Business Forum: When it comes to good energy planning, Xcel is in the way
By David Morris
Originally Published in the Minneapolis Star Tribune, October 13, 2002
Recent revelations about Xcel’s corporate conduct have galvanized a flurry of activism by state agencies.
The Attorney General’s office, the Public Utilities Commission (PUC) and the Department of Commerce promise a serious investigation. Such an inquiry is welcome.
But I urge the use of a much wider lens. For Xcel is not only Minnesota’s dominant supplier of electricity. The big utility also has dominated the Minnesota electricity planning process and, I would argue, skewed the outcomes.
Throughout the years, state agencies have been heavily outgunned by Xcel and its predecessor Northern States Power Co. When it comes to energy planning, Xcel controls the data, frames the debate and often draws the boundaries of possibilities.
In recent history, the Minnesota Legislature has intervened four times to make significant changes in Minnesota’s energy policy — and each time it was in response to external crises.
- In the 1970s, oil price hikes spurred the Legislature to make renewable energy, energy efficiency and energy-related economic development priorities.
- In 1991, the Gulf War inspired lawmakers to dramatically expand electric and gas utilities spending on energy efficiency.
- The 1994 battle over radioactive waste storage on Prairie Island led the Legislature to require Xcel to dramatically increase the use of renewable fueled electricity.
- In 2001, the California electricity crisis convinced the Minnesota lawmakers to enact legislation to encourage smaller on-site power plants.
But once the Legislature establishes policy, implementation is left to state agencies. And these agencies, in turn, have largely left implementation up to NSP/Xcel.
Too often, the utility’s attention has focused on matters more important to its corporate mission — such as keeping its nuclear plants running or seeking merger partners — which have required it to focus its attention elsewhere.
The result is that legislative priorities have been largely ignored.
In the early 1990s, for example, NSP focused on persuading the Legislature to approve an expansion of radioactive waste storage at Prairie Island.
Then NSP Chief Executive James Howard served as vice chair of the Nuclear Energy Institute, formed in 1994 to promote nuclear power.
In the late 1990s. NSP lobbied Congress and sued the Department of Energy to accelerate the construction of a permanent radioactive waste repository.
In the 1980s, NSP devoted considerable attention to becoming a player in the rapidly growing field of independent power generation. A subsidiary, NRG, was established and within a decade NRG owned more electricity-generating capacity than NSP.
In 2000, NRG had the largest initial public offering of stock in Minnesota history. But less than two years later, the energy markets had plummeted amid recession-induced lack of demand. This was compounded by Enron-style corporate scandals that affected the entire energy sector.
Shares of the once high-flying NRG crashed and Xcel, which had retained a majority stake in its subsidiary, bought back the outstanding NRG shares.
Now, one of Xcel’s highest corporate priorities is dealing with NRG’s possible bankruptcy.
Another 1990s-era preoccupation of NSP’s was to become bigger. A proposed merger with Wisconsin Energy Corp. was squelched by the Federal Energy Regulatory Commission (FERC). NSP ultimately merged with a Denver-based utility to become Xcel.
Minnesota state agencies supported both mergers even though the anticipated financial benefits were minuscule and almost two-thirds of the savings would come from workforce reductions.
Xcel’s unions warned that this could lead to reliability problems. Recent revelations suggest that the unions may have been right and company may have been altering data to hide that fact.
More recently, Xcel has had another corporate priority: How to make the best of a recent FERC decision creating a new regional transmission authority that will take control, and possibly ownership of Xcel’s transmission lines.
All these corporate distractions meant that state priorities were given short shrift.
For example, the Prairie Island law originally required Xcel to plan for the possible closure of its two nuclear reactors by 2002 by identifying alternative electricity suppliers.
Throughout the years, the PUC has admonished the utility for failing to comply. This year, Xcel finally did solicit new electricity supplies, although a cynic could argue it did so only because now it does need new power sources — regardless of whether it closes Prairie Island.
Lawmakers in 1994 demanded a rapid acceleration in the use of wind power, in part to promote rural economic development. Xcel rejected economic development as a criterion for selecting suppliers. Instead of encouraging a large number of smaller locally owned projects, it opted for the administratively simpler strategy of awarding a small number of big contracts to some of the world’s largest wind companies — including Enron.
NSP argued against a large wind-energy mandate, warning that Buffalo Ridge, the state’s windiest region, had insufficient transmission capacity. Yet it was not until January of this year that the company requested permission to expand capacity.
Again, a cynic might argue that it did so not because of a desire to expand wind energy, but because large coal-fired electric plants are coming on line in the Dakotas.
The end result? Since 1994, Minnesota has installed a little more than 350 megawatts of wind energy. Last year alone Texas, which came to the wind game much later, installed more than 900 megawatts.
This is a time of great upheaval in the electricity industry. Technologies and fuel sources are changing as are the federal rules of the game.
Minnesota must develop a new energy decision-making and implementation process that encourages the widest possible informed participation by all stakeholders.
In this new process, Xcel will continue to be a significant actor. But it should not also be the director, producer and screenwriter.