7-2500-12107-2 PUC DOCKET NO.:  IP-3/CN-98-1453

 

 

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA PUBLIC UTILITIES COMMISSION

 

 

In the Matter of the Application of Lakefield   Junction LLP for a Certificate of Need for an Electric Generation Facility in Martin County

FINDINGS OF FACT, CONCLUSIONS OF LAW AND RECOMMENDATION

 

 

            The above-entitled matter came on for evidentiary hearing before Administrative Law Judge (ALJ) Richard C. Luis at 9:30 a.m. on May 3, 1999 at the small hearing room of the Public Utilities Commission, 121 Seventh Place East, St. Paul, Minnesota.  Public hearings were held on April 29, 1999 in Fairmont (the county seat) and Trimont  (the community closest to the proposed plant site) in Martin County, and at 1:00 p.m. on May 3, 1999 in St. Paul.  The record in this matter closed on May 19, 1999.

            Appearances:  Charles K. Dayton and James J. Bertrand, Attorneys at Law, Leonard, Street and Deinard, PA, 150 South Fifth Street, Suite 2300, Minneapolis, Minnesota 55402, appeared on behalf of Lakefield Junction LLP (Applicant, Company or Lakefield).  Julia E. Anderson, Assistant Attorney General, 525 Park Street, Suite 500, St. Paul, Minnesota 55103, appeared on behalf of the Minnesota Department of Public Service (Department, DPS).  Christopher D. Anderson, Attorney at Law, Minnesota Power, 30 West Superior Street, Duluth, Minnesota 55802, appeared on behalf of intervenor Minnesota Power.  David L. Jacobson, Statistical Analyst, and Clark Kaml, Rates Analyst, 121 Seventh Place East, Suite 350, St. Paul, Minnesota 55101-2147, appeared on behalf of the staff of the Minnesota Public Utilities Commission (PUC).

            Notice is hereby given that, pursuant to Minn. Stat. § 14.61 and the Rules of Practice of the Public Utilities Commission and the Office of Administrative Hearings, exceptions to this Report, if any, by any party adversely affected must be filed within 15 days of the mailing date hereof with the Executive Secretary, Minnesota Public Utilities Commission, Suite 350, 121 Seventh Place East, St. Paul, Minnesota 55101-2147.  Exceptions must be specific and stated and numbered separately.  Proposed Findings of Fact, Conclusions and Order should be included, and copies thereof shall be served upon all parties.  Oral argument before a majority of the Commission will be permitted to all parties adversely affected by the Administrative Law Judge’s recommendation who request such argument.  Such request must accompany the filed exceptions, and an original and 15 copies of each document should be filed with the Commission.

            The Minnesota Public Utilities Commission will make the final determination of the matter after the expiration of the period for filing exceptions as set forth above, or after oral argument, if such is requested and had in the matter.

            Further notice is hereby given that the Commission may, at its own discretion, accept or reject the Administrative Law Judge’s recommendation and that said recommendation has no legal effect unless expressly adopted by the Commission as its final order.

STATEMENT OF ISSUE

            Should the Minnesota Public Utilities Commission issue a Certificate of Need to Lakefield Junction LLP for its proposed electrical generation facility in Martin County?

            Based upon all of the proceedings herein, the Administrative Law Judge makes the following:

FINDINGS OF FACT

A.        Procedural History and the Parties

            1.         The Certificate of Need applicant, Lakefield Junction LLP, is a limited liability partnership between NRG Lakefield, Inc., and Tenaska Minnesota, Inc.  NRG Lakefield, Inc. is a subsidiary of NRG Energy, Inc. (“NRG”).  Tenaska Minnesota, Inc. is a subsidiary of Tenaska, Inc. (“Tenaska”).  NRG is a wholly-owned subsidiary of Northern States Power Company.  The Applicant intends to operate the plant as a “peaking” unit that sells power at wholesale to public utilities and electric cooperatives.  None of the cost to build the plant and associated improvements will appear in the rates of any utility regulated by the PUC.

            2.         On October 8, 1998, Lakefield Junction LLP filed a request for exemption from some data requirements in its application for certification of its Southern Minnesota Independent Power Project (Project).  App. Ex. 28.

            3.         On November 30, 1998, the Commission issued its Order Granting Exemptions from Filing Requirements, based upon favorable recommendations from the Commission staff and the Department of Public Service. App. Ex. 1 at Appendix A. The Commission granted exemptions from the following Commission rules regarding the data required as a part of this Certificate of Need Application:

                        a)         Promotional activities - Minn. Rule 7849.0240, subp. 2(b);

                        b)         Effect of the Facility on future development - Minn. Rule 7849.0240, subp. 2(c);

            c)         System map - Minn. Rule 7849.0250 D;

            d)         Peak demand and system capacity - Minn. Rules 7849.0270 and 7849.0280;

            e)         Conservation programs - Minn. Rule 7849.0290 E and F;

            f)          Consequences of delay - Minn. Rule 7849.0300;

            g)         Large high voltage transmission lines - Minn. Rule 7849.0330;

            h)         The “no facility” alternative - Minn. Rule 7849.0340.

Applicant’s Exhibit (“App. Ex.”) 1 at Appendix A.

 

4                    NRG and Tenaska have undertaken a process to qualify Lakefield Junction, LLP as an Exempt Wholesale Generator under federal law.  In operating the proposed facility, the Project, Lakefield Junction LLP will act as an Independent Power Producer (“IPP”) (i.e., it will be independent of the franchise electric utility serving the area in which the Project is to be located and will not control the transmission facilities essential to customers who will purchase electricity produced by the project).  App. Ex. 1 at 16.

