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On Tuesday and Friday this week, the MN PUC heard arguments from various stakeholders regarding the Xcel Energy life cycle management and extended power uprate (LCM/EPU) projects. The stage for the arguments was set by the contested case proceeding and decision by an Administrative Law Judge (coverage here).
At Tuesday’s oral argument, the MN PUC asked Xcel Energy a number of difficult questions and conveyed its frustration with Xcel Energy’s handling of the LCM/EPU projects. After a year’s worth of proceedings, extensive testimony, a day of oral arguments and continued questioning yesterday morning, the MN PUC determined that “the information provided by Xcel lacks the transparency necessary to quantify the prudence of final costs.” The MN PUC also chastised Xcel Energy for its lack of communication regarding the cost overruns. Indeed, the MN PUC found that Xcel Energy “should have kept the Commission informed and given it the opportunity to timely review the increased expenditures and the reason for them.”
In light of these failures, the MN PUC spent significant time yesterday trying to arrive at an appropriate remedy. A number of proposals were before the MN PUC, ranging from a minor disallowance to a disallowance of approximately 75% of the cost overruns and no return on the remaining 25%. First, however, the MN PUC had to calculate the initial estimate for the LCM/EPU projects in 2014 dollars because even that wasn’t clearly set out in the record. The MN PUC determined that the initial estimate was $415 million in 2014 dollars, including AFUDC. The final cost of the LCM/EPU projects was $748 million, including AFUDC, resulting in a $333 million cost overrun. After significant debate, the MN PUC voted to approve recovery of that $333 million while at the same time denying a return on that portion of the investment. The impact of this decision is a reduction to the 2015 revenue requirement for the Minnesota jurisdiction of approximately $27 million, which will step down over the remaining life of the asset.
Another issue that was before the MN PUC was whether the EPU portion of the project was used and useful in the 2014 test year of the pending Xcel Energy rate case (the MN PUC will hear oral argument and decide all of the remaining issues in the rate case later this month). Given Xcel Energy’s continued regulatory difficulties and inability to utilize the full (or even a significant portion) of the 71 MW uprate for any extended period of time, the MN PUC found that the EPU investment was not used and useful in providing service to Minnesota ratepayers in 2014. As part of this decision, the Commission resolved the debate on what portion of the costs for the LCM/EPU projects were LCM-related and what portion were EPU-related by using a 50-50 split. The impact of these decisions has not been quantified, but will appear in a subsequent Xcel Energy compliance filing.