Xcel Energy's Plan to Buy a Gas Plant Runs Into Headwinds
- Aug 16, 2019 1:00 pm GMT
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Two Minnesota state agencies that represent the public’s interest before the utility commission have raised objections to Xcel Energy’s proposed $650 million purchase of a gas-fired power plant.
Minneapolis-based Xcel in November 2018 announced plans to buy the power plant from Atlanta-based Southern Power. Xcel currently buys electricity from the plant on a long-term contract. The company said that owning the facility would result in cost savings for ratepayers and enhance reliability.
Published reports now say that the Minnesota Department of Commerce believes that Xcel’s proposed ownership “is unlikely to create substantial savings.” The agency says that the utility “has not shown need or any net benefits to ratepayers for Xcel’s proposed purchase.”
The department also faulted the utility’s economic modeling of the deal’s impacts, saying it was flawed. At the commerce department’s request, Xcel did four rounds of modeling. All were “invalid” and “inappropriately inflate the value” of the Mankato plant, the department reportedly said.
The Minnesota Attorney General’s Office also criticized the proposed deal, saying Xcel “structured the proposed acquisition in an opaque backroom deal and in the absence of any competition, transparency or meaningful need for alternative analysis.”
News reports said that Xcel rejected the conclusions of both agencies, saying that it has followed the “appropriate process” with its acquisition proposal.
The Mankato Energy Center includes two gas-fired generators, with a combined generating capacity of 760 megawatts. Calpine built the first generator at the Mankato site in 2006, and Xcel has been buying its electricity since.
Southern Power, which owns the Mankato Energy Center, brought a second generator into service last spring. Xcel has power purchase agreements through 2026 and 2039 for output from the two generators.
Under the Mankato proposal, Xcel would charge ratepayers $10.6 million in 2019 outside of a rate case. The commerce department said utilities are generally not entitled to recover costs outside of rate cases except under “extraordinary circumstances.” Xcel argues this is one of those situations.
The commerce department and Xcel also disagree over whether the utility can charge ratepayers for a $96 million “acquisition adjustment” which reflects the difference between the plant’s book value and its market value. If Xcel can’t charge the $96 million, the company says the deal is not financially viable.
Xcel maintains that even after recovering the deal’s costs, ratepayers would still save $124 million over 30 years. If state regulators rejects the deal, Xcel has said it is prepared to buy the plant through an unregulated subsidiary.