Dive Brief:

• Minnesota regulators on Friday unanimously rejected Xcel Minnesota's proposal to purchase a 720 MW natural gas plant, citing concerns the plant could close early and leave customers with hundreds of millions of dollars in stranded asset costs. 

• But the decision will not impact the utility's ability to operate the plant — Xcel now plans to buy the plant through an unregulated subsidiary, allowing it private ownership. Some clean energy groups in the state say the decision will loosen oversight on the plant's operations, including its emissions and lifespan, because the facility won't be measured under the utility's 100% carbon-free by 2050 goals. 

• Ratepayer advocates feared, however, that allowing the plant to be baked into the utility's rate base would leave customers on the hook for the purchase, particularly if the plant's capacity was deemed unnecessary earlier than anticipated.

Dive Insight:

As utilities transition to a less carbon intensive grid, many see natural gas investments as a logical transition from increasingly expensive coal-fired power. But some stakeholders are now worried that a coal-to-gas transition could leave utilities and investors with stranded assets as renewables and storage prices drop to record lows, likely undercutting natural gas in the next few decades.

"I think we have reason to be skeptical that it's going to make sense to operate this plant through its entire depreciation life," Executive Director of Minnesota's Citizens Utility Board (CUB) Annie Levenson Falk told Utility Dive.

Under the private-ownership model, shareholders, not ratepayers, will absorb the utility's investment if regulators decide to close the plant early. The state's Attorney General's Office, Department of Commerce and CUB supported this model, which they say protects customers from potential rate increases borne by the $650 million power plant purchase.

"We're in that situation right now with coal plants and we're pretty concerned about getting ourselves back in the same situation with gas plants in a decade or two," said Levenson Falk.

The Public Utilities Commission's (PUC) decision largely centered around the cost concern, finding that the purchase was not in the public interest, but regulators also noted their concern that the acquisition was proposed outside the utility's integrated resource plan (IRP) filing.

"It's an inappropriate bypass of the IRP process," said Commissioner Matt Schuerger in his ruling.

The Mankato Energy Center (MEC), which is owned by Southern Power, already provides power to Xcel customers, so the plant's future largely hinges on how long it will provide power and who will pay to keep it operating. Power purchase agreements (PPA) on the plant currently go until 2026 and 2039, after which time the PUC can decide whether that capacity is still needed.

Xcel is aiming to produce 100% of its power from carbon-free emissions by 2050, and clean energy advocates are concerned that without including this plant's capacity in its rates, the PUC won't have the power to monitor and regulate greenhouse gas emissions from MEC as the utility moves forward with its transition.

Once the PPAs expire, Xcel Minnesota "could sell to anyone," which would mean the emissions from that plant would no longer be accountable to Xcel's plan, Mike Bull, director of policy and external affairs at the Minnesota Center for Energy and Environment (CEE), told Utility Dive. However, while CEE and other clean energy groups "strongly supported" placing the plant under Xcel's rate case, they are "fine" with the utility purchasing the plant through an affiliate company.

"We, the collective public interest, need to make sure that [Xcel is] successful in this rapid transition to carbon free resources and [MEC] is important to their plans ... And so we want to be supportive of that," said Bull.

Xcel in May reached a settlement with several groups, including CEE, that led to endorsements of its clean energy plan, including the Mankato Energy Center investment, in exchange for coal plant retirements offset by solar and energy efficiency commitments. 

The utility said the plant is "valuable" and supports its 2030 goal to reduce emissions 80% below 2005 levels.

"The entire electric industry is looking at [Xcel] to see, 'Is this a path that we should replicate?'" said Bull. "And if Xcel is successful, then the answer might be yes. But if they're not, the answer might be no. And we'd rather see them be successful and show the way for the rest of the world."