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In re Petition of Northern States Power Company for Review of its 1999 All source Request for Proposals

March 30, 2004

IN THE MATTER OF THE PETITION OF NORTHERN STATES POWER COMPANY FOR REVIEW OF ITS 1999 ALL SOURCE REQUEST FOR PROPOSALS.


Minnesota Public Utilities Commission File No. E-002/M-99-888

Considered and decided by Klaphake, Presiding Judge, Randall, Judge, and Forsberg, Judge*fn1.

SYLLABUS BY THE COURT

1. Pursuant to the Administrative Procedure Act, there is no right to a contested case hearing unless another statute provides such a right. When the legislature does not require a contested case hearing under a particular statute, the courts can assume that a contested case hearing is not required under the statute.

2. Minn. Stat. § 216B.2422, subd. 3 (2002), does not provide for the right to a contested case hearing.

3. Minn. Stat. § 216B.2422, subd. 3(a), does not require the Minnesota Public Utilities Commission to make specific findings of fact regarding the extent of uncompensated and unremediated environmental and socioeconomic costs associated with each method of electricity generation. Relator has adequate remedies under its Canadian contract.

The opinion of the court was delivered by: Randall, Judge

Affirmed

OPINION

This certiorari appeal arises out of decisions made by the Minnesota Public Utilities Commission to approve Manitoba Hydro as a future electricity resource and to approve a power-purchase agreement between Xcel Energy and Manitoba Hydro. Relator argues that the commission erred in (1) denying its request for a contested case hearing, and (2) failing to adequately consider the environmental and socioeconomic costs associated with the Manitoba Hydro Project. We affirm.

FACTS

Manitoba Hydro is a Crown (Canadian) Corporation owned by the Province of Manitoba, with capital assets in service exceeding $7 billion, making it the fourth largest electrical utility in Canada. Manitoba Hydro has engaged in energy trading with Minnesota utilities since 1970, and has electricity-trading partnerships with several Minnesota utilities, including Xcel Energy, Minnesota Power, Great River Energy, Otter Tail Power Company, and MinnKota Power Cooperative. Virtually all of Manitoba Hydro's existing generation is hydroelectric, consisting of a system of dams, reservoirs and electric generation facilities that were built in connection with the Manitoba Hydro Project.

Construction of the Manitoba Hydro Project (the Project), also known as the Churchill-Nelson Hydroelectric Project, began in the 1960's. This project was a joint undertaking by Canada, the province of Manitoba, and Manitoba Hydro, and constituted an enormous effort that contained three fundamental elements: (1) the Churchill River Diversion; (2) the Lake Winnipeg Regulation; and (3) a series of generating stations on the Nelson River.*fn2 As part of the Churchill River Diversion, the Churchill River was dammed at the eastern outlet of Southern Indian Lake, which is part of the Churchill River system. The Missi Falls Controls Structure raised the level of Southern Indian Lake by approximately three meters, causing the lake to over flow southward through a man-made channel into the Rat-Burntwood Rivers system, which empties into the Nelson River. Because roughly 75% of the flow of the Churchill River was diverted into the Nelson River, generating stations could be installed on one river (the Nelson River) rather than two rivers.

The second element, the Lake Winnipeg Regulation, controls the water level of Lake Winnipeg, the eleventh largest freshwater lake in the world. Because the Nelson River drains Lake Winnipeg, the Jenpeg Control Structure was built on the Nelson River near the northern outlet of the lake to hold back water in the lake during spring and summer months when flows are naturally at their highest. The Jenpeg Control Structure then releases water into the Nelson River in winter months when electricity demand is the greatest. The effect of this process is to make Lake Winnipeg function as a huge storage reservoir. Additionally, channels were constructed to bypass shallow and narrow passageways in the water system to double the potential flow from Lake Winnipeg into the Nelson River.

Finally, the third element consists of five major dams that have been built on the Nelson River. With a combined capacity of 3830 megawatts, these dams generate three quarters of the electricity produced in Manitoba. A twin set of transmission lines, approximately 900 kilometers in length, deliver power from the Nelson River to southern Manitoba. All elements are located within the boundaries of Canada.

Since the inception of the Manitoba Hydro Project in the 1960's, there have been concerns regarding the environmental and socioeconomic consequences the project has had on the surrounding ecosystem. To help alleviate these concerns, the Northern Flood Agreement was signed in 1977. The Northern Flood Agreement (NFA) is an agreement between Manitoba Hydro, the Province of Manitoba, the Government of Canada (collectively known as the "Crown Parties") and five Cree Nations, including Cross Lake Cree Nation, now known as Pimicikamak Cree Nation (relator).*fn3 Pursuant to the NFA, the Crown Parties are to provide mitigation and compensation to the Cree Nations for adverse effects of the Manitoba Hydro hydroelectric operations, including socioeconomic effects. Because of the uncertainty of these impacts, both at the time of the initial construction of the hydroelectric facilities and into the future, the NFA recognized that it was not possible to foresee all of the impacts or who might be impacted. Thus, the NFA established an arbitration process and fully empowered the Arbitrator "to fashion a just and appropriate remedy." NFA, paragraph 24.6, spells out the dispute-resolution process and is a 27-year-old source of relief for relator.

