STATE OF MINNESOTA
BEFORE THE PUBLIC UTILITIES COMMISSION

Katie J. Sieben Chair
Valerie Means Commissioner
Matthew Schuerger Commissioner
Joseph K. Sullivan Commissioner
John A. Tuma Commissioner

In the Matter of Xcel Energy’s Petition for
Approval of Load Flexibility Programs and 
Financial Incentive Mechanism
PUC Docket Number E002/M-21-101

In the Matter of a Commission Investigation
to Identify and Develop Performance Metrics, 
and Potentially, Incentives for
Xcel Energy’s Electric Utility Operations
PUC Docket Number E-002/CI-17-401

Supplemental Reply Comments of the R Street Institute

The R Street Institute (R Street) submits these supplemental reply comments in response to Xcel Energy’s Reply Comments filed on July 28, 2021. [1] R Street participated in Docket No. 17-401 which is the vehicle for discussing performance-based ratemaking (PBR) efforts before the Minnesota Public Utilities Commission (Commission or PUC), and submitted comments on Xcel’s initial filing in the instant docket. [2] R Street thanks the Commission for the opportunity to provide these supplemental reply comments on Xcel’s Reply Comments. [3]

Introduction 

Xcel’s Reply Comments respond to a number of issues raised by parties. However, Xcel’s Reply  Comments largely do not question or respond to the recommendations and concerns raised in R Street’s  initial Comments. [4] For example, R Street provided comments on the structure of the incentive  mechanism, noting that the incentive structure proposed is too favorable toward Xcel and would reward poor performance. Xcel does not attempt to rebut R Street’s arguments, rather, Xcel maintains its existing incentive mechanism. [5] Where Xcel does point to R Street’s comments, such as on which cost effectiveness test to use or the role of aggregators, Xcel’s responses do not address the flaws identified in R Street’s comments. Since Xcel does not respond to the majority of R Street’s comments, R Street recommends that the Commission adopt R Street’s comments and recommendations. R Street provides additional responses to Xcel’s Reply Comments below. 

Comments 

Based on the review of Xcel’s Reply Comments, R Street suggests that the Commission should take this application in two parts: the reasonableness of the incentive mechanism and whether the proposed  programs should be considered for an incentive mechanism. When looking at the proposal through that  perspective, it is clear that the incentive mechanism is flawed, consistent with R Street’s initial  Comments, and, as such, the proposed programs should not be considered for an incentive mechanism.  R Street’s initial Comments provided additional perspectives on the programs themselves, however,  Xcel’s Reply Comments do not provide adequate responses that would cause R Street to change our  position in our initial Comments. [6]  

  1. Reasonableness of the Incentive Mechanism 

In R Street’s initial Comments, R Street provided recommendations regarding the modification of the  incentive structure—comments that Xcel does not rebut. Specifically, R Street recommended changing  the structure of the incentive mechanism so that Xcel does not earn for poor performance. As detailed  in R Street’s Comments, R Street recommended that Xcel only earn upon meeting 80 percent of its  target, with a deadband between 60-80 percent and penalties for performance below 60 percent. Xcel’s  Reply Comments, rather, focus more on the money they would earn.[7] Again, as R Street’s initial  Comments noted, the purpose of a performance-based incentive mechanism is to offer utilities an  opportunity to earn on practices that run counter to their business interests. The programs proposed in  this proceeding and the incentive mechanism as proposed by Xcel do not put Xcel at any risk. As such,  the incentive mechanism as proposed by Xcel should be either rejected or modified consistent with the  recommendations as described in R Street’s Comments. 

  1. Should the programs be included for an incentive mechanism? 

Even if the Commission rejects the incentive mechanism, since these programs are proposed under  Xcel’s 400 megawatt (MW) demand response requirement, there is the possibility that they could stand  on their own. In initial comments, several parties, including R Street, recommended that the  

Commission not make them subject to an incentive mechanism. R Street identified several flaws with  the programs as proposed by Xcel.[8] For the most part, Xcel does not rebut R Street’s comments. R  Street’s primary concern with the programs proposed here is that they are not substantively different  than the type of programs Xcel already offers. Should the Commission seek to have demand response  programs be worthy of an incentive mechanism, then they should be for innovative projects that try out  new technologies, leverages aggregators or other implementers, or otherwise is tied to Xcel bearing  greater risk. None of the programs as proposed by Xcel do any of those.  

  • Peak Flex Credit 

The Peak Flex Credit is designed, in the words of Xcel’s Reply Comments, “to be an offering for large  commercial customers that understand the nuances and opportunities presented by various customer  options and buy-through options without having to hire additional resources or business to helps  support them.”[9]If these customers are already advanced enough to understand markets and their own  operations, then how does this qualify as innovative or any different than existing Xcel programs?  

