STATE OF MINNESOTA October 4, 014 The Honorable Ann C. O Reilly Minnesota Office of Administrative Hearings 600 North Robert Street P.O. Box 6460 55164-060 RE: In the Matter of the Request of Minnesota Power for a Certificate of Need for the Great Northern Transmission Line Project MPUC Docket No. E015/CN-1-1163 OAH Docket No. 65-500-31196 Dear Judge O Reilly: On behalf of the Minnesota Department of Commerce, Division of Energy Resources, enclosed for filing in the above docket, please find the Rebuttal Testimony of Dr. Stephen Rakow. Sincerely, /S/ Julia E. Anderson Assistant Attorney General 445 Minnesota Street, Suite 1800 55101-134 (651) 757-10 Julia.anderson@ag.state.mn.us COUNSEL FOR THE MINNESOTA DEPARTMENT OF COMMERCE DIVISION OF ENERGY RESOURCES
CERTIFICATE OF SERVICE I, Linda Chavez, hereby certify that I have this day served copies of the following document on the attached list of persons by electronic filing, e-mail, or by depositing a true and correct copy thereof properly enveloped with postage paid in the United States Mail at Minnesota. MINNESOTA DEPARTMENT OF COMMERCE REBUTTAL TESTIMONY OF DR. STEPHEN RAKOW. Docket Nos. E015/CN-1-1163 Dated this 4th day of October, 014. /s/linda Chavez
First Name Last Name Email Company Name Address Delivery Method View Trade Secret Service List Name David Aafedt daafedt@winthrop.com Winthrop & Weinstine, P.A. Suite 3500, 5 South Sixth Street 5540469 Julia Anderson Julia.Anderson@ag.state.m n.us Office of the Attorney General-DOC 1800 BRM Tower 445 Minnesota St 55101134 Christina Brusven cbrusven@fredlaw.com Fredrikson Byron 00 S 6th St Ste 4000 James Denniston james.r.denniston@xcelen ergy.com Xcel Energy Services, Inc. 5540145 414 Nicollet Mall, Fifth Floor 55401 Sharon Ferguson sharon.ferguson@state.mn.us Department of Commerce 85 7th Place E Ste 500 Saint Paul, 55101198 Burl W. Haar burl.haar@state.mn.us Public Utilities Commission Suite 350 11 7th Place East 55101147 Linda Jensen linda.s.jensen@ag.state.m n.us Office of the Attorney General-DOC 1800 BRM Tower 445 Minnesota Street Michael Kaluzniak mike.kaluzniak@state.mn.u s Peter Madsen peter.madsen@ag.state.m n.us 55101134 Public Utilities Commission Suite 350 11 Seventh Place East 55101 Office of the Attorney General-DOC Bremer Tower, Suite 1800 445 Minnesota Street Minnesota 55101 Chad T Marriott ctmarriott@stoel.com Stoel Rives LLP 900 SW 5th Ave Ste 600 Portland, OR 9704
First Name Last Name Email Company Name Address Delivery Method View Trade Secret Service List Name David Moeller dmoeller@allete.com Minnesota Power 30 W Superior St Duluth, 5580093 Andrew Moratzka apmoratzka@stoel.com Stoel Rives LLP 33 South Sixth Street Suite 400 5540 Ann O'Reilly ann.oreilly@state.mn.us Office of Administrative Hearings Carol A. Overland overland@legalectric.org Legalectric - Overland Law Office Janet Shaddix Elling jshaddix@janetshaddix.co m PO Box 6460 55101 1110 West Avenue Red Wing, 55066 Jennifer Smestad jsmestad@otpco.com Otter Tail Power Company 15 South Cascade Street Tracy Smetana tracy.smetana@state.mn.u s Shaddix And Associates Ste 1 9100 W Bloomington Frwy Bloomington, 55431 Public Utilities Commission Fergus Falls, 565380496 11 7th Place East Suite 350 55101 Mollie Smith msmith@fredlaw.com Fredrikson Byron PA Suite 4000 00 South Sixth Street 5540145 Eric Swanson eswanson@winthrop.com Winthrop Weinstine 5 S 6th St Ste 3500 Capella Tower 5540469 Joseph Windler jwindler@winthrop.com Winthrop & Weinstine 5 South Sixth Street, Suite 3500 5540
BEFORE THE MINNESOTA OFFICE OF ADMINISTRATIVE HEARINGS 600 North Robert Street St. Paul 55101 FOR THE MINNESOTA PUBLIC UTILITIES COMMISSION 11 7 th Place East, Suite 350 St Paul 55101-147 IN THE MATTER OF THE REQUEST OF MINNESOTA POWER FOR A CERTIFICATE OF NEED FOR THE GREAT NORTHERN TRANSMISSION LINE PROJECT Docket No. E015/CN-1-1163 OAH Docket No. 65-500-31196 REBUTTAL TESTIMONY OF DR. STEVE RAKOW ON BEHALF OF THE MINNESOTA DEPARTMENT OF COMMERCE, DIVISION OF ENERGY RESOURCES OCTOBER 4, 014
