The Federal Energy Regulatory Commission (FERC)
today granted Xcel Energy Services, Inc.'s request
for incentive transmission rates as part of its
plan for six transmission upgrades to meet state
renewable energy generation standards and serve
increased power demand in the Upper Midwest.
Xcel, on behalf of Northern States Power Company
of Minnesota and Northern States Power Company of
Wisconsin (together, NSP Companies), filed proposed
modifications to the NSP companies' transmission
rate formula under the Midwest Independent Transmission
System Operator, Inc's (Midwest ISO) open access
transmission and energy markets tariff. The proposed
modifications permit two types of incentive rate
treatments for the upgrades: recovery of return
on 100 percent of prudently incurred construction
work in progress (CWIP) and recovery of prudently
incurred costs of transmission facilities that are
canceled or abandoned for reasons beyond the NSP
The transmission upgrades will help serve renewable
energy resources, particularly wind energy. Xcel
is looking to build transmission to accommodate
between 300 and 700 megawatts of windpower.
"There is a growing interest in, and the capability
of developing, renewable resources in the Midwest,"
FERC Chairman Joseph T. Kelliher said. "We carefully
evaluate requests for incentives, and Xcel has met
the standard. Xcel's proposal not only will help
improve reliability and strengthen the nation's
grid system, but provide the necessary links to
the expanding renewable market in the region."
The NSP companies are two of Xcel's operating utilities
and serve customers in Minnesota, North Dakota,
South Dakota, western Wisconsin and part of Michigan's
Upper Peninsula. The companies are transmission-owning
members of the Midwest ISO. Along with other utilities
in the region subject to the Midwest ISO's oversight,
the companies have been developing plans to upgrade
the regional transmission infrastructure and plan
to invest approximately $1 billion in six expansion
projects to serve their five-state service territory.
The Energy Policy Act of 2005 directed FERC to
develop incentive-based rate treatments for transmission
of electric energy in interstate commerce. In Order
No. 679, as modified by Order No. 679-A, the Commission
set out the process under which utilities could
seek transmission rate incentives. Under Order No.
679, the proposed incentive rate must also be shown
to have a "nexus between the incentive sought and
investment being made." Order No. 679-A clarified
the nexus test is met when an applicant demonstrates
that the total package of incentives requested is
"tailored to address the demonstrable risks or challenges
faced by the applicant." This nexus test is fact-specific
and requires the Commission to review each application
on a case-by-case basis.
FERC found that the NSP Companies have shown a
nexus between the proposed CWIP incentive and their
investments in the expansion projects as well as
between the proposed abandoned plant recovery and
their planned investment. Consistent with Order
Nos. 679 and 679-A, authorizing the CWIP treatment
and abandoned plant recovery for the projects would
enhance cash flow, reduce interest expense, assist
with financing and improve credit quality.
FERC conditionally accepted the companies' proposal
to modify their transmission rate formula to use
projected test year cost inputs, with a true-up
mechanism to reflect actual costs.
"Our analysis indicates that the NSP Companies'
proposal to switch to forward-looking estimated
transmission costs with a true-up mechanism is just
and reasonable," FERC said. To provide customers
with sufficient time to review revenue requirement
information, FERC directed the companies to provide
estimated information to customers by Sept. 1 each
year, instead of their proposed Oct. 1 date.
The proposed rate incentives and formula rate modifications
are effective Jan. 1, 2008.