Rate and Regulatory Matters | 6 Months Ended |
Jun. 30, 2014 |
Rate and Regulatory Matters [Abstract] | ' |
Rate and Regulatory Matters | ' |
3. Rate and Regulatory Matters |
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Below are descriptions of OTP’s major capital expenditure projects that have had, or will have, a significant impact on OTP’s revenue requirements, rates and alternative revenue recovery mechanisms, followed by summaries of specific electric rate or rider proceedings with the Minnesota Public Utilities Commission (MPUC), the North Dakota Public Service Commission (NDPSC), the South Dakota Public Utilities Commission (SDPUC) and the Federal Energy Regulatory Commission (FERC), impacting OTP’s revenues in 2014 and 2013. |
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Major Capital Expenditure Projects |
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Multi-Value Transmission Projects—On December 16, 2010, FERC approved the cost allocation for a new classification of projects in the MISO region called Multi-Value Projects (MVP). MVPs are designed to enable the region to comply with energy policy mandates and to address reliability and economic issues affecting multiple areas within the MISO region. The cost allocation is designed to ensure that the costs of transmission projects with regional benefits are properly assigned to those who benefit. On October 20, 2011 the FERC reaffirmed the MVP cost allocation on rehearing. On February 24, 2014 the U.S. Supreme Court denied petitions for a writ of certiorari of the United States Court of Appeals, Seventh Circuit decision upholding the FERC’s MVP orders. The petitioners did not seek rehearing. Effective January 1, 2012, the FERC authorized OTP to recover 100% of prudently incurred Construction Work in Progress (CWIP) and Abandoned Plant recovery on two projects approved by MISO as MVPs in MISO’s 2011 Transmission Expansion Plan: the Big Stone South – Brookings MVP and the Big Stone South – Ellendale MVP. Abandoned Plant recovery provides a basis for OTP to request recovery of prudently incurred costs in the event a project is cancelled for reasons beyond OTP’s control. The following projects have been approved by MISO as MVPs under the MISO Open Access Transmission, Energy and Operating Reserve Markets Tariff (Tariff). |
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The Big Stone South – Brookings Project—This is a planned 345 kiloVolt (kV) transmission line that will extend approximately 70 miles between a proposed substation near Big Stone City, South Dakota and the Brookings County Substation near Brookings, South Dakota. OTP and Xcel Energy jointly developed this project. MISO approved this project as an MVP under the MISO Tariff in December 2011. A Notice of Intent to Construct Facilities (NICF) was filed with the SDPUC on February 29, 2012. This line is expected to be in service in 2017. The SDPUC approved the certification for the northern portion of the route on April 9, 2013. The SDPUC granted OTP and Xcel Energy approval of a route permit for the southern portion of the Big Stone South - Brookings line on February 18, 2014. On August 1, 2014 OTP and Xcel Energy entered into agreements to construct the project. |
The Big Stone South – Ellendale Project—This is a proposed 345 kV transmission line that will extend 160 to 170 miles between a proposed substation near Big Stone City, South Dakota and a proposed substation near Ellendale, North Dakota. OTP is jointly developing this project with Montana-Dakota Utilities Co., a Division of MDU Resources Group, Inc. (MDU). MISO approved this project as an MVP under the MISO Tariff in December 2011. OTP and MDU jointly filed an NICF with the SDPUC in March of 2012. On August 25, 2013 the NDPSC granted Certificates of Public Convenience and Necessity to OTP and MDU for the ten miles of the proposed line to be built in North Dakota. On July 10, 2014 the NDPSC approved a Certificate of Corridor Compatibility and a route permit for the North Dakota section of the proposed line. A joint route permit application was filed on August 23, 2013 with the SDPUC. The SDPUC is expected to take formal action on the route permit application in August 2014. |
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Capacity Expansion 2020 (CapX2020) Transmission Line Projects—CapX2020 is a joint initiative of eleven investor-owned, cooperative, and municipal utilities in Minnesota and the surrounding region to upgrade and expand the electric transmission grid to ensure continued reliable and affordable service. The CapX2020 companies identified four major transmission projects for the region: (1) the Fargo–Monticello 345 kV Project (the Fargo Project), (2) the Brookings–Southeast Twin Cities 345 kV Project (the Brookings Project), (3) the Bemidji–Grand Rapids 230 kV Project (the Bemidji Project), and (4) the Twin Cities–LaCrosse 345 kV Project. OTP is an investor in the Fargo Project, the Brookings Project and the Bemidji Project. Recovery of OTP’s CapX2020 transmission investments is through the MISO Tariff (the Brookings Project as an MVP) and, currently, Minnesota, North Dakota and South Dakota Transmission Cost Recovery (TCR) Riders. |
