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ND agreement calls for approval, cost recovery of Otter Tail gas, wind projects

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ND agreement calls for approval, cost recovery of Otter Tail gas, wind projects

Otter Tail Power Co. and staff of the North Dakota Public Service Commission have reached an agreement that could pave the way for cost recovery for two generation projects.

To meet customer electric needs, replace expiring capacity purchase agreements and prepare for the 2021 retirement of the aging, 140-MW, coal-fired Hoot Lake plant, Otter Tail is planning the 250-MW Astoria Station Natural Gas Plant in South Dakota and the 150-MW Merricourt Wind Project in North Dakota.

Otter Tail has asked North Dakota regulators to approve an application for an advanced determination of prudence, or ADP, for the Astoria project. The company is also seeking approval of an ADP for its proposed purchase, development, ownership and operation of the Merricourt project. The Otter Tail Corp. subsidiary also wants a certificate of public convenience and necessity for the Merricourt project, expected to come online in 2019.

A settlement agreement between Otter Tail and PSC advocacy staff filed with regulators on Oct. 2 sets "reasonable and prudent" capital costs for the projects, but allows for Otter Tail to recover costs above those amounts in certain circumstances.

The settlement agreement also recommends that the PSC grant the company's requests for approval of ADPs for the projects as well as the request for a certificate for the Merricourt project.

The settlement agreement said Otter Tail has shown that the Astoria project is "reasonable and prudent" at a total capital expenditure cost of up to $181.5 million. The settlement agreement does not state capital expenditures for the Merricourt project but instead refers to a redacted amount in an earlier filing.

Allowance for funds used during construction will not be counted toward either project's authorized amount, the deal said.

"[Otter Tail] may request the commission include the actual capital costs of the Astoria and Merricourt projects (up to the Astoria authorized amount and Merricourt authorized amount, as applicable) in rates consistent with general ratemaking principles (i.e., as a capital addition to rate base including [allowance for funds used during construction] and other adders) through applicable riders, a general rate case, or any other authorized mechanisms, consistent with the terms of this settlement," the agreement said.

The settlement agreement outlines how Otter Tail can reflect in rates costs that exceed the authorized amounts for the projects.

According to the document, while Otter Tail has provided a reasonable estimate of interconnection costs in the project budgets, interconnection costs and timelines are "inherently uncertain." The settlement agreement allows Otter Tail to ask for recovery and include in rate base as a capital addition "the lesser of (a) the costs that exceed the authorized amount, and (b) the amount of interconnection costs that exceeds the project's interconnection cost estimate."

The settlement agreement also lets Otter Tail ask for recovery of additional expects aside from interconnection costs. The company can also ask the commission to modify the ADP orders to include additional project costs and ask the commission for approval and recovery of additional costs through applicable riders, a general rate case and any other authorized mechanisms, the settlement agreement said.

Otter Tail in November 2016 agreed to purchase the development assets of the Merricourt project from EDF Renewable Energy. EDF is developing and constructing the wind farm.

In its request to the PSC, Otter Tail said it is moving forward with the Merricourt project at this time to capture the "highly competitive pricing" made available by the federal production tax credit for wind facilities before it expires.

The settlement prevents Otter Tail customers from paying additional costs caused by the company's failure to get the full amount of production tax credits. However, Otter Tail can seek recovery of those costs if it cannot get the full value of the tax credits because of changes in law, delays in Midcontinent ISO's final interconnection authorization or other items outside of the company's "reasonable" control. (North Dakota PSC Case Nos. PU-17-140; PU-17-141; PU-17-143)