5.         Lakefield was required to file information required by the rules referenced in Finding 3 above to the extent it was available for known customers as of the date of the public hearing.  At the time the exemptions were granted, Lakefield had not, and currently has not, entered into contracts for the sale of energy and capacity to specific utilities or other customers.  Accordingly, no additional information required by the rules referenced in Finding 3 was provided at the hearing.  In granting the exemptions, the Commission noted that the exemptions related to filing requirements only, did not presage any particular finding on the merits, and that the burden of proving need for the proposed Facility remained with Lakefield.  Id.

6.                  The Applicant filed its Certificate of Need Application on January 4, 1999.

7.                  Petitions to Intervene in this matter were timely filed by the Department of Public Service (“DPS”) and by Minnesota Power, and both Petitions to Intervene were granted.

8.                  On February 22, 1999, the Commission published a Notice of and Order for Hearing in this matter at 23 State Register 1738.

9.                  On April 9, 1999, the Department of Public Service issued a Draft Environmental Report on the project, pursuant to Minn. Rule 4410.7100.  DPS Ex. 11.

10.             Notices of the public hearings concerning this matter and the availability of the Draft Environmental Report were published in the following newspapers on the following dates:

                        Lakefield Standard                                   April 8, 1999 and April 15, 1999

The Mankato Free Press                         April 10, 1999 and April 19, 1999

The Fairmont Sentinel                              April 12, 1999 and April 19, 1999

Minneapolis Star Tribune                        April 11, 1999 and April 19, 1999

St. Paul Pioneer Press                            April 12, 1999 and April 19, 1999

Mountain Lake Observer-Advocate       April 14, 1999 and April 21, 1999

St. James Plaindealer                             April 15, 1999 and April 22, 1999

EQB Monitor                                             April 19, 1999

 

App. Ex. 27

 

11.             The final Environmental Report of the Department was filed with the Administrative Law Judge on May 14, 1999.

12.             The purpose of this proceeding is to decide whether there is a need for the Project.  Even if a Certificate of Need is issued, no facility will be built unless a Certificate of Site Compatibility (COSC) is granted by the Minnesota Environmental Quality Board (EQB).  A separate EQB hearing process on that issue is in progress.

13.             Approximately 17 persons attended the public hearing in Fairmont, and 32 attended in Trimont.  No separate public testimony was presented in St. Paul.  All public commentators spoke in favor of the Applicant.  No written comments were filed by the public.  One commentator in Trimont had an environmental concern – whether a drawing down of the water table for the needs of the plant could affect the water quality on nearby farms.

B.        Applicable Statutory and Rule Criteria

 

14.             Minn. Stat. § 216B.243 prohibits siting or constructing a large energy facility in Minnesota without first obtaining a certificate of need from the MPUC.  Minn. Stat. § 216B.243 and Minn. Rules, parts 7849.0010 through 7849.0400 set forth the criteria which must be met to establish need for proposed large energy facilities.  As set forth in Minn. Rule 7849.0120, a certificate of need must be granted to the applicant if:

                        (A)       the probable result of denial would be an adverse effect upon the future adequacy, reliability, or efficiency of energy supply to the applicant, to the applicant’s customers, or to the people of Minnesota and neighboring states, considering:

                                    (1)       the accuracy of the applicant’s forecast of demand for the type of energy that would be supplied by the proposed facility;

                                    (2)       the effects of the applicant’s existing or expected conservation programs and state and federal conservation programs;

                                    (3)       the effects of promotional practices of the applicant that may have given rise to the increase in the energy demand, particularly promotional practices which have occurred since 1974;

                                    (4)       the ability of current facilities and planned facilities not requiring certificates of need to meet the future demand; and

                                    (5)       the effect of the proposed facility, or a suitable modification thereof, in making efficient use of resources;

                        (B)       a more reasonable and prudent alternative to the proposed facility has not been demonstrated by a preponderance of the evidence on the record, considering:

                                    (1)       the appropriateness of the size, the type, and the timing of the proposed facility compared to those of reasonable alternatives;

                                    (2)       the cost of the proposed facility and the cost of energy to be supplied by the proposed facility compared to the costs of reasonable alternatives and the cost of energy that would be supplied by reasonable alternatives;

                                    (3)       the effects of the proposed facility upon the natural and socioeconomic environments compared to the effects of reasonable alternatives; and

                                    (4)       the expected reliability of the proposed facility compared to the expected reliability of reasonable alternatives;

                        (C)       by a preponderance of the evidence on the record, the proposed facility, or a suitable modification of the facility, will provide benefits to society in a manner compatible with protecting the natural and socioeconomic environments, including human health, considering:

                                    (1)       the relationship of the proposed facility, or a suitable modification thereof, to overall state energy needs;

                                    (2)       the effects of the proposed facility, or a suitable modification thereof, upon the natural and socioeconomic environments compared to the effects of not building the facility;

                                    (3)       the effects of the proposed facility, or a suitable modification thereof, in inducing future development; and

                                    (4)       the socially beneficial uses of the output of the proposed facility, or a suitable modification thereof, including its uses to protect or enhance environmental quality; and

                        (D)       the record does not demonstrate that the design, construction, or operation of the proposed facility, or a suitable modification of the facility, will fail to comply with relevant policies, rules, and regulations of other state and federal agencies and local governments.

15.             In addition, Minn. Stat. 216B.243, subd. 3(a) establishes two criteria for the Commission to consider regarding alternatives to the proposed facility utilizing renewable resources:

                                    (1)       That an applicant has explored the possibility of generating power by means of renewable energy resources; and

                                    (2)       That the alternative selected is less expensive (including environmental costs) than power generated by a renewable energy source.

For purposes of Minn. Stat. 216B.243, subd. 3(a), hydropower, wind, solar, geothermal, and biomass are considered renewable energy resources. 