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The Fargo Project—All major permits have been received from state regulatory bodies and project agreements have been signed for the construction of the Fargo Project. The Monticello to St. Cloud portion of the Fargo Project was placed into service on December 21, 2011. The St. Cloud to Alexandria portion of the Fargo Project was placed into service on April 23, 2014. Construction is underway for the remaining portions of the project, which are expected to be in service in 2015. |
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The Brookings Project—All major permits have been received from state regulatory bodies and project agreements have been signed for the construction of the Brookings Project. The MISO also granted unconditional approval of the Brookings Project as an MVP under the MISO Tariff in December 2011. The first phase of the 250 mile Brookings Project was energized in March 2014. Additional segments of the line were energized in April 2014. The entire project is expected to be in service in 2015. |
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The Bemidji Project—The Bemidji-Grand Rapids transmission line was fully energized and put into service on September 17, 2012. |
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Big Stone Plant Air Quality Control System (AQCS)—The South Dakota Department of Environment and Natural Resources (DENR) determined that the Big Stone Plant is subject to Best-Available Retrofit Technology (BART) requirements of the Clean Air Act (CAA), based on air dispersion modeling indicating that Big Stone’s emissions reasonably contribute to visibility impairment in national parks and wilderness areas in Minnesota, North Dakota, South Dakota and Michigan. Under the U.S. Environmental Protection Agency’s (EPA) regional haze regulations, South Dakota developed and submitted its implementation plan and associated implementation rules to the EPA on January 21, 2011. The DENR and the EPA agreed on non-substantive rule revisions, which were adopted by the South Dakota Board of Minerals and Environment and became effective on September 19, 2011. |
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South Dakota developed and submitted its revised implementation plan and associated implementation rules to the EPA on September 19, 2011. Under the South Dakota implementation plan, and its implementing rules, the Big Stone Plant must install and operate a new BART-compliant AQCS to reduce emissions as expeditiously as practicable, but no later than five years after the EPA’s approval of South Dakota’s implementation plan. On March 29, 2012 the EPA took final action to approve South Dakota’s Regional Haze State Implementation Plan (SIP), finding that South Dakota’s SIP submittal met all applicable regional haze regulations. The EPA’s final approval of the SIP was effective on May 29, 2012. |
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OTP is currently in the process of constructing the BART-compliant AQCS at Big Stone Plant for a current projected cost of approximately $384 million (OTP’s 53.9% share would be $207 million) with an expected commercial operation date of October 2015. OTP’s share of AQCS construction expenditures incurred through June 30, 2014 is $128 million. |
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Big Stone II Project—On June 30, 2005 OTP and a coalition of six other electric providers entered into several agreements for the development of a second electric generating unit, named Big Stone II, at the site of the existing Big Stone Plant near Milbank, South Dakota. On September 11, 2009 OTP announced its withdrawal—both as a participating utility and as the project’s lead developer—from Big Stone II. On November 2, 2009, the remaining Big Stone II participants announced the cancellation of the Big Stone II project. OTP requested jurisdictional recovery in Minnesota, North Dakota and South Dakota of amounts it had invested in the Big Stone II Project at the time of its withdrawal, discussed below under the respective jurisdictional sections of this note. |
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Minnesota |
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2010 General Rate Case—OTP’s most recent general rate increase in Minnesota of approximately $5.0 million, or 1.6%, was granted by the MPUC in an order issued on April 25, 2011 and effective October 1, 2011. The MPUC’s written order included: (1) recovery of Big Stone II costs over five years, (2) moving recovery of wind farm assets from rider recovery to base rate recovery, (3) transfer of a portion of Minnesota Conservation Improvement Program (MNCIP) costs from rider recovery to base rate recovery, (4) transfer of the investment in two transmission lines from rider recovery to base rate recovery, and (5) changing the mechanism for providing customers with a credit for margins earned on asset-based wholesale sales of electricity from a credit to base rates to a credit to the Minnesota Fuel Clause Adjustment. |