On the other hand, where an incentive could be warranted would be through the use of aggregators to assist Xcel in signing up customers and sharing risk. In their Reply Comments, Xcel pushes back against  opening the program to smaller customers and to allow aggregators to work with different types of  customers and notes they have other types of programs with lower barriers to participation.[10] R Street  believes that Xcel has it exactly backwards; whether or not the Peak Flex Credit is cumbersome to smaller customers is beside the point as that is the exact purpose of an aggregator. Keeping all else  equal for the program, allowing aggregators to participate, sign up a wider variety of customers, and  manage the complexity on behalf of the customers is the role of the aggregator. Xcel’s comments fail to  recognize the opportunity for an aggregator to work on behalf of the utility under a program like Peak Flex Credit. Enabling aggregators to meet certain targets would be an innovation and supporting  aggregators would be more innovative than the current proposal. 

Lastly, Xcel briefly mentions how this program will be aligned with Midcontinent Independent System  Operator (MISO) markets. Xcel’s response provides no discernable details about how the Peak Flex  Credit will interact or be responsive to more detailed MISO price signals. Xcel says that it “will have the  ability to closely monitor these changes and modify to new rules as they are established,” but then later  notes that Xcel has “calculated [locational marginal price] thresholds at which it is likely to call economic  events.”[11] That is not how markets work, nor is this program, therefore, responsive to MISO price  signals. R Street’s initial Comments recommended that this program be more closely tied to MISO  elemental pricing (EP) nodes in order for Xcel (or an aggregator) to identify areas of Xcel’s territory  where there are constraints and where demand response would provide a benefit.[12] Xcel, instead, is arbitrarily creating, solely for testing customer response and not to actually use demand response to  solve a system need, a locational marginal price.  

To the extent the Commission decides to accept this program and make it part of an incentive  mechanism, the Commission should condition the structure of this program consistent with R Street’s  initial and reply comments. R Street does not believe this program should otherwise be considered for  an incentive mechanism. 

  • Other Proposed Programs 

R Street provides no additional comments regarding the remaining programs and, instead, refers back to  R Street’s initial Comments. As stated in R Street’s initial Comments, R Street does not believe any of the remaining programs should be considered for an incentive mechanism. The Commission may decide to  approve the programs, either as proposed or with modifications, for inclusion in Xcel’s 400 MW of  demand response requirement, but these programs, as proposed, should not be eligible for an  incentive. 

  1. Aggregators 

Xcel’s Reply Comments listed a wide assortment of problems with using aggregators to implement its  Peak Flex Credit pilot program. However, in response to Xcel’s concerns with the role of aggregators and  impacts to its rates, Xcel itself is not using its own existing demand response programs. In response to  an Information Request from Commission Staff in Docket No. 17-401, Xcel reported on how often it  called its demand response programs between 2015 and 2019.[13] During those years, Xcel called its  demand response programs a total of 26 times, but only four of those occurrences were in response to a  MISO call—all others were test events.[14] So, while Xcel’s current demand response programs may be  “structured to take advantage of demand response resource capacity,” that is all they appear to be  doing.[15] Xcel therefore finds itself in a quandary—it recognizes that calling demand response resources  is not in its interest (a point R Street’s initial Comments questions) and yet its proposed demand  response resources are too valuable to be put into the hands of an aggregator who may actually offer  customers something of value. The Commission should reject Xcel’s position on aggregators. To the  extent the Commission approves the proposed demand response programs, the Commission should  direct Xcel to work with aggregators to implement these programs, or, more specifically, the Peak Flex  Credit proposal. 

  1. Appropriate Cost Effectiveness Test 

R Street raised a series of concerns regarding Xcel’s use of a Price Signal Test (PST), which appeared to  be a modification of the Ratepayer Impact Measure Test in determining cost-effectiveness of the  proposed programs.[16] R Street, along with the Center for Energy and Environment and Clean Energy  Economy Minnesota, identified substantial problems with using the Price Signal Test as an inappropriate  way to measure cost-effectiveness. Xcel’s Reply Comments seem to prove R Street’s, and others’ point— the Price Signal Test is not an appropriate measure of cost-effectiveness. Xcel states that “It is more  correct to consider the PST a rate impact analysis than a cost-effectiveness analysis,” which is a point  made by R Street.[17] Despite this statement, Xcel maintains the reference to its PST in Table 1, titled  “Cost-Effectiveness Tests for Proposed Pilots.”[18] While Xcel notes that the PST is there to work in  conjunction with its other tests, it still remains that both the Electric Vehicle (EV) Optimization and Peak  Flex Credit pilots were not subjected to an analysis under either the Participant Cost Test or the Societal  Cost Test. Instead, only the PST is used to determine cost-effectiveness of those programs. Xcel provided an analysis of a selection of the proposed programs to the Utility Cost Test, as recommended by R  Street.[19] However, by Xcel’s own admission, the PST should be used to augment, not displace, other  tests and be used to understand the rate impact of a program, not the cost-effectiveness of a program.[20] When subjected to the Utility Cost Test, Xcel finds that for the EV Optimization Pilot and the Peak Flex  Credit pilot, the cost-effectiveness of each remains the same between the two tests. As such, R Street  fails to understand Xcel’s opposition to use of the Utility Cost Test, other than recognizing its effect on  not measuring utility revenue impacts. 