C.        The Project

16.             The Project will generate electricity using six simple cycle combustion turbine-generators.  App. Ex. 1 at 14.  The combined nominal net electric generating capacity of the six combustion turbine generators is 550 MW.   Id. at 2.  The estimated capital cost of the Facility is $206 million.  The projected state date for plant operations is May 2001.  The Project is designed to provide a dedicated source of electricity to help meet electricity demand during contingencies and peak consumption periods.  Id. at 12-13.  During contingencies, the combustion turbines can be fully effective within 10 minutes of a start request.  Id. at 3.  The Project is also capable of “black start”, meaning that the Facility can start without an external source of electricity.   Id. at 66.  The six combustion turbine units, nominally rated at 92 MW each, will interconnect with a 345 kV switch yard which in turn will connect with NSP’s Wilmarth-Lakefield 345 kV transmission line near the proposed Facility.  Id. at 19 and 47.  The combustion turbines will use natural gas as a primary fuel and No. 2 fuel oil as a backup fuel.  Id. at 19-20.  The natural gas will be transported to the site via Northern Border Pipeline’s (“NBPL”) underground pipeline which originates in Canada.  Id. at 47 and Appendix D-9 -- D-10.  The intersection of the pipeline and power line lies approximately ½ mile west of the proposed (preferred) plant site.

17.             NBPL’s 42” pipeline runs from the U.S. - Canadian border near Monchy, Saskatchewan to its terminus near Harper, Iowa.  App. Ex. 19.  NBPL has a 30” pipeline running from Harper, Iowa to a point near Chicago, Illinois.  Id.  The natural gas transported by NBPL’s pipeline originates in areas of the western Canadian sedimentary basin (Alberta, Canada) and the Williston basin (Montana and North Dakota) Id.   In addition, a 1.5 million gallon above-ground storage tank will be built for No. 2 fuel oil.  App. Ex. 1 at 15.  Fuel oil will be transported to the Facility by tanker trucks.  Id. at 20.

18.             The Facility requires only upgrading of existing transmission systems and not the construction of new transmission lines.  App. Ex. 1 at Appendix D.  Some improvements of the transmission system are necessary for the addition of the proposed plant, but these improvements were deemed by MAPP  necessary regardless of the plant’s addition.  Id. and DPS Ex. 13 (Valley Direct) at 7.  Since the cost of the transmission system improvements required by the plant’s addition will be paid by Lakefield, ratepayers are protected.

D.        Application of Statutory and Rule Criteria

(i.)        Would the Probable Result of Denial of the Certificate of Need to Lakefield Junction LLP be an Adverse Effect Upon the Future Adequacy, Reliability and Efficiency of Energy Supply to Their Customers, or to the People of Minnesota and Neighboring States?

 

Accuracy Of Forecast Demand For The Type Of Energy

To Be Supplied By The Facility

 

19.             Data from Mid-Continent Area Power Pool’s (MAPP) April 1998 EIA-411 Report and from individual utilities’ Integrated Resource Plans (IRPs) demonstrate Minnesota’s and the MAPP Region’s capacity supply and demand for winter and summer seasons through 2007.  The Minnesota data alone supplied from the MAPP EIA 411 Report depicts summer capacity deficits beginning in 2001 and winter deficits in 2002.  Summer deficits for Minnesota are projected to reach 546 MW in 2002 and 2655 MW in 2007.  See DPS Exhibit No. 13 (KLV-1) showing the summer deficits projected for MAPP Minnesota members through 2007.  Minnesota winter deficits are expected to grow to 1663 MW in 2007.  App. Ex. 1 at 37,  Fig. 3-1.

20.             The projected capacity deficits for some municipal utilities are not included in the MAPP figures, because not all municipal utilities participate in MAPP.  App. Ex. 1 at 37.  However, Lakefield’s solicitation of interest in the fall of 1998 resulted in an expression of interest from regional municipal utilities for 175 MW of Lakefield’s capacity.  DPS Ex. 13 (Valley Direct) at 4.  App. Ex. 1 at 37.

21.             The MAPP data is consistent with the capacity and demand information provided in the resource plans of utilities operating wholly or in part in the state of Minnesota.  App. Ex. 1 at 37.  The MAPP and individual utility forecasts are reasonably accurate predictors of future energy demands.  DPS Ex. 13 (Valley Direct) at 4.

22.             Each of the nine Minnesota generation and transmission utilities (G & T utilities) forecasts an increase in demand between 1997 and 2007.  App. Ex. 1 at 37.  Furthermore, the same nine G & T utilities represent about 50% of MAPP’s total U.S. demand and about 74% of MAPP’s (U.S. and Canada) load growth between 1999 and 2007.  DPS Exhibit No. 11 (SRR-2) at 3, (Rakow Direct at 23).   App. Ex. 1 at 37-38.  In addition, the Department of Public Service 1996 Energy Policy and Conservation Report projects that Minnesota consumption of electricity will increase approximately 16 percent between 2000 and 2010, from about 56 thousand GWh to about 65 thousand GWh.  App. Ex. 1 at 39.

23.             Lakefield intends to contract to supply wholesale electric capacity and energy to retail providers such as municipal utilities or wholesale marketers.  Lakefield has not yet entered into contracts to sell electric capacity or energy at this time.  As noted above in Finding 3, the Commission granted Lakefield an exemption from Minnesota Rules Part 7849.0270 and 7849.0280.  App. Ex. 1 at Appendix A.

24.             Minnesota’s capacity deficit cannot be met by existing resources in the MAPP region beyond 2003.  App. Ex. 1 at 51; DPS Ex. 11.  (Rakow Direct) at Ex. SRR-2, p. 1 of 2.  The proposed Facility represents an important source of new capacity for Minnesotans.  The proposed Facility, when combined with other new resources, will help ensure that Minnesotans’ growing demand for electricity is met.  DPS Ex. 11 (Rakow Direct) at 23.  Future energy and capacity deficits are demonstrated in the resource planning process by MAPP and by Minnesota’s own individual utilities.  The MAPP forecast as used by Lakefield is sufficient to demonstrate the need for purposes of the Certificate of Need filing because:

                        a.         The MAPP forecast is reasonably reliable.