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Renewable Energy Standards, Conservation, Renewable Resource Riders—Minnesota has a renewable energy standard which requires OTP to generate or procure sufficient renewable generation such that the following percentages of total retail electric sales to Minnesota customers come from qualifying renewable sources: 17% by 2016; 20% by 2020 and 25% by 2025. In addition, a new standard established by the 2013 legislature requires 1.5% of total electric sales to be supplied by solar energy by the year 2020. OTP is currently evaluating potential options for meeting that standard. Under certain circumstances and after consideration of costs and reliability issues, the MPUC may modify or delay implementation of the standards. OTP has acquired renewable resources and expects to acquire additional renewable resources in order to maintain compliance with the Minnesota renewable energy standard. OTP’s compliance with the Minnesota renewable energy standard will be measured through the Midwest Renewable Energy Tracking System. |
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Under the Next Generation Energy Act of 2007, an automatic adjustment mechanism was established to allow Minnesota electric utilities to recover investments and costs incurred to satisfy the requirements of the renewable energy standard. The MPUC is authorized to approve a rate schedule rider to enable utilities to recover the costs of qualifying renewable energy projects that supply renewable energy to Minnesota customers. Cost recovery for qualifying renewable energy projects can be authorized outside of a rate case proceeding, provided that such renewable projects have received previous MPUC approval. Renewable resource costs eligible for recovery may include return on investment, depreciation, operation and maintenance costs, taxes, renewable energy delivery costs and other related expenses. |
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The costs for three major wind farms previously approved by the MPUC for recovery through OTP’s Minnesota Renewable Resource Adjustment (MNRRA) were moved to base rates as of October 1, 2011 under the MPUC’s April 25, 2011 general rate case order with the exception of the remaining balance of the MNRRA regulatory asset. The MNRRA rate continued to collect the remaining regulatory asset balance through April 30, 2013, when the balance was estimated to be very near zero. On April 4, 2013 the MPUC authorized that any remaining unrecovered balance be retained as a regulatory asset to be recovered in OTP’s next general rate case. Effective May 1, 2013 the resource adjustment on OTP’s Minnesota customers’ bills no longer includes MNRRA costs. |
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Conservation Improvement Programs—Under Minnesota law, every regulated public utility that furnishes electric service must make annual investments and expenditures in energy conservation improvements, or make a contribution to the state’s energy and conservation account, in an amount equal to at least 1.5% of its gross operating revenues from service provided in Minnesota. The Next Generation Energy Act of 2007 transitioned from a conservation spending goal to a conservation energy savings goal in 2010. |
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The Minnesota Department of Commerce (MNDOC) may require a utility to make investments and expenditures in energy conservation improvements whenever it finds that the improvement will result in energy savings at a total cost to the utility less than the cost to the utility to produce or purchase an equivalent amount of a new supply of energy. Such MNDOC orders can be appealed to the MPUC. Investments made pursuant to such orders generally are recoverable costs in rate cases, even though ownership of the improvement may belong to the property owner rather than the utility. OTP recovers conservation related costs not included in base rates under the MNCIP through the use of an annual recovery mechanism approved by the MPUC. |
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In December 2012, the MPUC ordered a change in the MNCIP cost recovery methodology used by OTP from a percentage of a customer’s bill to an amount per kilowatt-hour (kwh) consumed. On January 1, 2013 OTP’s MNCIP surcharge decreased from 3.8% of the customer’s bill to $0.00142 per kwh, which equates to approximately 1.9% of a customer’s bill. On October 10, 2013 the MPUC approved OTP’s 2012 financial incentive request for $2.7 million as well as its request for an updated surcharge rate to be implemented on November 1, 2013. OTP recognized $3.9 million in MNCIP financial incentives in 2013 related to the results of its conservation improvement programs in Minnesota in 2013. On April 1, 2014 OTP submitted its annual 2013 financial incentive filing request for $4.0 million along with a request for an updated surcharge rate. The MNDOC issued comments on July 8, 2014. A decision by the MPUC is expected in the third quarter of 2014. |
