Minnesota Agrees to Cancellation of Biomass PPA

The Minnesota Public Utilities Commission has approved an electric utility’s proposal to terminate a power purchase agreement (PPA) that had been executed pursuant to a state law requiring the utility, Northern States Power Company d/b/a Xcel Energy, to construct and operate, or contract to construct, installed capacity generated by farm-grown closedloop biomass. The original PPA plan called for the purchase of a 55- megawatt biomass facility from its current owner, which had earlier announced its intention to offer the plant for sale and then close the facility. The contract was scheduled to go through 2028.

In concurring that it was reasonable to end the PPA, the commission noted that there would be significant cost savings for ratepayers if the PPA was terminated compared to the cost of continuing operations and recovering associated costs. The commission explained that the PPA reflected cost terms well above current market prices. Consequently, the commission found, even after accounting for such termination-related costs as closure and replacement power, cancellation of the contract is expected to achieve net present value savings of $345 million over the remaining life of the PPA.

Besides allowing Xcel to terminate the PPA, the commission also granted the company’s request for a waiver of automatic cost recovery rules, so as to permit recovery of associated costs through the utility’s existing fuel clause adjustment tariff. That move was opposed by several parties, including fuel suppliers and forest management authorities, who, while not disputing the projected savings to Xcel’s ratepayers, objected that the commission had not exercised its authority to consider other, broader economic impacts.

In rejecting calls to stop the transaction based on such concerns, the commission pointed out that part of the deal provides for a payment of $20 million to the municipality where the biomass plant is located, in an effort to support economic development activities. The commission observed further that even though early termination of the PPA would result in approximately 2.4 million fewer statemandated renewable energy credits for Xcel than anticipated, that amount still represents but a small fraction of the renewable energy credits the company will obtain from its recently approved wind portfolio. Re Xcel Energy, Docket Nos. E-002/M-17-530, E-002/M-17-551, Jan. 23, 2018 (Minn.P.U.C.).