                        b.         Lakefield has an exemption from Minnesota Rule Part 7849.0270 requiring demand forecast.

                        c.         If there is no demand for the Facility, ratepayers will not be harmed; and

                        d.         Ratepayers will benefit from the Facility regardless of demand because the Facility provides a new competitor in the wholesale market.

DPS Ex. 13 (Valley Direct) at 6.

25.             While the forecast of peak demand and energy requirements is inherently uncertain, the MAPP forecasts, based upon the most likely scenario of expected economic and demographic conditions, are reasonable predictors of near term energy and capacity needs.  DPS Ex. 13 (Valley Direct) at 5-6. 

Effects of Conservation Programs

26.             Because Lakefield is an Independent Power Producer and not a regulated utility, the Commission, in its order of November 30, 1998 granted Lakefield an exemption from certain requirements of Minnesota Rules, part 7849.0290 relating to conservation programs.  Conservation programs are to be developed and implemented by utilities.  App. Ex. 1 at Appendix A. However, conservation programs would be unlikely to provide a timely, cost-effective substitute for the type and quantity of electric capacity or energy provided by the proposed Facility.  App. Ex. 1 at 51-52. DPS Ex. 13 (Valley Direct) at 14.

Effects of Promotional Practices

27.             The Commission granted Lakefield an exemption from Minnesota Rules Part 7849.0240, subp. 2(b) in the Commission’s November 30, 1998 Order.  Lakefield itself has conducted no promotional activities that would have created or increased demand for wholesale power in the region.  App. Ex. 1 at Appendix A.

Ability of Current Facilities or Facilities Not Requiring

Certificates of Need to Meet Future Demand

 

28.             The primary alternatives to the Facility that would not require certificates of need are power purchases from existing facilities, purchases from plant facilities outside Minnesota, or construction of Minnesota facilities that are small enough not to require certificates of need (less than 80 MW).  App. Ex. 1 at 51-53, DPS Ex. 13 (Valley Direct) at 15. MAPP forecasts indicate that existing facilities will experience capacity deficits within Minnesota beginning in 2001 and within the MAPP region beginning in 2003.  Id. Therefore, purchases from existing facilities within the MAPP region do not appear to be available.  New facilities that are small enough not to require a certificate of need would have to be very numerous to meet the growing energy needs of Minnesota.  DPS Ex. 13 (Valley Direct) at 15; DPS Ex. 11 (Rakow Direct) at SRR-2, p. 1.

The Effect of the Facility (or a Suitable Modification)

in Making Efficient Use of Resources

 

29.             The Facility makes efficient use of existing resources.  It will utilize NSP’s existing 345 kV transmission line.  App. Ex. 1 at 47. The proposed Facility allows customers to more efficiently supplement, replace, or reallocate generating capacity to meet their requirements.  Id. at 42-43. The project will utilize NBPL’s existing pipeline as its source of natural gas for its primary fuel source.  Id. at 47. Utilization of the 345 kV transmission line, which has minimal power flowing on it at this time, will optimize the use of the existing electrical transmission system.  Id. at Appendix D. Locating new generation southwest of the Twin Cities, where generation is lacking, helps to balance the electrical system.  Id.[1]

30.             The primary fuel, natural gas, will be delivered through an existing 42” pipeline of NBPL.  App. Ex. 1 at 19-20. The backup fuel, a No. 2 low sulfur oil, is unlikely to be used because of greater expense and abundant supply/volumes of natural gas at this location.  DPS Ex. 13 (Valley Direct) at KLV 5. The water supply will be from new wells on site if ground water proves sufficient and such wells do not adversely effect adjacent wells.  Otherwise, water supply will be obtained by pipe from the existing and/or new wells owned by the nearby (9 miles east) city of Trimont.  App. Ex. 1 at 28. Process water usage will be minimized by the use of Dry-Low NO_x  combustors representing Best Available Control Technology rather than using water injection to control emissions of  oxides (40 CFR 52.27(b)(12); (j)).  Id. Waste water resulting from the water treatment processes of the Facility will be disposed of by pond storage followed by spray irrigation on Project lands.  App. Ex. 1 at 22.

31.             In view of the foregoing, the probable result of denial of the Certificate of Need application would be an adverse effect upon the future adequacy, reliability, and efficiency of energy supply to the Applicant’s customers, the people of Minnesota and neighboring states.  App. Ex. 1 at 34-44.

(ii.)       Renewable Alternatives to the Proposed Facility

32.             Minn. Stat. § 216B.243, subd. 3(a) establishes two criteria for the Commission to consider regarding renewable resources:

                        a)         that Lakefield has explored the possibility of generating power by means of renewable energy resources; and

                        b)         that the alternative selected is less expensive (including environmental costs) than power generated by a renewable energy resource. 

For purposes of the statute, hydropower, wind, solar, geothermal and biomass are considered renewable energy resources.  In addition, Lakefield presented testimony concerning the resource of landfill gas.

33.             Renewable resources cannot reasonably be expected to meet the reasonable project objectives which include:

                        a)         to provide a reliable source of peaking power;

                        b)         to meet the MAPP 10 minute start-up criteria for facilities designed to provide operating reserve for contingency events;

                        c)         to have high, year round availability and starting reliability;

                        d)         to be cost-effective; and

                        e)         to utilize existing fuel transportation and existing transmission infrastructure.

App. Ex. 1 at 12-13, DPS Ex. 11 (Rakow Direct) at 8.

