Submitted Photo Xcel Energy crews work on a electrical line in Minot.

Xcel Energy is proposing to gradually split its North Dakota and Minnesota electric utility operations into separate companies because of disagreements over regulatory and policy priorities.

North Dakota’s largest utility, Xcel Energy has filed documents with the North Dakota Public Service Commission, which has contracted with a consultant to review the case. The commission also referred the case to an administrative law judge. PSC advocacy are expected to submit testimony on Oct. 1 under a procedural schedule that projects a commission order next June or July.

Documents also have been filed with the Minnesota Public Utilities Commission. MPUC adopted a tentative schedule that is dependent on whether the commission controls the case or refers it to an administrative law judge. The tentative schedule projects a commission order by September of October of 2018.

Xcel Energy began discussing the split with regulators in 2016 and put forth a plan in a filing last January.

“The proposal that we filed with the public utility regulatory commissions in both Minnesota and North Dakota is called a ‘Resource Treatment Framework,’ and commissioners in both states are reviewing the material,” Xcel said in a prepared statement. “We expect that this process will take considerable time. Over the past several years, a number of resource selection proceedings in Minnesota and North Dakota have resulted in divergent outcomes and we believe that similar issues may arise in the future. We have provided several framework options for consideration by regulators and stakeholders in each state. We recommended a legal separation based on our conclusion that it will provide more certainty and flexibility into the future than other options, but we continue to be open to further discussion and development of other solutions. However, under all potential frameworks customers would continue to be served by Xcel Energy.

“We’re committed to working with stakeholders in both states to resolve past disputes and to provide a framework into the future that continues to provide safe, reliable power and good economic value to all of our customers. This proceeding allows stakeholders to provide input on our proposals and we appreciate the engagement we have received to date,” Xcel stated.

The company notes it has successfully managed its integrated system for nearly a century, but in the past two decades, the legal, regulatory, and policy priorities have been diverging in the states served, specifically Minnesota and North Dakota.

Because of these differing priorities, North Dakota regulators are increasingly denying rate increases that would have Xcel’s North Dakota customers share in project costs, according the company, which sees “unbridgeable disagreements” continuing in the future.

An example is the North Dakota PSC’s denial of cost recovery for Aurora, Xcel’s $250 million solar power project, last year. Under a 2013 state law, investor-owned utilities like Xcel are required to get 1.5 percent of their electricity from the sun by 2020. Xcel asked the Minnesota PUC to recover the costs denied by North Dakota and was turned down.

Xcel stated it envisions development of large amounts of wind energy resources and sees a role for solar and other emerging technologies.

“We believe that this path to a cleaner and more nimble fleet is both in the best interests of our customers and consistent with our business plans. We also recognize that this path is consistent with Minnesota’s legal and regulatory priorities. We appreciate, however, that this path may not be embraced in North Dakota,” Xcel wrote in its filing. “It is unclear if our North Dakota stakeholders share our vision or if we can implement a transformation of the NSP System in a manner that can gain acceptance in both Minnesota and North Dakota.”

Headquartered in Minneapolis, Xcel’s operations include four wholly-owned utility subsidiaries that serve six electric and natural gas customers in eight states: Minnesota, North Dakota, South Dakota, Wisconsin, Michigan, Colorado, Texas, and New Mexico. These utility subsidiaries, referred to as operating companies, are Northern States Power Company-Minnesota, Northern States Power Company-Wisconsin, Public Service Company of Colorado and Southwestern Public Service Company.

Together, these operating companies service almost 3.5 million electric customers and almost two million gas customers. Gas customers would not be affected by the proposed separation of Xcel’s electric utility.

Xcel serves about 94,000 electric and 56,000 gas customers in North Dakota. It serves electrical customers around Minot, Fargo and Grand Forks through the integrated NSP System that altogether serves five states.

Minnesota customers comprise about 75 percent of the overall load served by the NSP System. Wisconsin customers make up about 15 percent and North Dakota customers 5 percent, with South Dakota and Michigan making up the remainder.

Xcel Energy stated its North Dakota customers benefit from being part of a large, integrated system.

“The current status quo allows our North Dakota customers to obtain the benefits of the NSP System without paying their fair share. Over time, this ultimately leads to free rider issues and fundamental interjurisdictional inequities. Second, we cannot allow five percent of the NSP System to retain a veto on resource decisions,” Xcel stated.

Xcel proposes to set up a “Legacy System” that would continue to serve North Dakota in the mid-term as the transition occurs to a separate system.

“First, and most importantly, continued service from the Legacy System allows our North Dakota customers to retain the portions of the NSP System that they have long supported and have paid for. Second, continued service from the Legacy System will be least impactful to North Dakota rates,” Xcel noted.

The company added that planning and developing a stand-alone 500-megawatt system for North Dakota will take time, while establishing a new operating company will be expensive. It indicated it hopes to complete the necessary work, with all the state and federal regulatory approvals, by 2020.

The new company, Northern States Power Company-Dakotas, would continue to be part of the Xcel Energy corporate family. It would be a regulated utility with its own corporate structure, operating expenses, fuel costs and rate base. It also would be distribution-only, with generation and transmission remaining with NSP-Minnesota.