher levels of renewable resources while maintaining reliability.

• Why keep the smaller, older, member-owned units in the portfolio? In addition to the grid reliability reasons cited above, these facilities help provide reliability to SMMPA members at the local level. Under certain circumstances, these units can be run to provide electricity to the member community when the grid is down.

• What role does SMMPA see for energy storage? SMMPA believes there is a role for energy storage in the future in helping address the challenges of intermittent renewable resources. Battery technology is improving but remains very expensive and is available for relatively short durations. While helpful, that would not address periods of extended unavailability of renewable resources such as was experienced in the polar vortex. SMMPA will seek to deploy energy storage as it becomes more cost effective.

• What technological breakthroughs will be required to implement this resource plan? SMMPA believes the resource plan it is developing is viable today. To reach even higher levels of decarbonization, improvements in storage technology as discussed above would be required, as well as commercially available and cost-effective carbon capture, storage and utilization technologies to reduce the carbon footprint of those traditional technologies the industry will continue to rely upon to maintain reliability. Such carbon capture and storage technology will also be critical in helping the industrial sector in reducing its carbon emissions.

• Did SMMPA consider nuclear? Nuclear power can be a significant source of carbon-free generation, and SMMPA includes nuclear as a resource option in its modeling. However, the current cost of nuclear generation results in the selection of other lower-cost options. SMMPA is encouraged by some of the research that shows small modular nuclear generation may one day be viable but believes that will not occur within our current planning horizon. Also, currently, there is a statutory prohibition against the development of new nuclear generation in Minnesota.

• How will SMMPA support research, development and demonstration efforts?* We will lobby at the federal and state level to fund these efforts and support the industry in its efforts. We do not expect to engage in our own RD&D efforts.

• Did Xcel really give SMMPA a choice on Sherco 3? Yes. We have had an excellent relationship with Xcel over the years. The 2030 retirement date for Sherco 3 was set based on our joint conversations. SMMPA has worked closely with Xcel in the past and will continue to work closely with them going forward.

• Why does SMMPA support retiring Sherco 3 in 2030? In addition to supporting SMMPA’s sustainability efforts, retirement is projected to be a prudent economic decision based on our modeling.

• What will be the financial impact on SMMPA of retiring Sherco 3? SMMPA’s remaining debt on Sherco 3 will be paid off in 2027. SMMPA believes it has adequate funds in reserve for decommissioning the plant. Modeling shows that replacing Sherco 3 with primarily renewable resources will be more cost effective in the long run. Taken together, SMMPA believes the overall financial impact will be relatively positive compared to other alternatives.

• When will SMMPA begin adding new wind and solar resources? SMMPA will continue the planning process to determine the optimal mix of wind, solar and natural gas on our system. Because such facilities require significant lead time for construction and grid interconnection, SMMPA expects to begin developing requests for proposals in the next few years. SMMPA anticipates these new resources will begin operation in the latter part of the 2020s.

• Will SMMPA own or contract for the new renewable resources? No final decisions have been made. In the past, tax provisions have favored SMMPA contracting with renewable generation producers that could take advantage of the tax credits (SMMPA as a tax-exempt entity cannot). There may, however, be operational benefits in owning some of the resources. SMMPA will continue to evaluate the alternatives to determine what is in the best interest of its member utilities.

• Isn’t wind less expensive than solar? Why include solar if it is more expensive? Today, utility-scale wind is generally less expensive than solar. However, solar prices continue to decrease while wind prices have somewhat leveled off. Importantly, wind and solar have very different operating characteristic. In the upper Midwest, wind turbines tend to generate more at night and in the winter, spring and fall. Solar generates more during the day and during the summer. Currently, solar also counts more towards utilities’ capacity requirements on a per-megawatt basis. SMMPA believes the appropriate combination of both resources will provide the greatest value to its members.

• With this level of intermittent renewables, won’t reliability be impacted? SMMPA believes the generation portfolio it is considering will meet reliability requirements. As mentioned above, SMMPA and most individual utilities are relatively small compared to the overall size of the grid, so our actions, on their own, are not likely to have an impact on overall grid reliability. However, SMMPA is committed to working with the industry to ensure continued grid reliability as overall grid penetration of renewable resources increases.

• How does SMMPA plan to meet at least one percent of its renewable resources with local member projects located in their communities? SMMPA has already implemented a policy that facilitates the addition of smaller solar facilities by our members. If fully deployed, those solar facilities would exceed the 1% goal.