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OTP had a regulatory asset of $7.7 million for allowable costs and financial incentives eligible for recovery through the MNCIP rider that had not been billed to Minnesota customers as of June 30, 2014. OTP recognized revenue for Minnesota conservation costs and incentives earned totaling $1.5 million in the three month period ended June 30, 2014, compared with $1.7 million in the three month period ended June 30, 2013, and $3.0 million in the six month period ended June 30, 2014, compared with $3.3 million in the six month period ended June 30, 2013. |
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Transmission Cost Recovery (TCR) Rider—In addition to the MNRRA rider, the Minnesota Public Utilities Act provides a similar mechanism for automatic adjustment outside of a general rate proceeding to recover the costs of new transmission facilities that have been previously approved by the MPUC in a Certificate of Need (CON) proceeding, certified by the MPUC as a Minnesota priority transmission project, made to transmit the electricity generated from renewable generation sources ultimately used to provide service to the utility’s retail customers, or exempt from the requirement to obtain a Minnesota CON. The MPUC may also authorize cost recovery via such TCR riders for charges incurred by a utility under a federally approved tariff that accrue from other transmission owners’ regionally planned transmission projects that have been determined by the MISO to benefit the utility or integrated transmission system. The 2013 legislature passed legislation that also authorizes TCR riders to recover the costs of new transmission facilities approved by the regulatory commission of the state in which the new transmission facilities are to be constructed, to the extent approval is required by the laws of that state, and determined by the MISO to benefit the utility or integrated transmission system. Such TCR riders allow a return on investment at the level approved in a utility’s last general rate case. Additionally, following approval of the rate schedule, the MPUC may approve annual rate adjustments filed pursuant to the rate schedule. OTP’s initial request for approval of a TCR rider was granted by the MPUC on January 7, 2010, and became effective February 1, 2010. |
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MISO regional cost allocation allows OTP to recover some of the costs of its transmission investment from other MISO customers. On March 26, 2012 the MPUC approved an update to OTP’s Minnesota TCR rider along with an all-in method for MISO regional cost allocations in which OTP’s retail customers would be responsible for the entire investment OTP made in transmission facilities that qualify for regional cost allocation under the MISO Tariff, with an offsetting credit for revenues received from other MISO utilities under the MISO Tariff for projects included in the TCR. OTP’s updated Minnesota TCR rider went into effect April 1, 2012. |
On May 24, 2012 OTP filed a petition with the MPUC to seek a determination of eligibility for the inclusion of twelve additional transmission related projects in subsequent Minnesota TCR rider filings. On February 20, 2013 the MPUC approved three of the additional projects as eligible for recovery through the TCR rider. OTP filed its annual update to the TCR rider on February 7, 2013 to include the three new projects as well as updated costs associated with existing projects. In a written order issued on March 10, 2014, the MPUC approved OTP’s 2013 TCR rider update but disallowed recovery of capitalized internal costs, costs in excess of CON estimates and a carrying charge in the TCR rider. These items were removed from OTP’s Minnesota TCR rider effective March 1, 2014. OTP will be allowed to seek recovery of these costs in a future rate case. In response to the MPUC approval of OTP’s annual TCR update, OTP submitted a compliance filing in April 2014 reflecting the TCR rider revenue requirements changes relating to the MPUC’s ruling and requesting no rate change be implemented at the time. The MPUC approved OTP’s compliance filing on June 19, 2014. OTP filed its 2014 annual update on May 1, 2014 with a proposed implementation date of July 1, 2014. The MNDOC was granted an extension through August 1, 2014 to issue comments on the 2014 update. |
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OTP had a regulatory asset of $2.1 million for amounts eligible for recovery through the Minnesota TCR rider that had not been billed to Minnesota customers as of June 30, 2014. OTP recognized revenue for amounts eligible for recovery through the Minnesota TCR rider of $1.8 million in the three month period ended June 30, 2014, compared with $1.1 million in the three month period ended June 30, 2013, and $4.1 million in the six month period ended June 30, 2014, compared with $2.2 million in the six month period ended June 30, 2013. |