34.             Since, as discussed below, no renewable alternative can reasonably meet the project objectives, a general, rather than detailed, cost analysis of “any renewable alternatives” was undertaken by the Applicant, and the DPS concurred in that approach. App. Ex. 1 at 49, 59-64, and Tables 4-3 and 4-4, DPS Ex. 11 (Rakow Direct) at 8, DPS Ex. 12 at 41-63.

35.             An analysis of the renewable alternatives appears in the application at Section 4.2.3 and in Tables 4-3, 4-4, 4-5 and 4-7.  In addition, Lakefield provided a detailed response to DPS Information Request No. 28 regarding geothermal resources.  DPS Ex. 11 (Rakow Direct) SSR-4. Accordingly, Lakefield has met the criteria of exploring the possibility of generating 550 megawatts of power for peaking and contingency capacity needs by means of renewable energy sources.

36.             Hydropower fails to meet reasonable project objectives.  The July 1996 publication of the U.S. Department of Energy (“DOE”) “U.S. Hydropower Resource Assessment for Minnesota” (“the Assessment”), determined that there are only 136.472 MW of potential capacity in Minnesota, and no sites having greater than 100 MW of potential capacity.  DPS Ex. 11 (Rakow Direct) at 8-9. Similarly, DOE assessments concluded that there were no sites with more than 100 MW of potential capacity in Wisconsin, Iowa or North Dakota.  Id. Of three hydropower sites in South Dakota on the Missouri River, two are owned by the Corps of Engineers, and therefore beyond the jurisdiction of the Commission.  A third site on the Missouri River, the Pony Hill site, has a capacity of only 162 MW, and the Company believes the site would likely require additional transmission infrastructure.  Id.  The capital costs for constructing a single hydropower facility or, most likely, multiple smaller facilities in the region (if possible), to provide 550 MW of generating capacity is expected to be at least two times greater than the Project.  DPS Ex. 12 at 44.

37.             While additional hydro-electric power is available in Manitoba, Canada, current transmission export capability from Manitoba to Minnesota is 1,975 MW with the entire capability in use.  Therefore, any new Canadian hydropower project would require a new transmission line from Manitoba to Minnesota.  DPS Ex. 11 (Rakow Direct) at 9.  A transmission line from Winnipeg to Minneapolis is estimated to cost $180 million.  DPS Ex. No. 11 (Rakow Direct) at SSR-4.  In addition, the lead time necessary for large hydropower projects with a new transmission line would prevent a Canadian hydropower project from being on line by May 2001, the target date for commencing operation of the plant.  Id. at 9.

38.             Hydropower cannot meet the proposed project’s availability and cost-effectiveness objectives.  Therefore, hydropower is not a reasonable alternative.

39.             Both wind and solar power fail to meet reasonable project objectives.  In general, these sources of electricity are dispatched as base load power when they operate.  If inoperative, these technologies could not meet the rapid start criteria set by MAPP for “non-spinning” operating reserves.  App. Ex. 1 at 60; DPS Ex. 11 (Rakow Direct) at 10.  Because of their intermittent nature, wind and solar power are not reasonable alternatives.  Id.   If available, the capital costs for constructing a wind power facility or, most likely, multiple smaller facilities in the region, is expected to be at least two times greater than the Project.  DPS Ex. 12 at 48.  Similarly, solar capital costs would be many times greater than the Project.  DPS Ex. 12 at 51.

40.             A biomass project fails to meet the project objectives.  App. Ex. 1 at 59-60.  A biomass project would not be cost-effective as compared to the proposed Facility.  DPS Ex. 11 (Rakow Direct) at 10.  A recent study by the national renewable energy laboratory determined that a 122 MW biomass facility would have an energy cost of 5.11¢ (1990 $) per kWh which is substantially greater than the proposed project’s cost of 2.88¢ per kWh.  DPS Ex. 11 (Rakow Direct) at 10.  Moreover, a 550 MW capacity project fueled with biomass would require approximately 140,000 acres of biomass (assuming biomass production of 5 tons/acre/year).  App. Ex. 1 at 60-61.  Cultivation and harvesting of the required amount of biomass is impracticable.  In addition, the capital costs of a biomass-fired electric generating facility is expected to be as much as two times the Project.  DPS Ex. 12 at 54.  Accordingly, biomass is not a reasonable alternative. 

41.             Lakefield examined other alternatives to the project, including landfill gas, fuel cells, pumped storage hydroelectric, compressed air energy storage, battery energy storage and fly wheel energy storage.  App. Ex. 1 at 61-64.  None of the alternatives are appropriate to meet the project objectives, either because they are not commercially available on the scale of the project, they would not be cost-effective or suitable sites are not available (pumped storage hydro-electric). Id.; DPS Ex. 27 at 41-63.  The Project is less expensive, including environmental costs, than power generated by renewable energy sources.  DPS Ex. 11 (Rakow Direct) at 9-11; DPS Ex. 12 at 41-63; App. Ex. 1 at 49, 59-64, Tables 4-3, 4-4 and 4-10.

(iii.)      Has a More Reasonable and Prudent Alternative to the Facility Been Demonstrated by a Preponderance of the Evidence on the Record?

 

42.             A Certificate of Need cannot be issued if a more reasonable and prudent alternative to the proposed Facility is demonstrated by a preponderance of the evidence on the record.  Minn. Rule 7849.0120(b). The factors to be considered in assessing alternatives are:

                        (a)       Appropriateness of the size, type and timing of the proposed facility;

                        (b)       Cost of the proposed facility and cost of the energy to be supplied by the Facility;

                        (c)        Effects on the natural and socioeconomic environments; and

                        (d)       Reliability.

Minn. Rule 7849.0120(B).

Appropriateness of the Size, Type and Timing of the

Non-Renewable Alternatives

43.             In addition to the renewable resources discussed above, the alternatives examined by the Company included additional conservation and energy efficiency and the following non-renewable alternatives:

                        a)         A fuel-oil fired combustion-turbine Facility;

                        b)         A natural gas-fired combined cycle Facility;

                        c)         A pulverized-coal Facility; and

                        d)         Purchased power.