• Does SMMPA address electric vehicles (EV)? Yes. Approximately 90 percent of electric vehicle charging is projected to occur at night in customers’ garages. This is generally considered “off-peak” when the grid has significantly more electricity available than what is used by customers during the day. SMMPA, and the industry, generally believe much of the demand for electric vehicle charging can be met without investing in additional generation and transmission infrastructure. As solar generation grows, more generation capability will become available during the day, which could lead to more workplace charging. SMMPA and its members are investing in public charging infrastructure to help remove one of the barriers to greater adoption of electric vehicles. While optimistic about the future of EVs, SMMPA understands that it will take some time before the load from electric vehicle charging plays a significant role in its resource plan.

• Will SMMPA continue to support energy efficiency? Absolutely. SMMPA’s award-winning energy efficiency program not only meets a Minnesota mandate, it helps SMMPA’s member retail customers, contributes to economic development efforts, and helps reduce SMMPA’s carbon footprint.

• SMMPA states that it “will” undertake these initiatives and meet these objectives. Could that change? SMMPA cannot predict the future, so this strategic initiative is built around the best information available at this time. A major technological innovation, a major public policy development, or some other unforeseen set of circumstances could influence this initiative. However, SMMPA believes the elements contained in this initiative provide a roadmap that benefits our members, their communities and the general public.

+ Emissions

• What level of carbon emission reductions will result from SMMPA 2.0? SMMPA projects that its carbon emissions will be reduced by nearly 90% in 2030 compared to 2005 levels.

• How was that calculated? SMMPA’s 2005 carbon emissions are documented. Its projected 2030 carbon emissions are based on the retirement of Sherco 3, the new projected generation mix and the projected load of our member communities.

• SMMPA indicates it will be 80% carbon-free in 2030. What does that mean and how was that calculated? SMMPA used the same approach in calculating the projected carbon-free value as it currently does to calculate compliance with the State of Minnesota’s renewable energy standard. SMMPA projects its total annual energy requirements to meet customer needs in the SMMPA member communities and then compares that to amount of carbon-free energy it projects to generate annually from its owned or contracted generating facilitates.
  There are several other methodologies to measure the extent to which a utility is meeting a carbon-free or renewable goals. Should such methodologies be prescribed for compliance with future legislation, SMMPA stands ready to implement those methods. Regardless of how the amount of carbon free energy is measured, SMMPA believes it is taking significant steps to reduce carbon emissions.

• Why not go for 100% carbon-free? The technology required to meet a 100% carbon-free goal while maintaining system reliability is not yet commercially available. While SMMPA is optimistic that technology breakthroughs will occur, it is not comfortable setting goals based on technology that is not yet commercial. The potential cost of achieving that last 10-20 percent reduction in carbon from the power sector is also concerning. If low-cost reductions in carbon can be achieved in other sectors of the economy that have yet to meaningfully reduce their carbon emissions, it would seem prudent for public policy to first encourage those reductions.

• Are “carbon-free” and “renewable” the same thing? Not necessarily. Some types of generation that are considered renewable have carbon emissions, and some types of generation that are considered carbon-free are not renewable. For example, nuclear, larger hydro, fossil fuel generation with carbon capture, and storage may not meet definitions of renewable for some, but they do not have carbon emissions and thus would be considered “carbon-free.” Similarly, generating resources such as landfill gas generators and waste-to-energy facilities are considered renewable, but they are not considered carbon-free.

• Why not go 100% renewable with the generation fleet? The ability to generate with 100% renewable resources partially depends upon how one calculates “100% renewable.” The calculation method used in the State of Minnesota’s renewable energy standard would allow a utility to meet a 100% standard while still using fossil-fueled generation to meet reliability requirements. More fundamentally, SMMPA believes the public policy focus has shifted to addressing climate change, which also changes the focus to meeting carbon, rather than renewable, standards.

• What percentage of renewables will SMMPA be in 2030? Based on the methodology used in the State of Minnesota’s renewable energy standard, SMMPA projects it will be about 75% renewable.

• Will SMMPA’s natural gas and diesel generation still be running in the future? SMMPA’s natural gas generation at Owatonna and Fairmont have proven to complement the significant increase in intermittent renewable resources that has already occurred. Both are flexible plants that can ramp up and down quickly to adjust for the minute by minute variations in wind and solar generation. The plants run a relatively low number of hours per year but play a very critical role in maintaining grid reliability. The diesel plants rarely run but are available to meet reliability requirements in unusual circumstances such as the polar vortex last winter. With natural gas demand for home heating high and the temperatures too cold for wind turbines to run, the diesel generators played an important role in keeping the lights on.

• How would the operation of those plants impact SMMPA’s renewable or carbon-free calculation? The operation of those plants would not impact SMMPA’s renewable or carbon-free calculation as long as SMMPA’s owned or contracted carbon-free and/or renewable generating facilities generate enough energy in a given year to meet or exceed the specified percentage of energy used by SMMPA’s member communities within that given year.