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Environmental Cost Recovery (ECR) Rider—In a written order issued on January 23, 2012 the MPUC granted OTP’s petition for Advance Determination of Prudence (ADP) for costs associated with the design, construction and operation of the BART-compliant AQCS at Big Stone Plant attributable to serving OTP’s Minnesota customers. On May 24, 2013 legislation was enacted in Minnesota which allowed OTP to file an emission-reduction rider for recovery of the revenue requirements of the AQCS. The legislation authorizes the rider to allow a current return on investment (including CWIP) at the level approved in OTP’s most recent general rate case, unless a different return is determined by the MPUC to be in the public interest. On December 18, 2013 the MPUC granted approval of OTP’s Minnesota ECR rider for recovery of OTP’s Minnesota jurisdictional share of the revenue requirements of its investment in the Big Stone Plant AQCS effective January 1, 2014. The ECR rider recoverable revenue requirements include a current return on the project’s CWIP balance at the level approved in OTP’s most recent general rate case. The rate charged to customers will be updated in an annual filing with the MPUC until the costs are rolled into base rates at an undetermined future date. OTP filed its 2014 annual update on July 31, 2014 with a proposed implementation date of October 1, 2014. |
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OTP had a regulatory asset of $0.2 million for amounts eligible for recovery through the Minnesota ECR rider that had not been billed to Minnesota customers as of June 30, 2014. OTP recognized revenue for amounts eligible for recovery through the Minnesota ECR rider in the three and six month periods ended June 30, 2014 of $1.7 million and $3.5 million, respectively. |
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Big Stone II Cost Recovery—OTP requested recovery of the Minnesota portion of its Big Stone II development costs over a five-year period as part of its general rate case filed in Minnesota on April 2, 2010. In a written order issued on April 25, 2011, the MPUC authorized recovery of the Minnesota portion of Big Stone II generation development costs from Minnesota ratepayers over a 60-month recovery period which began on October 1, 2011. The amount of Big Stone II generation costs incurred by OTP that were deemed recoverable from Minnesota ratepayers as part of the rates established in that proceeding was $3.2 million. Because OTP will not earn a return on these deferred costs over the 60-month recovery period, the recoverable amount of $3.2 million was discounted to its present value of $2.8 million using OTP’s incremental borrowing rate, in accordance with ASC Topic 980, Regulated Operations (ASC 980), accounting requirements. Transmission-related project costs of $3.2 million remained in CWIP as active project costs. |
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Approximately $0.4 million of the total Minnesota jurisdictional share of Big Stone II transmission costs were transferred to the Big Stone South - Brookings MVP in the first quarter of 2013. The remaining transmission costs, along with accumulated Allowance for Funds Used During Construction (AFUDC), were transferred from CWIP to the Big Stone II Unrecovered Project Costs – Minnesota regulatory asset account in May 2013, based on recovery granted in the April 25, 2011 order. Because OTP will not earn a return on these deferred costs over their anticipated recovery period, the recoverable amount of approximately $3.5 million was discounted to its present value using OTP’s incremental borrowing rate. In May 2013, OTP recorded a charge of $0.7 million related to the discount in accordance with ASC 980 accounting requirements. In June 2014, OTP recorded an additional discount of $0.3 million to reflect changes in the end date of the anticipated recovery period from September 2020 to December 2022. |
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North Dakota |
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General Rates—OTP’s most recent general rate increase in North Dakota of $3.6 million, or approximately 3.0%, was granted by the NDPSC in an order issued on November 25, 2009 and effective December 2009. |
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Renewable Resource Adjustment—OTP has a North Dakota Renewable Resource Adjustment (NDRRA) which enables OTP to recover the North Dakota share of its investments in renewable energy facilities it owns in North Dakota. This rider allows OTP to recover costs associated with new renewable energy projects as they are completed. On March 21, 2012 the NDPSC approved an update to OTP’s NDRRA effective April 1, 2012. The updated NDRRA recovered $9.9 million over the period April 1, 2012 through March 31, 2013. On December 28, 2012 OTP submitted its annual update to the NDRRA with a proposed effective date of April 1, 2013. The update resulted in a rate reduction, so the NDPSC did not issue an order suspending the rate change. Consequently, pursuant to statute, OTP was allowed to implement updated rates effective April 1, 2013. On July 10, 2013, the NDPSC approved the updated rates implemented on April 1, 2013. The NDPSC approved OTP’s most recent annual update to the NDRRA on March 12, 2014 with an effective date of April 1, 2014. The update approved on March 12, 2014 resulted in a 13.5% reduction in the NDRRA rate. |
