Minnesota utility regulators reject Xcel's plan to buy Mankato gas plant

State utility regulators Friday unanimously rejected Xcel Energy's proposal to purchase a large natural gas power plant in Mankato for $650 million, saying the deal isn't in the interest of the company's ratepayers.

Xcel still plans to buy the plant, owned by Southern Power, through an unregulated subsidiary and run it as a so-called "merchant plant." The plant already provides Xcel with electricity through long-term power-purchase agreements.

The change in purchase plans, though, means that the risks — and benefits — of the deal will be borne by Xcel's shareholders, not its Minnesota customers. While the company would be selling power to itself, it still must abide by the terms of the existing power contracts, which already have state regulators' stamp of approval.

The Minnesota Public Utilities Commission (PUC) voted 5-0 against Xcel's purchase proposal.

"This is a great deal [for Xcel]," said PUC Commissioner John Tuma, noting that Xcel is getting a good price, "like buying a Cadillac for the price of an Impala." But he said it was not necessarily a good deal for ratepayers.

"I have no problem with you guys running this as a merchant plant," he said. "I just can't see that the public interest has been met."

Xcel now buys electricity from the Mankato Energy Center under two power-purchase agreements, one of which expires in 2026, the other in 2039. The Minneapolis-based company argued that buying the plant would entail significant savings for ratepayers and boost grid reliability as it closes its coal plants.

PUC members and opponents questioned the value of Xcel's buyout proposal, given its potential risks. Those include, they said, that ratepayers could be on the hook for the plant's eventual decommissioning costs if Xcel owns it, as well as for "stranded costs" in case the plant is closed early due to the continuing deployment of renewable energy.

"Overall, Xcel has not shown a benefit for ratepayers," said Nancy Campbell, a financial-analysis coordinator for the Commerce Department. The department has also ripped Xcel's economic modeling for the Mankato purchase, saying it was flawed and skewed toward favoring a purchase.

The company's modeling "provided no value due to unreasonable assumptions," Campbell told the PUC Friday.

Amanda Rome, Xcel's managing attorney, told commissioners: "We stand by our assumptions and we will be happy to explain our modeling." Xcel is by far the state's largest electric utility.

The Mankato Energy Center consists of two gas-fired generators, the second of which came online earlier this year. The first was built in 2006, and Xcel has been buying power from it since. Together, the two generators can produce at least 760 megawatts of electricity. The plant employs about 30.

Minnesota utilities must file a long-term resource plan every few years, an important document that lays out big-picture plans for future power generation. Xcel filed its plan in July, and it will likely take many months to be worked out.

"I don't see how [the Mankato purchase] is not a resource plan decision," said PUC Commissioner Matt Schuerger. "This isn't just a transfer of ownership, but an addition of capacity, and a significant amount of it."

Xcel said it could not wait for the resource plan because the Mankato plant is up for sale now.

In a statement after the PUC vote, Xcel said, "We plan to move forward with the purchase of the plant through an affiliate company as we believe that the plant is valuable and an important part of the Upper Midwest system."

Several environmental groups and many Mankato community groups supported Xcel's purchase, as did labor unions. Xcel is a highly unionized company.

Those goals include a complete exit by Xcel from coal-fired power by 2030, including shutting down two more large coal generators years ahead of schedule. Xcel has also pledged in its new resource plan to triple its solar generation.

Clean-energy groups said they support Xcel's Mankato purchase since it is an existing gas plant, not new construction. Gas plants emit half the greenhouse gases that coal plants do.

Also, the Mankato plant would help better offset Xcel's loss of its coal-fired power by 2030. "It takes early coal retirement and makes it a savings for ratepayers, not a cost," Kevin Lee, staff attorney for the Minnesota Center for Environmental Advocacy, told the PUC Friday.

A ratepayers' advocacy group argued against the purchase.