App. Ex. 1 at 45-59, DPS Ex. 11 (Rakow Direct) at 12.

44.             The proposed 550 MW Facility is intended to meet the region’s need for peaking capacity beginning in the summer of 2001.  DPS Ex. 11 (Rakow Direct) at 13.  Therefore, an alternative must be able to be constructed in about two years.  Id.  Also, an alternative must be able to operate efficiently in meeting peaking capacity purposes and criteria.  Id.

            Conservation

45.             The Commission has already determined an optimal level of conservation versus supply for Minnesota utilities, and conservation programs are already being implemented.    DPS Ex. 11 (Rakow Direct) at 13.  Therefore, cost-effective expansion of existing conservation programs would be difficult to achieve. Id.  In addition, conservation programs are operated by regulated utilities and not by Lakefield.  Id.

            Fuel Oil-Fired Combustion Turbine Facility

46.             A  fuel oil-fired combustion turbine could meet the size, type and timing criteria of the proposed project.  DPS Ex. 11 (Rakow Direct) at 13.  However, a fuel-oil alternative is much more costly.  See Finding (50) below.

            Natural Gas-Fired Combined Cycle Facility

47.             A natural gas-fired combined cycle facility could meet the timing criteria, but is not as well suited to meet the requirements of a peaking facility due to a more complex power generation cycle that normally cannot be made fully effective within 10 minutes of a start request.  DPS Ex. 11 (Rakow Direct) at 13.

            Pulverized Coal Facilities

48.             Pulverized coal facilities are unsuitable for peaking needs because of a three-year construction lead time and a more complex power generation cycle that cannot be made fully effective within 10 minutes of a start request.  DPS Ex. 11 (Rakow Direct) at 13.

Purchased Power

49.             Given the projected deficit of 218 MW in the year 2003 in the MAPP region, purchased power will not likely be available at a reasonable cost.  DPS Ex. 11 (Rakow Direct) at 13.

Cost of Proposed Facility and Energy to be Supplied

Compared to Proposed Non-Renewable Alternatives

 

50.             The combined capacity and energy costs of the proposed gas-fired simple cycle facility is substantially lower than any of the other fossil fuel alternatives, even after factoring in the Commission’s Environmental Cost Values (externality costs).  App. Ex. 1 at Table 4-10; DPS Ex. 11 (Rakow Direct) at 14-15.

51.             Because Lakefield must sell capacity and energy to customers who retain self-build alternatives, or can purchase from other wholesalers, a market driven cost comparison will be done by Lakefield’s customers.  DPS Ex. 11 (Rakow Direct) at 14.

52.             Expansion of conservation resources beyond the goals approved by the Public Utilities Commission in the resource planning process is unlikely to be cost-effective, since such resource plans have already compared the cost of conservation with the cost of new supply.  DPS Ex. 11 (Rakow Direct) at 15.

The Effects of the Proposed Facility Upon the Natural Environments

Compared to the Effects of Reasonable Alternatives

 

            Air Emissions

53.             The emissions of 20 air pollutants from the proposed facility have been compared to the emissions of the same 20 pollutants from reasonable alternatives.  App. Ex. 1 at Tables 4-7, 4-8, and 4-9.  In standby mode, the proposed facility will have similar or lower emissions of all 20 pollutants than every reasonable alternative.  Id.  At peak conditions, the proposed facility will have emissions of all 20 pollutants similar to or higher than would a combined-cycle alternative.  Id.; DPS Ex. 11 (Rakow Direct) at 16.  At peak conditions the proposed facility will have emissions of 9 of the 20 pollutants similar to or higher than would a  fuel oil alternative.  At peak conditions the proposed facility will have emissions of 11 of the 20 pollutants lower than would a fuel oil alternative.  Id.  At peak conditions, the proposed facility will have emissions of 10 of the 20 pollutants lower than would a pulverized coal alternative and similar or higher emissions of 10 of the 20 pollutants than would a pulverized coal facility.  Id.

            Water Use

54.             Under normal operating conditions, the proposed Facility will use less water than the combined cycle, pulverized coal and the fuel oil alternatives.  App. Ex. 1 at Table 4-5; DPS Ex. 11 (Rakow Direct) at 16.

            Land Use

55.             The developed portion of the plant site will require equal or lesser acreage than other non-renewable alternatives.  App. Ex. 1 at Table 4-5; DPS Ex. 11 (Rakow Direct) at 17.  However, additional land now devoted to agriculture, up to the balance of the project site, will continue to be farmed and utilized, as necessary, for spray irrigation disposal of project waste water.  DPS Ex. 12 at 17.

            Transportation Requirements

56.             Natural gas alternatives will utilize the existing gas pipeline.  DPS Ex. 11 (Rakow Direct) at 17.  Fuel oil would require significant additional vehicle traffic, and pulverized coal would require significant rail traffic.  Id.  The nearest rail siding is 9 miles east, at Trimont.

57.             For water use, land use and transportation requirements, the proposed Facility will have an equal or lesser impact on the natural environment than the other non-renewable alternatives.  DPS Ex. 11 (Rakow Direct) at 17-18; App. Ex. 1 at 46, and Tables 4-5, 4-7 and 4-8.  In air emissions, the proposed Facility will have low emissions compared to other fossil-fuel-fired alternatives reasonably meeting peak service demands.[2]  Id.  The conservation alternative will have a lesser impact in each respect.  Id.

Effects on the Socioeconomic Environment Compared

to Reasonable Alternatives

58.             Pursuant to an agreement with Martin County, and contingent upon the passage of pending legislation, the project will generate real property tax of a minimum of $575,000 per year for 20 years.  DPS Ex. 11 (Rakow Direct) at 18.