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OTP had a net regulatory liability of $1.3 million as of June 30, 2014 for amounts billed to North Dakota customers that were subject to refund through the NDRRA rider. OTP recognized revenue for amounts eligible for recovery through the NDRRA rider of $2.0 million in the three month period ended June 30, 2014, compared with $2.2 million in the three month period ended June 30, 2013, and $3.5 million in the six month period ended June 30, 2014, compared with $4.5 million in the six month period ended June 30, 2013. |
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Transmission Cost Recovery Rider—North Dakota law provides a mechanism for automatic adjustment outside of a general rate proceeding to recover jurisdictional capital and operating costs incurred by a public utility for new or modified electric transmission facilities. On August 30, 2013 OTP filed its annual update to its North Dakota TCR rider rate, which was approved on December 30, 2013 and became effective January 1, 2014. |
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OTP had a regulatory asset of $0.4 million for amounts eligible for recovery through the North Dakota TCR rider that had not been billed to North Dakota customers as of June 30, 2014. OTP recognized revenue for amounts eligible for recovery through the North Dakota TCR rider of $1.7 million in the three month period ended June 30, 2014, compared with $0.9 million in the three month period ended June 30, 2013, and $3.2 million in the six month period ended June 30, 2014, compared with $1.7 million in the six month period ended June 30, 2013. |
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Environmental Cost Recovery Rider—On May 9, 2012 the NDPSC approved OTP’s application for an ADP related to the Big Stone Plant AQCS. On February 8, 2013 OTP filed a request with the NDPSC for an ECR rider to recover OTP’s North Dakota jurisdictional share of the revenue requirements associated with its investment in the Big Stone Plant AQCS. On December 18, 2013 the NDPSC approved OTP’s North Dakota ECR rider based on revenue requirements through the 2013 calendar year and thereafter, with rates effective for bills rendered on or after January 1, 2014. On March 31, 2014 OTP filed its annual update to its North Dakota ECR rider rate with a proposed implementation date of July 1, 2014. The update included a request to increase the ECR rider rate from 4.319% of base rates to 7.531% of base rates. On July 10, 2014 the NDPSC approved OTP’s 2014 ECR rider annual update request with an August 1, 2014 implementation date. |
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OTP had a regulatory asset of $2.2 million as of June 30, 2014 for amounts eligible for recovery through the North Dakota ECR rider that had not been billed to North Dakota customers as of June 30, 2014. OTP recognized revenue for amounts eligible for recovery through the North Dakota ECR rider of $1.5 million in the three month period ended June 30, 2014, compared with ($0.3) million in the three month period ended June 30, 2013, and $3.0 million in the six month period ended June 30, 2014, compared with $0.4 million in the six month period ended June 30, 2013. |
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Big Stone II Cost Recovery—In an order issued June 25, 2010, the NDPSC authorized recovery of Big Stone II development costs from North Dakota ratepayers, pursuant to a final settlement agreement filed June 23, 2010, between the NDPSC advocacy staff, OTP and the North Dakota Large Industrial Energy Group, Interveners. The terms of the settlement agreement indicate that OTP’s discontinuation of participation in the project was prudent and OTP should be authorized to recover the portion of costs it incurred related to the Big Stone II generation project. The total amount of Big Stone II generation costs incurred by OTP (which excluded $2.6 million of project transmission-related costs) was determined to be $10.1 million, of which $4.1 million represents North Dakota’s jurisdictional share. |
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OTP included in its total recovery amount a carrying charge of approximately $0.3 million on the North Dakota share of Big Stone II generation costs for the period from September 1, 2009 through the date the recovery of costs begins based on OTP’s average 2009 AFUDC rate of 7.65%. Because OTP will not earn a return on these deferred costs over the 36-month recovery period, the recoverable amount of $4.3 million was discounted to its then present value of $3.9 million using OTP’s incremental borrowing rate, in accordance with ASC 980 accounting requirements. The North Dakota portion of Big Stone II generation costs was recovered over a 36-month period which began on August 1, 2010. |