R Street continues to be concerned about Xcel’s reliance on the PST, which is built upon a test that is  considered an obsolete means of determining cost-effectiveness. Rather, R Street would agree with Xcel that the PST is better used to determine rate impacts of any particular program. 

Recommendations 

R Street recommends the following: 

  • The Commission should reject Xcel’s demand response incentive mechanism as detailed in R  Street’s initial and reply comments; 
  • The Commission should adopt R Street’s recommendations to modify the proposed incentive  mechanism to include a penalty and deadband for failure to meet targets; 
  • The Commission should consider the proposed programs as meeting Xcel’s 400 MW of  incremental demand response requirement; 
  • The Commission should find that the programs as filed should not be subject to an incentive; The Commission should modify the programs as detailed in R Street’s initial and reply  comments; 
  • The Commission should allow for aggregators to be used in implementing the Peak Flex Credit  program; and,
  • The Commission should reject the use of a Price Signal Test to determine cost-effectiveness of  the program.

Conclusion 

Based on the review of Xcel’s proposal and its Reply Comments, R Street maintains its recommendation  to reject Xcel’s proposal and accept R Street’s recommendations in these Reply Comments and initial  Comments. 

R Street thanks the Commission for the opportunity to provide these supplemental reply comments on  Xcel’s demand response pilot and incentive proposals. We look forward to continuing the conversation  with the Commission and all stakeholders on this very important topic. 

Respectfully submitted, 

___/s/ Christopher Villarreal____
Christopher Villarreal
Non-Resident Energy Policy Fellow
The R Street Institute
1212 New York Ave. NW Suite 900
Washington, D.C. 20005
415-680-4224
[email protected]
Sept. 9, 2021

1Initial supplemental comments were due Aug. 12, 2021 but were extended to Sept. 9, 2021. “Second Notice of  Extended Reply Comment Period,” Minnesota Public Utilities Commission, Docket No. E002/M-21-101 (Aug. 3,  2021).  

https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={B02 00C7B-0000-C414-BFE9-5EAD1BFB8F77}&documentTitle=20218-176758-01

2“Petition for Approval of Load Flexibility Pilot Programs and Financial Incentive Mechanism,” Xcel Energy, Docket  Nos. E002/M-21-101, et al. (filed Feb. 1, 2021) (Xcel Petition).  

https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={00D 85F77-0000-C61D-A011-B3240EB83C8C}&documentTitle=20212-170579-01

3“Reply Comments,” Xcel Energy, Docket Nos. E002/M-21-101, et al. (filed July 28, 2021) (Xcel Reply Comments).  https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={C01 9EE7A-0000-C210-BC21-46337A853B43}&documentTitle=20217-176545-01.

4“Comments of the R Street Institute,” R Street Institute, Docket Nos. E002/M-21-101, et al. (filed June 18, 2021)  (R Street Comments).  

https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={508 4207A-0000-C81D-8BB6-96FAF9B7C8B5}&documentTitle=20216-175203-01

5 Xcel Reply Comments at 15. 

6 R Street Comments at 4. 

7Id. at 6-7.

8Id. at 4-6. 

9 Xcel Reply Comments at 24. 

10 Id. at 25.  

11 Id. at 26; Id. at 27. 

12 R Street Comments at 5.

13 Xcel Energy Response to MN Public Utilities Commission Information Request No. 3, Docket No. E002/CI-17-401,  Jan. 17, 2020.  

https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={E02 0EE6F-0000-CC1A-AE78-982A9CCFACC4}&documentTitle=20201-159731-01

14 Id. 

15 Xcel Reply Comments at 19. 

16 R Street Comments at 7-8. 

17 Xcel Reply Comments at 6. 

18 Id. at 8.

19 Id. at Attachment A. 

20 Id. at 6.