Northern States Power d/b/a Xcel Energy (NYSE:XEL) told the Minnesota Public Utilities Commission in a March 29 update that it won’t have to terminate its power purchase agreement for a 345-MW expansion of Calpine‘s (NYSE:CPN) Mankato power plant due to the recent rejection of that PPA by the North Dakota Public Service Commission.
In February 2015, the company filed an application with the North Dakota PSC seeking an advance determination of prudence (ADP) for the Calpine PPA, which had been previously approved by the Minnesota commission in competitive resource acquisition dockets. On March 23, 2016, the North Dakota PSC dismissed without prejudice the company’s ADP request. The PPA covers an expansion of the Mankato gas-fired plant in Minnesota.
The amended Calpine PPA included a condition that would allow Xcel to terminate the PPA by April 1, 2016, if the company did not receive all necessary regulatory approvals. This date was included to accommodate the length of the North Dakota ADP process. The terms of the PPA also required that in the event the company did not receive state regulatory approval as defined by the contract, the company must file a request with the Minnesota commission to recover the North Dakota portion of the costs from Minnesota customers prior to exercising the termination rights.
Said the company in the March 29 report: “During the ADP proceeding, PSC Staff raised concerns regarding the timing of the PPA and the identified need on the Company’s system. As a result, the Company proposed an alternative to denial of the ADP – dismissal without prejudice. We did so because this would defer a final decision on the project until the next North Dakota rate case. Responding to our proposed alternative, Calpine requested that if the Commission adopted this alternative decision, we waive our right to terminate the contract. We agreed to this request.
“The PSC decision has two impacts. First, the termination provision in the PPA is no longer effective. Second, because there is no final determination on cost recovery in North Dakota at this time, we confirm that we will not be making a cost recovery filing in Minnesota in connection with the North Dakota ADP proceeding. The Calpine PPA remains an integral part of our current Resource Plan. The North Dakota decision presents some commercial risk for the Company and we are currently working to address those issues. We will keep the Commission informed of any further developments.”
The North Dakota PSC’s March 23 decision said that the proposed Calpine PPA is comprised of up to 345 MW of capacity and associated energy from the construction of a new combined cycle natural gas unit to be added to Calpine’s existing 375 MW Mankato Energy Center located in Mankato, Minn. NSP’s application stated that the Calpine PPA will help meet a potential need of 150 MW-500 MW on its system in the 2017-2019 time period that was identified in its 2010 Resource Plan. NSP testified that newer projections show the timeframe of potential need is now not expected until at least 2023 or 2024. NSP testified that the Calpine PPA remains prudent because of advantageous pricing and enhanced optionality.
Based on review of NSP’s application and assumptions, inputs, and analysis, North Dakota commission Advocacy Staff testified that the Calpine PPA is not prudent. Advocacy Staff testified that the Calpine PPA is not prudent because it is not designed to meet an identified need in the near future. Advocacy Staff testified it is not prudent to invest in this resource when the anticipated need is not until 2023 or 2024. Advocacy Staff compared NSP’s most recent load and generating capacity forecasts, and testified that NSP expects to have sufficient generating capability to meet its reserve margin obligations through 2023 without the proposed Calpine PPA. This conclusion is supported by NSP’s testimony.
NSP did agree the timing of the Calpine PPA is not ideal and there is not an expected need for the project until 2023 or 2024. NSP’s identified potential need in 2023 originates with its October 2015 Resource Plan Update. In the Supplemental Rebuttal Testimony of Kurtis Haeger, he describes “significant changes” to NSP’s long-term resource planning activities intended to achieve a 60% reduction in carbon emissions by 2030. NSP proposes to cease coal operations at Sherco Unit 2 in 2023 and Sherco Unit 1 in 2026, construct a gas combined cycle facility at Sherco by 2026, construct a gas combustion turbine in eastern North Dakota in the 2023 to 2025 timeframe, and accelerate the addition of renewable energy to the 2018 to 2020 timeframe. The 2015 Resource Plan Update is not final and remains subject to change.
The North Dakota PSC wrote: “NSP’s generation resource needs from 2023 and beyond are largely driven by its plan to accelerate retirement of the 1,500 MW Sherco coal units. NSP has not shown prudence of early Sherco retirements. After considering all of the testimony and other evidence, the Commission finds NSP has not established the Calpine PPA is prudent. There is little or no dispute that there is not a need for this project until at least 2023 and the potential need at that time is largely based on NSP ceasing coal operations at Sherco. Approval of this project now would require customers to pay for unneeded capacity for a significant portion of the 20-year contract term. However, load forecasts and other assumptions underlying NSP’s integrated resource plan are continually subject to change. The conclusions about prudence on which NSP relies to support this application may or may not occur. It is premature for the Commission to base an advance determination of prudence on such evidence.”