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The North Dakota jurisdictional share of Big Stone II costs incurred by OTP related to transmission was $1.1 million. Approximately $0.3 million of the total North Dakota jurisdictional share of Big Stone II transmission costs were transferred to the Big Stone South - Brookings MVP during the first quarter of 2013. On July 30, 2013 the NDPSC approved OTP’s request to continue the Big Stone II cost recovery rates for an additional eight months through March 31, 2014 to recover the remaining North Dakota share of Big Stone II transmission-related costs plus accrued AFUDC totaling $1.0 million. As of April 1, 2014 North Dakota customer’s bills no longer include a charge for North Dakota share of Big Stone II costs. OTP had a regulatory liability of $0.1 million as of June 30, 2014 for amounts billed to North Dakota customers that will be subject to refund through the North Dakota TCR rider’s annual update. The North Dakota TCR rider annual update request is expected to be filed by September 1, 2014. |
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South Dakota |
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2010 General Rate Case—On April 21, 2011 the SDPUC issued a written order approving an overall final revenue increase of approximately $643,000 (2.32%) and an overall rate of return on rate base of 8.50% for the interim rates and final rates for OTP in South Dakota. Final rates were effective with bills rendered on and after June 1, 2011. |
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Transmission Cost Recovery Rider—South Dakota law provides a mechanism for automatic adjustment outside of a general rate proceeding to recover jurisdictional capital and operating costs incurred by a public utility for new or modified electric transmission facilities. OTP submitted a request for an initial South Dakota TCR rider to the SDPUC on November 5, 2010. The South Dakota TCR was approved by the SDPUC and implemented on December 1, 2011. The SDPUC approved an annual update to OTP’s South Dakota TCR on April 23, 2013 with an effective date of May 1, 2013. The SDPUC approved OTP’s most recent annual update to its South Dakota TCR on February 18, 2014 with an effective date of March 1, 2014. |
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OTP had a regulatory asset of $0.1 million for amounts eligible for recovery through the South Dakota TCR rider that had not been billed to South Dakota customers as of June 30, 2014. OTP recognized revenue for amounts eligible for recovery through the South Dakota TCR rider of $0.4 million in the three month period ended June 30, 2014, compared with $0.3 million in the three month period ended June 30, 2013, and $0.7 million in the six month period ended June 30, 2014, compared with $0.3 million in the six month period ended June 30, 2013. |
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Environmental Cost Recovery Rider—On March 30, 2012 OTP requested approval from the SDPUC for an ECR rider to recover costs associated with the Big Stone Plant AQCS. On April 17, 2013 OTP filed a request to either suspend or withdraw this filing. The SDPUC approved withdrawing this filing on April 23, 2013. Instead of receiving rider recovery on the portion of AQCS construction costs assignable to OTP’s South Dakota customers while the project is under construction, OTP will accrue AFUDC on these costs and request recovery of, and a return on, the accumulated costs, including AFUDC, in a future rate filing in South Dakota. |
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Big Stone II Cost Recovery—OTP requested recovery of the South Dakota portion of its Big Stone II development costs over a five-year period as part of its general rate case filed in South Dakota on August 20, 2010. In the first quarter of 2011, the SDPUC approved recovery of the South Dakota portion of Big Stone II generation development costs totaling approximately $1.0 million from South Dakota ratepayers over a ten-year period beginning in February 2011 with the implementation of interim rates. OTP is allowed to earn a return on the amount subject to recovery over the ten-year recovery period. Therefore, the South Dakota settlement amount is not discounted. OTP transferred the South Dakota portion of the remaining Big Stone II transmission costs to CWIP, with such costs subject to AFUDC and recovery in future FERC-approved MISO rates or retail rates. On July 31, 2012 the SDPUC approved the transfer of the Big Stone II transmission route permits to OTP. |
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A portion of the Big Stone II transmission costs were transferred out of CWIP in February 2013 to be included within the Big Stone South - Brookings MVP. On March 28, 2013, OTP filed a petition with the SDPUC requesting deferred accounting for the remaining unrecovered Big Stone II Transmission costs until OTP’s next South Dakota general rate case. The petition was approved by the SDPUC on April 23, 2013 and in May 2013 OTP transferred the remaining South Dakota jurisdictional portion of unrecovered Big Stone II transmission costs plus accumulated AFUDC totaling $0.2 million from CWIP to the Big Stone II Unrecovered Project Costs – South Dakota regulatory asset accounts, which had a combined balance of $0.9 million on June 30, 2014. |