59.             To the extent that property taxes are correlated with capital costs, the pulverized coal and combined-cycle alternatives would have higher property taxes.  DPS Ex. 11 at 18.  The fuel oil alternative would have similar property taxes.  Id.  Conservation and purchased power would not have an impact on property taxes.  Id.

60.             The proposed Facility will create about 150 jobs during peak construction as would the combined cycle and fuel oil alternatives.  App. Ex. 1 at 66-67; DPS Ex. 11 (Rakow Direct) at 19.  The pulverized coal alternative would create about 750 construction jobs.  DPS Ex. 11 (Rakow Direct) at 19.  The Facility will create only three full time equivalent jobs during operation.  The other fossil fuel alternatives would create more permanent jobs than the proposed Facility.  App. Ex. 1 at 66-67; DPS Ex. 11 (Rakow Direct) at 19.  However, when completed, since the proposed Facility will have only the equivalent of three employees, it will not place any additional significant demands on local governmental services including roads, schools, hospitals, social welfare, and police.  App. Ex. 1 at 28-29; DPS Ex. 12 at 20-23.

61.             Assuming that the proposed Facility operates between 5% and 20% of the time, it will use between 2.9 billion cubic feet and 11.5 billion cubic feet of natural gas per year.  App. Ex. 1 at Table 4-6 and Appendix D; DPS Ex. 11 (Rakow Direct) at 19-20.  For comparable use, the 550 MW fuel oil fired combustion turbine facility would use between 26 million gallons and 104 million gallons of No. 2 fuel oil per year.  App. Ex. 1 at Table 4-6.   A 550 MW natural gas fired combined cycle facility would use less natural gas to produce the same amount of electricity.  DPS Ex. 11 at 19-20.  The extent of resources utilized by purchased power would depend upon the type of fuel source, which cannot be determined at this time.  Id.  A 550 MW pulverized coal facility at the same operational level would utilize between 183,960 and 735,840 tons of coal per year.  Id.  Conservation would not result in the depletion of natural resources.  Id.

The Expected Reliability of the Proposed Facility

Compared to Reasonable Alternatives.

 

62.             The availability of all natural gas and fuel oil alternatives would be greater than 90%, while the availability of a pulverized coal alternative would be less than 90%.  App. Ex. 1 at Table 4-5; DPS Ex. 11 (Rakow Direct) at 21.  Consequently, the proposed Facility is at least as reliable as the alternatives.

63.             The proposed Facility and all alternatives have benefited from various public services, but it is difficult to identify those services or the costs imposed upon society that are not accounted for by the Applicant.  DPS Ex. 11 (Rakow Direct) at 21.

64.             A more reasonable and prudent alternative to the proposed Facility has not been demonstrated by a preponderance of the evidence on the record, considering size, type, timing, cost, environmental and socioeconomic effects and reliability of the project and the alternatives.

(iv.)      The Benefit of the Proposed Facility to Society in a Manner Compatible with Protecting the Natural and Socioeconomic Environments, Including Human Health

 

65.             The Assessment of Need Criteria set forth in Minn. Rules part 7849.0120(C) requires a determination that, by a preponderance of the evidence on the record, the Facility will provide benefits to society in a manner compatible with protecting the natural and socioeconomic environments, including health, and specifically considering the following:

                        a.         The relationship of the Facility to overall state energy needs;

                        b.         Comparison of the effects of the Facility on the natural and socioeconomic environments to the effect of not building the Facility;

                        c.         Effects of the Facility on inducing future development;

                        d.         Socially beneficial uses of the output of the Facility, including the protection or enhancement of the environment.

The Relationship of the Proposed Facility to Overall State

Energy and Capacity Needs

66.             The deficit forecast by MAPP for the Minnesota generation and transmission utilities within MAPP is set forth above in Finding 19.  Minnesota’s capacity deficit cannot be met by existing resources in the MAPP region beyond 2003.  DPS Ex. 11 (Rakow Direct) at 23.  The proposed Facility represents an important source of new capacity for Minnesotans and, combined with other new resources, will help ensure that Minnesotans’ growing demand for electricity is met.  Id.

67.             Given the projected deficits in electrical energy and generation capacity within Minnesota beginning in 2001, not constructing the Facility will reduce the reliability of the electrical generation system in Minnesota, particularly during peak and contingency periods.   App. Ex. 1 at 37-41.

Effect on the Natural Environment

68.             Absent the proposed Facility, Minnesota utilities will operate other peaking plants more often to provide needed energy.  DPS Ex. 11 (Rakow Direct) at 26; App. Ex. 1 at 42-44. The proposed Facility is more efficient in terms of BTU per kW hour than all but one of MAPP’s 53 existing natural gas turbine units.  DPS Ex. 11 at 26; App. Ex. 1 at 43.  It is also more efficient than all but four of MAPP’s 53 existing fuel oil turbine units.  Id.  Because the proposed Facility will be newer than existing units, and will have new pollution control equipment, a lesser amount of pollutants will be emitted into the environment from the proposed Facility than will be the case if existing turbines continue to be utilized to meet peaking needs.  DPS Ex. 11 (Rakow Direct) at 26; App. Ex. 1, Figures 3.3 and 3.4 at 43.  Also, whenever the project displaces units using fuel oil as their primary fuel, the environment will benefit as a result of lower emissions to the atmosphere.  App. Ex. 1 at 42.  Whenever the project displaces units that are less efficient, the environment will also benefit as a result of fewer emissions.  App. Ex. 1 at 42, Figure 3-3 and Table 4-8.

69.             Negative effects on the natural environment include traffic and noise pollution during construction, noise emissions and air emissions during operation, and the potential construction of a 10-mile water pipeline to the City of Trimont’s wells.  App. Ex. 1 at 22-30.  The environmental effects of the Project are subject to the permitting activity of various governmental agencies.  App. Ex. 1 at 30-33.