REBUTTAL TESTIMONY OF DR. STEVE RAKOW IN THE MATTER OF THE REQUEST OF MINNESOTA POWER FOR A CERTIFICATE OF NEED FOR THE GREAT NORTHERN TRANSMISSION LINE PROJECT MPUC Docket No. E015/CN-1-1163 OAH Docket No. 65-500-31196 TABLE OF CONTENTS Section Page I. INTRODUCTION AND PURPOSE... 1 II. REBUTTAL TO LARGE POWER INTERVENORS.... 1 A. Approval of Agreements... 1 B. Cost Cap... C. Other Recommendations... 4 D. Summary of the Department s Recommendations... 4 III. CONCLUSION... 5
1 3 I. INTRODUCTION AND PURPOSE Q. Please state your name. A. My name is Dr. Steve Rakow. 4 5 6 7 8 Q. Are you the same Dr. Rakow who previously submitted direct testimony on behalf of the Minnesota Department of Commerce, Energy Regulation and Planning unit (Department) in this proceeding? A. Yes. 9 10 11 1 Q. What is the purpose of your rebuttal testimony? A. I respond to Large Power Intervenors (LPI) witness Mr. Lane Kollen regarding the conditions that Mr. Kollen recommends be placed upon the certificate of need. 13 14 15 16 17 Q. Does your assessment of rebuttal testimony by other parties change your position in this proceeding? A. Yes; as discussed below, I support one of Mr. Kollen s recommended conditions and a modified version of another of his recommendations. 18 19 II. REBUTTAL TO LARGE POWER INTERVENORS 0 1 3 4 A. APPROVAL OF AGREEMENTS Q. LPI witness Mr. Kollen s first recommendation, at page 3 of his direct testimony, was that the Commission condition approval of the CN upon Commission approval of MP s 133 MW Renewable Optimization Agreements (ROA) and the Facilities Construction Agreement (FCA). Do you agree? Rakow Rebuttal / 1
1 3 4 5 6 7 8 9 10 11 1 13 14 15 16 17 A. Yes. Regarding the FCA, MP s Mr. Donahue stated that Once the FCA is executed it will be forwarded to the Commission. MP Ex. at 9 (Donahue Direct). Thus, MP plans to submit the FCA to the Commission. The ROA actually consists of two separate agreements, the 133 MW Energy Sale Agreement (ESA) and the 014 Energy Exchange Agreement (EEA). The ESA lists as one of MP s conditions precedent, the final approval of this Agreement by the MPUC [Minnesota Public Utilities Commission] on conditions acceptable to MP. MP Ex. at Schedule PUBLIC, Page 71 of 188 (Rudeck Direct). The EEA lists as MP s condition precedent the parties executing on the Effective Date the 133 MW Energy Sale Agreement and all conditions precedent to that agreement being satisfied. MP Ex. at Schedule PUBLIC, Page 161 of 188 (Rudeck Direct). Thus, MP must submit the ESA for Commission approval and the EEA depends upon ESA approval. Given that MP plans to submit both the FCA and ESA and that these agreements potentially impact the cost allocated to ratepayers for MP s proposed 500 kv transmission line relative to the 30 kv alternative, I conclude that Mr. Kollen s first recommendation is reasonable and I support his recommendation. 18 19 0 1 3 4 B. COST CAP Q. LPI witness Mr. Kollen s second recommendation, at pages 3-4 of his direct testimony, was that the Commission establish a cost cap in this proceeding. Do you agree? A. I recommend a modified version of Mr. Kollen s recommendation. The Department has typically addressed concerns regarding cost caps in the rider or rate case Rakow Rebuttal /
