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Xcel Energy open to dropping ND separation proposal

Xcel Energy Inc. is willing to take the idea of separating its North Dakota operations from other parts of its system off the table, according to a recent filing with the North Dakota Public Service Commission.

The company on May 8 told the commission it wants to use ongoing proceedings to resolve issues around resource selection and cost allocation.

The company, known legally as Northern States Power Co. - Minnesota, said it was considering gradually separating some parts of its integrated operations in Minnesota and North Dakota to better meet energy resource needs in both jurisdictions. Xcel Energy later outlined a strategy to legally separate its North Dakota operations and create a new operating company to serve North Dakota electricity customers.

In March, the commission issued a notice of intent to close proceedings in which the idea came up, hoping to get a better sense of where Xcel Energy stood on the matter.

In its response to regulators, Xcel Energy said it wants to work with commission staff to develop a proposal on a resource treatment framework and ideally present the plan to the commission in November. The company said a successful outcome does not does not have to result in separation.

"[W]e recognize that our legal separation proposal has been a point of contention and that the commission and staff prefer that the company remove this structural option from consideration," Xcel Energy said. "Should the commission keep these proceedings open, the company will do so."

Xcel Energy serves about 93,000 electric customers in North Dakota through an integrated "NSP System" comprising the transmission and generation assets of NSP-Minnesota and Northern States Power Co. - Wisconsin. The NSP System serves a combined 1.6 million electric customers in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin.

The separation issue is tied to tension from different legal, regulatory and policy priorities between Minnesota and North Dakota.

For instance, in Minnesota, Xcel Energy is required by state law to get 31.5% of its electricity supply from renewable energy resources by 2020. North Dakota set a legislatively approved "objective" of utilities getting 10% of retail electricity sales from renewable resources by 2015.

Xcel Energy offer

The company said by 2025, more than 1,000 MW of generation resources will be expired or retired. By 2040, almost all of its nuclear and coal baseload fleet, comprising 3,138 MW of nameplate capacity, will reach the end of its useful life, Xcel Energy said. All told, the company expects more than 5,400 MW of resources that need to be replaced in the next 20 years.

According to S&P Global Market Intelligence data, the only generating resources Xcel Energy owns in North Dakota are two wind facilities totaling 333 MW.

"Before the company enters this period of change, it is necessary to establish a viable process that specifically outlines how the company can provide the benefits of large economies of scale to our North Dakota customers by allocating the costs and benefits of large NSP System resource additions that have the support of the commission without the concern of being penalized for making resource additions that are supported in other NSP System states but not North Dakota," Xcel Energy said.

Xcel Energy said a resource treatment framework should achieve three primary objectives that do not subject North Dakota operations to a scenario that involves separating from the integrated NSP System.

These objectives include the creation of a North Dakota-specific resource planning process, creation and use of ratemaking tools that give the company the ability to allocate generation resource additions to specific states, and resolution of disputed resources.

Meanwhile, commission staff said if the cases remains open, regulators ought to take a number of steps. This includes setting a clear direction and considering whether a new framework would improve commission regulation, staff said in its response. (North Dakota PSC Case Nos. PU-12-813, et al)