Effects on the Socioeconomic Environment

70.             The Project is expected to have socioeconomic benefits from investment of the construction cost of approximately $206 million, sales tax revenue in Minnesota of about $1.8 million, and increased property taxes in Martin County of a minimum of $575,000 annually.  App. Ex. 1 at 65-67; DPS Ex. 11 at 25.  The Project will provide 150 temporary jobs during peak construction periods and will provide about $8.8 million in wages and benefits.  Id. at 27; DPS Ex. 11 at 25.  Three full time equivalent jobs over a 30-year life will produce wages totaling a present value of $2.4 million.  DPS Ex. 11 at 25-26.

71.             The use of imported goods and resources and the electricity production process can affect national energy security, balance of payment goals or other policy or social goals deemed important.  However, the proposed Facility and the non-renewable alternatives would have similar impacts on the nation’s balance of payments and energy security.  DPS Ex. 11 (Rakow Direct) at 21.

Induced Development

72.             Because the proposed Facility is a peaking plant, it is not expected directly to induce future development.  However, by helping to meet the state’s growing demand for electricity, and by helping to ensure an economic and reliable source of electricity, the proposed Facility will support future economic growth in Minnesota by contributing to a stable infrastructure.  DPS Ex. 11 (Rakow Direct) at 24.

73.             The proposed Facility will provide benefits to society in a manner compatible with protecting natural and socioeconomic environments including human health.

Socially Beneficial Uses

74.             The Facility will provide valuable energy services by making available generation capacity and energy, particularly in peaking and contingency situations.  In addition, by providing “black-start” capacity, the Facility will contribute to emergency planning.  Finally, because of its greater efficiency as compared with most existing turbine units, it is likely to reduce net air emissions in peaking or contingency situations.  DPS Ex. 11 (Rakow Direct) at 24.

E.        Compliance With Policies, Rules And Regulations

75.             The Assessment of Need Criteria set forth in Minn. Rules part 7849.0120.C requires that the record not demonstrate that the design, construction, or operation of the Facility will fail to comply with relevant policies, rules, and regulations of other state and federal agencies and local governments.  The record does not so demonstrate.

76.             The DPS testified as to the potential permits and approvals required for the construction and operation of the Facility.  DPS Ex. 11 at 29-30, SRR-3, and SRR-4.  There is no indication in the record that the design, construction and operation of the Facility will fail to comply with relevant policies, rules, and regulations of other state and federal agencies and local governments.  The issuance of a Certificate of Need will not conflict with any other regulatory requirements.

Based on the foregoing Findings of Fact, the Administrative Law Judge makes the following:

CONCLUSIONS

1.                  Any of the Findings of Fact which more properly should be designated as Conclusions are adopted as such.

2.                  The Administrative Law Judge and the Commission have jurisdiction over this matter, pursuant to Minn. Stat. §§ 14.50 and 216B.243.

3.                  All relevant substantive and procedural requirements of law and rule have been fulfilled.

4.                  The MAPP forecasts presented in this proceeding have been prepared in a reasonable manner, are reasonably reliable, and are appropriate for determining the need for the Facility.

5.                  Based on the MAPP forecasts, there is a need for the Facility.

6.                  Increasing planned conservation efforts is not a cost-effective alternative to the Facility.

7.                  Lakefield does not promote electricity consumption in Minnesota or elsewhere.

8.                  Current and planned facilities, including purchased power, not requiring certificates of need are not adequate to meet projected needs.

9.                  The Facility will make efficient use of resources.

10.              Denial of the Certificate of Need to Lakefield will likely have an adverse effect upon the future adequacy, reliability, and efficiency of energy supply to Lakefield, to the utilities in Minnesota which are Lakefield’s potential customers, to the people of Minnesota and neighboring states.

11.             Considering size, type, timing, cost, natural and socioeconomic environmental effects, and reliability, a more reasonable and prudent alternative to the Facility has not been demonstrated by a preponderance of the evidence on the record.

12.             The record establishes that there is a growing demand for electricity in Minnesota, and that additional sources of generation are necessary.

13.             The Facility is needed to meet the growing electricity demands of Minnesotans.

14.             The Facility will provide benefits to society in a manner compatible with protecting the natural and socioeconomic environments, including human health.

15.             The record does not demonstrate that the design, construction, or operation of the Facility will fail to comply with relevant policies, rules, and regulations of other state and federal agencies and local governments.

16.             The Applicant has demonstrated that it has explored the possibility of generating power by means of renewable energy sources and has demonstrated that the Facility is less expensive (including environmental costs) than power generated by a renewable energy source.

17.             The requirements for a Certificate of Need set forth in Minn. Stat. §216B.243 and Minn. Rules, part 7849 have been satisfied.

THIS REPORT IS NOT AN ORDER AND NO AUTHORITY IS GRANTED HEREIN.  THE PUBLIC UTILITIES COMMISSION WILL ISSUE THE ORDER OF AUTHORITY WHICH MAY ADOPT OR DIFFER FROM THE FOLLOWING RECOMMENDATIONS.

 

            Based on the foregoing Conclusions, the Administrative Law Judge makes the following:

 

RECOMMENDATION

            That a Certificate of Need be issued to Applicant Lakefield Junction LLP without condition.

 

Dated this 28th day of May, 1999

 

 

                                                                                    ___/s/_________________________

                                                                                    Richard C. Luis

                                                                                    Administrative Law Judge

 

Reported:  Jodi L. Dahl, Shaddix and Associates

                  Transcripts prepared.

 

NOTICE

Under Minn. Stat. §  14.62, subd. 1, the agency is required to serve its final decision upon each party and the Administrative Law Judge by first class mail or as otherwise provided by law.