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Federal |
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Wholesale power sales and transmission rates are subject to the jurisdiction of the FERC under the Federal Power Act of 1935, as amended. The FERC is an independent agency with jurisdiction over rates for wholesale electricity sales, transmission and sale of electric energy in interstate commerce, interconnection of facilities, and accounting policies and practices. Filed rates are effective after a one day suspension period, subject to ultimate approval by the FERC. |
Effective January 1, 2010 the FERC authorized OTP’s implementation of a forward looking formula transmission rate under the MISO Tariff. OTP was also authorized by the FERC to recover in its formula rate: (1) 100% of prudently incurred CWIP in rate base and (2) 100% of prudently incurred costs of transmission facilities that are cancelled or abandoned for reasons beyond OTP’s control (Abandoned Plant Recovery), as determined by the FERC subsequent to abandonment, specifically for three regional transmission CapX2020 projects in which OTP is invested. |
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On November 12, 2013 a group of industrial customers and other stakeholders filed a complaint at the FERC seeking to reduce the return on equity component of the transmission rates that MISO transmission owners, including OTP, may collect under the MISO Tariff. The complainants are seeking to reduce the current 12.38% return on equity used in MISO’s transmission rates to a proposed 9.15%. A group of MISO transmission owners have filed responses to the complaint, defending the current return on equity and seeking dismissal of the complaint. The complaint is pending at the FERC. |
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United States Environmental Protection Agency (EPA) Cross-State Air Pollution Rule (CSAPR) |
On April 29, 2014 the U.S. Supreme Court issued its opinion in litigation concerning EPA’s CSAPR, reversing the August 21, 2012 decision of the U.S. Court of Appeals for the D.C. Circuit that had vacated CSAPR. The Supreme Court’s opinion does not remove or otherwise address the D.C. Circuit’s December 30, 2011 order staying CSAPR. CSAPR was remanded to the D.C. Circuit for further proceedings, where the United States has moved the court lift the previously–entered stay. Oppositions to the motion to lift the stay were due July 31, 2014. A ruling on the motion is expected in August 2014. Therefore, at this time, implementation and compliance dates for the rule are unknown. |
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The CSAPR rule that was vacated in 2012 would have applied to OTP’s Solway gas peaking plant and the Hoot Lake coal-fired plant in Minnesota. The primary impact of the rule would have been for Hoot Lake Plant to acquire sulfur dioxide (SO2) allowances to continue operating at historical levels. Based on Hoot Lake’s historical generation and EPA’s predicted allowance costs at the time of the 2012 rule, CSAPR would have resulted in annual SO2 allowance purchase costs of approximately $1.0 million. At this time, the future impact of CSAPR is unknown. |
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EPA Proposed Carbon Dioxide (CO2) Emissions Standards and Guidelines |
On January 8, 2014, the EPA published proposed standards of performance for CO2 emissions from new fossil fuel-fired power plants, based on implementation of partial carbon capture and storage for coal-fired units and natural gas combined cycle technology for gas-fired units. On June 18, 2014 the EPA published proposed CO2 emission guidelines for existing fossil fuel-fired power plants, based on a combination of heat-rate improvements, re-dispatch of electricity to lower-emitting natural gas units or non-emitting renewable energy and nuclear units, and demand-side energy efficiency measures. At the same time, the EPA published separate CO2 emission standards for reconstructed and modified fossil fuel-fired power plants essentially requiring that such plants install modern technology, when modifying or reconstructing, to reduce their emissions. The EPA plans to issue final rules for each of these proposals by July 2015. For existing sources, states would then be required to develop and submit plans, either individually or with other states, spelling out how they will achieve the individualized, reduced CO2 emission rates that the EPA has identified. Those state plans are due by July 2016. The EPA is proposing to allow, upon reasonable request, one-year extensions for states proposing individual plans and two-year extensions for states proposing to submit multi-state plans. |
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OTP is participating with other stakeholders in efforts to shape the final performance standards for new, modified and reconstructed, and existing power plants both at the federal level and, where applicable, at the state level. It is not possible to determine, at this time, the potential impact to OTP of these future regulations on new, modified or reconstructed, or existing sources. |