1 3 4 5 6 7 8 9 10 11 1 13 14 15 16 17 18 19 0 1 3 4 5 6 7 8 9 30 proceeding in which cost recovery from retail ratepayers is first requested. Thus, there will be a subsequent cost recovery proceeding regarding MP s proposal and it may not be necessary to address cost caps at this time. However, the Department certainly does not oppose making clear to MP the terms of their future cost recovery, consistent with the Commission s approach regarding cost recovery of projects in other CNs: 1) MP would be limited to recover in riders only the amount of costs that MP proposes in this proceeding ) MP could request recovery of costs above the CN amount only in a rate case, but 3) MP would have the burden of proof to show that any such costs are prudent and why it would be reasonable to recover such costs from ratepayers. The Commission stated the purpose of this approach in a 010 proceeding (for example) regarding cost recovery of energy facilities owned by Northern States Power, d/b/a Xcel Energy (Xcel) in Docket No. E00/M-09-1083: The Commission will allow Xcel to recover, through its RES rider, only the costs up to the amounts of the initial estimates at the time the projects are approved as eligible projects. No amounts above what Xcel initially indicated the projects would cost will be allowed to flow through the RES rider. Nor will additional cost overruns be eligible for deferred accounting. However, Xcel will be allowed to seek recovery, on a prospective basis, of additional costs at the time of its next rate case, upon a showing that it is reasonable to require ratepayers to pay for any such additional costs. This approach allows Xcel to recover the majority of the costs for projects eligible for RES rider recovery promptly, while providing at least some incentive for Xcel to minimize costs and help protect ratepayers. Likewise, to give MP an incentive to minimize costs and to help protect ratepayers, putting MP on notice in this proceeding about future cost recovery would be reasonable. Rakow Rebuttal / 3
1 3 4 5 6 7 8 9 10 C. OTHER RECOMMENDATIONS Q. At pages 4-5 of his direct testimony LPI witness Mr. Kollen recommended that the Commission: require MP to accrue AFUDC (allowance for funds used during construction) rather than carrying charges during construction; authorize rate recovery for MP through a rider rather than base rates; and require MP to use revenues as the allocator for the costs in question. Do you agree? A. These issues are cost recovery details that do not need to be addressed at this time. Thus, I recommend that the Commission take no action regarding these issues. 11 1 13 14 15 16 17 18 19 0 1 3 4 D. SUMMARY OF THE DEPARTMENT S RECOMMENDATIONS Q. Please summarize your recommendations to date. A. Many of the recommendations in my direct testimony were for MP to provide information in their rebuttal testimony, since I intend to examine that information. Thus, at this time my recommendations are limited to the following. I recommend that the Commission: order MP to use the Commission s externality values in all certificate of need petitions and put MP on notice that failure to do so would result in such CN filings being found to be incomplete in the future; adopt Mr. Kollen s recommendation that the Commission condition approval of the CN upon Commission approval of MP s 133 MW Renewable Optimization Agreements (ROA) and the Facilities Construction Agreement (FCA); Rakow Rebuttal / 4
1 3 4 5 6 7 8 9 10 put MP on notice regarding future cost recovery that: 1) MP would be limited to recover in riders only the amount of costs that MP proposes in this proceeding, ) MP could request recovery of costs above the CN amount only in a rate case, and 3) MP would have the burden of proof to show that any such costs are prudent and why it would be reasonable to recover such costs from ratepayers; and take no action at this time on AFUDC, rider vs. base rate recovery or rate design. 11 1 III. CONCLUSION 13 14 Q. Does this conclude your Rebuttal Testimony? A. Yes. Rakow Rebuttal / 5