Unrelated to the NFA, Minn. Stat. § 216B.2422 (2002) and Minn. R. Ch. 7843 require that Minnesota electric utilities file resource plans every two years identifying the sources of electricity that will be used to serve electric customers. In January 1998, Xcel Energy filed its resource plan that forecasted that the demand for electricity would increase by 1.7% per year between 1998 and 2012, creating a need for an additional 1,207 to 3,031 megawatts of capacity by 2012. The resource plan stipulated that a portion of the increased demand would be met by acquiring some 2,400 megawatts of new generation that would be secured through competitive bidding.

Shortly after the resource plan was filed, Xcel Energy submitted a proposal to revise its competitive bidding process. By Order dated August 25, 1998, the Minnesota Public Utilities Commission (Commission) approved the five-step bidding process. Under the bidding process, interested bidders, including Manitoba Hydro, submitted proposals.

On April 6, 2000, Xcel Energy submitted its Final Evaluation Report to the Commission, announcing Manitoba Hydro as one of three bidders with which Xcel Energy would negotiate power purchase agreements (PPA). Shortly thereafter, various parties including relator urged the Commission to investigate certain issues related to the Manitoba Hydro bid prior to submission of a final PPA.*fn4 Respondents, Manitoba Hydro, Xcel Energy, Nisichawayasihk Cree Nation, and Split Lake Cree Nation, all filed comments and/or participated in an all-day hearing held on November 30, 2000. At this hearing, respondents recommended that the Commission approve the selection of Manitoba Hydro as a winning bidder, and allow the process to move forward to negotiation of a PPA and submission of that PPA to the Commission for a review and approval.

On February 7, 2001, the Commission issued its Order rejecting requests for further investigation, approving the final bid selections, and opening the docket regarding externality values. In rejecting relator's request to examine further the alleged socioeconomic costs related to Manitoba Hydro's bid, the Commission stated that "proper consideration of the socioeconomic impacts of Manitoba Hydro's current bid does not alter [Xcel Energy's] selection of Manitoba Hydro." The Commission also deemed "the socioeconomic impacts of this generation to be adequately internalized by Manitoba Hydro pursuant to the December 16, 1988 [NFA]." The Commission explained that the NFA provides the framework for its parties to address their grievances and obtain bargained-for compensation. Relator is a signatory to the NFA. Based on its analysis, the Commission concluded that Xcel Energy adequately considered the socioeconomic costs as required by Minn. Stat. § 216B.2422, subd. 3, and no further evaluation of Manitoba Hydro's bid was necessary.

After the Commission issued its February 7, 2001, Bid Selection Order, Xcel Energy negotiated the PPA with Manitoba Hydro. In September 2002, the PPA was submitted to the Commission for approval. Shortly thereafter, relator filed a petition requesting a contested case hearing regarding the Manitoba Hydro PPA.

A hearing was held before the Commission on December 19, 2002, to consider relator's request for a contested case hearing, and Xcel Energy's request for approval of the Manitoba Hydro PPA. By Order dated March 18, 2003, the Commission declined to reconsider its February 7, 2001 Order (finding a contested case hearing unnecessary). The Commission first concluded that relator's petition for a rehearing was untimely. Then, despite relator's untimely request for a rehearing, the Commission considered relator's position and determined that "the socioeconomic costs of the Manitoba Hydro Project have been adequately internalized by Manitoba Hydro, have been taken into account in this matter, and no further inquiry into the specifics of those costs need to be made."

The Commission also approved the Manitoba Hydro PPA. In reaching its conclusion, the Commission determined that the PPA is in the best interests of the Minnesota ratepayers. The Commission denied relator's request for a contested case hearing to "further explore" the extent of alleged socioeconomic impacts associated with the PPA. Relator argued that the Commission should impose meaningful conditions upon its approval of the PPA to ensure that Manitoba Hydro lived up to its promises under the NFA. The Commission refused to adopt the role requested by relator, stating that "[t]he NFA is a treaty under Canadian and international law and is governed and enforced by its terms under Canadian and international law."

On April 7, 2002, relator filed a petition for reconsideration and rehearing, requesting that the Commission either accept the specific monitoring and reporting requirements proposed by relator or reconsider the decision to deny a contested case hearing in this matter. The Commission ...


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