Minnesota Supreme Court Affirms Minnesota Public Utilities Commission's Interpretation and Application of State Law and Distinguishes Bluefield

On November 2, 2009, just one day after the Minnesota Public Utilities Commission's (the "Commission's") final order in Minnesota Power's 2008 rate case, Minnesota Power filed its largest petition ever to increase electric rates.  As part of its petition, and consistent with Minnesota law, Minnesota Power sought to impose interim rates - the rates Minnesota utilities are permitted to collect while a petition to increase rates is pending.  The size of any interim rate increase is generally dictated by Minnesota law.  A number of parties opposed Minnesota Power's interim rate increase, claiming exigent circumstances justified deviation from the statutory formula.

The Commission agreed.  It determined that the confluence of the following three circumstances justified a finding of exigent circumstances: (i) the size of Minnesota Power's request, (ii) the state of the economy, and (iii) the fact that the 2009 rate case was filed on the heels of the 2008 rate case.  As a result, the Commission set interim rates at approximately 60% of Minnesota Power's overall request - $25 million less than Minnesota Power's interim rate request.  Minnesota Power appealed the Commission's decision to the Minnesota Supreme Court, which affirmed the Commission's decision in an opinion issued on September 18.

In large part, the Minnesota Supreme Court deferred to the Commission's interpretation of Minnesota's interim rate statute, finding of exigent circumstances, and revised calculation for setting interim rates.  Of particular note is the part of the court's opinion distinguishing Bluefield Water Works & Improvement Co. v. Public Service Commission of West Virginia, 262 U.S. 679 (1923).  Minnesota Power cited Bluefield for the proposition that the constitutional due process requirement that rates be sufficient to recover cost of service must inform the Commission's decision in finding exigent circumstances.  The court disagreed.  It found that Bluefield and other similar State decisions "do not address the issue of the recovery of cost of service by interim rates set temporarily as part of a larger administrative process designed to determine final rate levels."  The court affirmed the Commission's decision.

Xcel Recommends "No Action" on Two of Minnesota's Largest Coal-Fired Units

Last November, the Minnesota Public Utilities Commission approved Xcel Energy’s 2011-2025 Integrated Resource Plan and established various compliance filing requirements and deadlines. Pursuant to that November 2012 Order, the Commission directed Xcel to conduct a Life Cycle Management Study (“LCM Study”) examining the feasibility and cost-effectiveness of continuing to operate, retrofitting, or retiring Sherburne County (Sherco) Generating Station Units 1 and 2, two coal-fired units each having a production capability of 750 MW. The Commission’s November 2012 Order also outlined a number of study components, including the parameters for a base case and various modeling sensitivities, and ordered Xcel to file the results with the Commission on July 1.

At the conclusion of that study, Xcel proposes a wait and see approach. Low natural gas prices, higher CO2 prices, higher coal prices, or higher costs at Sherco favor retirement of Units 1 and 2.  Conversely, higher natural gas prices, lower or later implementation of CO2 costs, or higher construction costs for replacement generation favor retrofitting the units with selective catalytic reduction (“SCR”) instead.  In light of these uncertainties, Xcel believes that the most prudent course of action is to continue operating Sherco 1 and 2 until more is known regarding environmental regulation, particularly as it pertains to CO2.  Xcel believes keeping the status quo leaves both continuing operation and Sherco-replacement options open until there is greater clarity on environmental regulations, timing, and cost.  To provide guidance to subsequent resource plan proceedings, Xcel suggests the Commission order a re-evaluation of how to proceed with Sherco 1 and 2 if (1) air quality regulations establish a need for SCRs or (2) carbon regulation becomes clear.

The Commission has not established a timeframe for interested parties to comment. But given the number of parties participating in the stakeholder process, including the North Dakota and South Dakota Public Service Commissions, City of Becker, environmental groups, and business representatives, there will likely be at least one (if not many) alternative suggestions. As a prophylactic measure, Xcel emphasized no decisions should be made in response to the LCM Study. Instead, Xcel asserts “It is in the context of the next Resource Plan, and not this study, that the size, type, and timing of future resources will be decided.” If the Commission follows its precedent from a similar docket involving another Minnesota utility, Minnesota Power, it will wait to act until Xcel’s next resource plan, which is due February 1, 2014. Replacing 1,500 MW of coal-fired generation would require extensive analysis and, if ordered by the Commission, significantly alter Xcel’s generation portfolio. Stay tuned. 

FERC Comments on Electric Storage Technologies Due August 9

Just a friendly reminder that the deadline to submit comments to the Federal Energy Regulatory Commission (“FERC”) on electric storage technologies is just around the corner. In its Request for Comments Regarding Rates, Accounting and Financial Reporting for New Electric Storage Technologies, FERC’s Office of Energy Policy and Innovation seeks comments on the following issues: 

  1. The use of and rate treatment for storage facilities, including when it is appropriate to classify a storage facility as a transmission asset.
  1. The mechanisms by which a storage project that is used for multiple purposes may be compensated. Specifically, FERC seeks comment on whether a storage project may be compensated as transmission (e.g. for supporting unbundled transmission service by supplying reactive power) and also be compensated for providing ancillary services or for enhancing the value of merchant generation (e.g. by shifting output from an off-peak period to an on-peak period).
  1. The possibility of creating a stand-alone contract storage service and whether the storage provider would provide the service of electricity storage, enabling its customers to determine how to use their contracted share of the storage.
  1. Whether new accounting and reporting requirements should be created in order to facilitate cost of service or other rate policies for new storage technologies, such as chemical batteries and flywheels.

In addition to the issues outlined above and other specific questions posed by FERC in its Request for Comments, FERC invites comments on other related aspects of the storage issues not specifically addressed by FERC in the above-referenced document.  Comments are due on Monday, August 9, 2010 and should reference Docket No. AD10-13-000.