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Clean-energy nonprofits supported Xcel Energy’s bid to buy a gas plant. Here’s why Minnesota regulators denied them

The five-member PUC unanimously turned down Xcel’s request to buy the plant, saying it was a risk for customers and could lead to higher energy bills with minimal benefits.

Southern Power
Xcel Energy asked state regulators on Friday if the company could buy a natural gas plant in Mankato for $650 million.
Southern Company

As the country weans itself off fossil fuels to stem climate change, the role of natural gas has been highly divisive. Should it be used as a cleaner alternative for coal until carbon-free energy can reliably power the grid? Or is it irresponsible to commit to fossil fuels when scientists say fast action is needed to avoid the worst effects of global warming?

The issue has even become a wedge in the presidential race. “I see natural gas as a transitional fuel,” Sen. Amy Klobuchar said in a recent CNN town hall. “But it’s not nearly as good as wind and solar.”

In Minnesota, the debate is not a question for the future. Xcel Energy asked state regulators on Friday if the company could buy a natural gas plant in Mankato for $650 million, and pitched it as a way to help speed up the demise of coal and bring a shower of environmental benefits to the state. The utility even convinced several influential clean-energy nonprofits to support the idea.

“The Company’s acquisition of the Mankato Energy Center benefits customers, furthers the State’s environmental policy goals, and secures union jobs,” said Allen D. Krug, associate vice president of state regulatory policy for Xcel Energy, in an Aug. 1 letter to the Public Utilities Commission (PUC). 

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Yet after a hearing on Friday, the five-member PUC unanimously turned down Xcel’s request to buy the plant, saying it was a risk for Xcel customers that could lead to higher energy bills with minimal benefits. The state Department of Commerce, the state Attorney General’s office, the city of Minneapolis, consumer protection advocates and large industrial customers of Xcel banded together in opposition.

Xcel promised to buy the plant anyway through an affiliate company that would be subject to less PUC oversight. But Katie Sieben, a Democrat who chairs the PUC, said Xcel had not met a state law that favors renewable energy. Sieben said owning the gas plant wasn’t needed to retire coal early, and could also be expensive. “The question of whether this was a costly or an efficient acquisition for ratepayers was certainly at the top of my mind as I examined the record,” she said.

A surprising alliance

Xcel Energy currently buys power from the Mankato Energy Center, a natural-gas fired combined cycle power plant owned by Southern Power Company. But when Southern Power announced in 2018 it was selling the plant, Xcel stepped in with an offer.

Xcel argued that buying the Mankato plant now would save the company and ratepayers money, especially if natural gas becomes even more popular amid the shift away from coal. The utility promised efficiencies from self-ownership and other cost savings. Xcel also won over a host of environmental groups to support its plan by agreeing to ramp up energy efficiency projects, boost renewable energy production and retire two coal plants earlier than expected.

After a hearing on Friday, the five-member PUC unanimously turned down Xcel’s request to buy the plant.
MinnPost photo by Walker Orenstein
After a hearing on Friday, the five-member PUC unanimously turned down Xcel’s request to buy the plant.
The Center for Energy and the Environment, Fresh Energy, the Clean Grid Alliance, the Minnesota Center for Environmental Advocacy and the Union of Concerned Scientists supported the plan. So did the Laborers’ International Union of North America’s North Dakota and Minnesota chapter. After first rejecting it, the Sierra Club stayed neutral on the proposal.

At the hearing, MCEA attorney Kevin Lee argued that purchasing the Mankato plant would make retiring coal early a money-saver instead of a net cost for power customers, and would allow the state to control how the existing gas plant will be operated and retired. “In the absence of this control, the operations of a large gas plant would be dictated solely by wholesale market forces,” Lee said.

Allen Gleckner, director of energy markets and regulatory affairs for the nonprofit Fresh Energy,  told the commissioners that Xcel would be less likely to build a new gas plant planned for Becker if the utility owned the Mankato facility. Or Xcel may build a smaller plant. Lee said existing fossil fuel infrastructure is always better for the environment than new projects.

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LIUNA argued that it’s easier to unionize an Xcel workplace and organized labor is more common in facilities owned by the company. Kevin Pranis, the union’s marketing manager, told the PUC labor expectations are more uncertain under an Xcel affiliate, which could also sell the plant down the line to a less labor-friendly operator. 

Opposition builds

Despite the unique coalition favoring the purchase, the state Commerce Department accused Xcel of using faulty modeling to predict savings for its power customers that inflated the value of the Mankato plant. The Commerce Department also said that Xcel did not test renewable energy as a replacement option for the gas plant, as required by law.

The agency said Xcel’s own modeling, if flawed, showed the Mankato plant wasn’t needed to retire coal plants early, and would only be cost-effective if the facility is operated beyond 2050 — when Xcel has pledged to operate without carbon emissions. In fact, the Commerce Department claimed in a July 26 filing with the PUC that Xcel would emit 1.4 million tons more carbon with the plant than without it.

The Commerce Department said owning a plant carries risks that buying power from another company does not, like paying for decommissioning, plant outages and equipment failures, increasing property taxes or operation and maintenance expenses. Those costs could have been passed on to energy bills.

At the hearing, opponents of the plan argued the purchase should have been considered during a long-range planning process known as the Integrated Resource Plan. The AG’s office slammed Xcel in PUC filings for negotiating an “opaque backroom deal” with Southern Power without “competition, transparency or meaningful need or alternatives analysis.”

The AG’s office also warned the plant could become a “stranded” asset, which means ratepayers could be saddled with the high cost of an unused gas plant in a world with carbon-free energy. 

Stacy Miller, who was at the hearing on behalf of the city of Minneapolis, told the commissioners that “every megawatt of capacity” that Xcel is committed to diminishes a drive for renewable energy. “The city wishes to call attention to the fact that natural gas is not clean energy,” Miller said. “It’s a fossil fuel. We mustn’t ignore the massive emissions of methane that are associated at every step stage of the natural gas life cycle.”

A unanimous ‘no’

Xcel proposed several conditions on the purchase at the hearing Friday aimed at reducing potential costs for energy customers, and argued it could retire the Mankato plant before 2050 and still bring savings for its customers. 

But the company ultimately could not sway the PUC. The commission has three Democrats, one Republican and one unaffiliated member. All voted no. Valerie Means, a Democrat, said the plan “poses too many possible risks to customers.”

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In a statement after the hearing, Xcel said it would buy the Mankato plant through an affiliate company outside of PUC rule because “we believe that the plant is valuable and an important part of the Upper Midwest system.”

That would leave Xcel’s shareholders on the hook for the transaction; the utility could not recover costs from ratepayers. But the PUC would also have less oversight of the plant and its operation. 

“We sought to acquire this plant because we recognize that it will deliver economic and environmental benefits for our customers, and it supports our drive to achieve an 80 percent reduction in carbon emissions by 2030,” Xcel said.