We have watched a number of truly fascinating twists in the saga of the fracked gas plant, Mankato Energy Center (MEC)...
Xcel, 2018: It is absolutely essential we buy the Mankato gas plant for the good of the ratepayers, the workers, and the climate, and we need to do it right away outside usual energy resource planning. Will you approve us buying it with ratepayer money?
The Public Utilities Commission, Fall 2019 (in a 5-0 vote): No.
Xcel, Fall 2019: Fine, we will buy it anyway for $650 million with shareholder money.
Xcel, 3 months later: ...Gas plant for sale - only $680 million!
In a press release on April 6th, the company stated that Xcel “plans to use the net gain on the sale to fund its corporate giving efforts, including support related to COVID-19 recovery” throughout the 8-state Xcel Energy service area. So far the company has committed $20 of the $30 million, including in-kind protective masks.
During much of 2019, Xcel Energy had been requesting the Minnesota Public Utilities Commission to allow them to buy the MEC in a specific way that would allow it to be in Xcel's rate base. When a utility company is able to rate-base an asset, that means utility customers rather than shareholders will be on the hook to bear the risks and pay the stranded costs if anything goes wrong. Utility companies in general expand their profits is by getting big infrastructure projects into their rate base. That is why it is standard behavior for utilities to claim to the Public Utilities Commission that there is a need for large assets.
On September 27th, 2019 the MN Public Utilities Commission (PUC) rejected Xcel’s request in a 5-0 vote.
The PUC found that the MEC would have needed to operate at least until the 2030’s in order for customers to see savings from the deal (Source: Utility Dive)
If the PUC had instead allowed Xcel to rate-base the power plant, then Xcel’s customers would have been responsible to pay the stranded costs if and when Xcel retired the MEC before us Xcel customers could pay it off via our monthly utility bills. In general, large fracked gas plants are expected to become stranded assets and outcompeted when the price of storage for renewable power drops far enough. Operating the gas plant into the 2030’s risks of not being able to meet Xcel's own critical carbon reduction goals. Interestingly enough, Xcel had previously named acquiring MEC as a "critical" step toward the utility's 2050 carbon-free goals.
How did Xcel energy respond to the PUC rejecting its preferred plan to buy MEC with ratepayer money?
Instead of abandoning plans to purchase the MEC altogether, Xcel’s next move was to form an unregulated subsidiary that would acquire the facility. That way the unregulated subsidiary would assume the risk if anything went wrong with the deal. However, it turned out that Xcel did not have any inordiante incentive to buy power from the MEC because unregulated assets do not provide as many returns for shareholders. So, Xcel was motivated to sell it quickly.