OVERVIEW OF THE MINNESOTA PUBLIC UTILITIES COMMISSION Presentation to the Itasca Economic Development Corp. February 14, 2007 By LeRoy Koppendrayer, Chair Minnesota Public Utilities Commission

Minnesota – Basic Facts 12th largest state in terms of land area: 86,393 square miles 12th largest state in terms of land area: 86,393 square miles 20 th largest state in terms of population; 5.1 million 20 th largest state in terms of population; 5.1 million Major industries Major industries AgricultureAgriculture Forest productsForest products Mining – taconiteMining – taconite ManufacturingManufacturing TourismTourism Gross State Product = $224 Billion (2004) Gross State Product = $224 Billion (2004)

What does the Public Utilities Commission do? Regulates rates and services of three critical service industries ElectricityElectricity Natural gasNatural gas Local telephone service (limited rate regulation)Local telephone service (limited rate regulation) Basic mission: Safe, adequate, and reliable service at fair and reasonable rates

Basic Organization of the PUC Commission Executive Secretary Energy RatesLegal Energy FacilitiesConsumer Affairs TelecommunicationsAdministrative Mgmt

The Commission Five Commissioners Five Commissioners CriteriaCriteria Appointed by the Governor, confirmed by the Minnesota Senate Appointed by the Governor, confirmed by the Minnesota Senate Staggered six year terms Staggered six year terms

The Commission – Cont’d Removed only for cause Removed only for cause Not more than three from one political party Not more than three from one political party At least one from outside the Twin Cities metropolitan area At least one from outside the Twin Cities metropolitan area

Commission Conduct Quasi-judicial & legislative responsibilities Quasi-judicial & legislative responsibilities Code of Conduct: Code of Conduct: Meetings must be open to the publicMeetings must be open to the public Conflict of interestConflict of interest Employment RestrictionsEmployment Restrictions Ex Parte CommunicationsEx Parte Communications

Code of Conduct Purpose: Purpose: To enhance the integrity of the decision-making process; To enhance the integrity of the decision-making process; To enhance the stability of the regulatory process as an economic institution; To enhance the stability of the regulatory process as an economic institution; To help instill public faith in the provisioning of utility services. To help instill public faith in the provisioning of utility services.

Funding Assessment of utilities Assessment of utilities Budget proposal approved by Governor; final budget approved by Legislature Budget proposal approved by Governor; final budget approved by Legislature Recover nearly 100% of all expenditures for General Fund Recover nearly 100% of all expenditures for General Fund Direct and indirect charges Direct and indirect charges

Major Activities in Electricity Setting Rates: General Rate Cases Setting Rates: General Rate Cases Integrated Resource Planning Integrated Resource Planning Major Energy Facilities Major Energy Facilities Certificate of NeedCertificate of Need Siting and RoutingSiting and Routing Transmission PlanningTransmission Planning Monitoring activities of the Midwest Independent System Operator Monitoring activities of the Midwest Independent System Operator

General Rate Case process Two major decision elements: Two major decision elements: Revenue requirement – how much of a revenue change is warranted?Revenue requirement – how much of a revenue change is warranted? Rate design – how should the requirement be split among rate classes?Rate design – how should the requirement be split among rate classes? Hearings Hearings Public hearingsPublic hearings Evidentiary hearings before ALJEvidentiary hearings before ALJ Record goes to PUC – decision within 10 months from filing Record goes to PUC – decision within 10 months from filing Minnesota Statutes Section 216B.16 Minnesota Statutes Section 216B.16

Resource Planning process Filed biennially by IOUs, G&T Coops; 2 municipal joint action agencies Filed biennially by IOUs, G&T Coops; 2 municipal joint action agencies Threshold issue: Compare expected demand growth (15 year horizon) to generation needs Threshold issue: Compare expected demand growth (15 year horizon) to generation needs Places supply and demand resources on equal footing Places supply and demand resources on equal footing Allows stakeholders to participate in long- term planning Allows stakeholders to participate in long- term planning Minnesota Statutes Section 216B.2422 Minnesota Statutes Section 216B.2422

Transmission Planning process Filed biennially by utilities that own or operate transmission lines in Mn. Filed biennially by utilities that own or operate transmission lines in Mn. Report must include: Report must include: Reasonably foreseeable inadequaciesReasonably foreseeable inadequacies Alternative options for addressing inadequaciesAlternative options for addressing inadequacies Economic, environmental and social issues associated with each alternativeEconomic, environmental and social issues associated with each alternative Summary of public input (public hearings required)Summary of public input (public hearings required) PUC can, as part of the transmission planning process, certify need for a line that meets Certificate of Need criteria. PUC can, as part of the transmission planning process, certify need for a line that meets Certificate of Need criteria. Minnesota Statutes Section 216B.2425 Minnesota Statutes Section 216B.2425

Certificate of Need process Threshold issue: Determining whether a proposed large energy facility in the public interest; i.e., Is it needed? Threshold issue: Determining whether a proposed large energy facility in the public interest; i.e., Is it needed? Large energy facility - electricity: Large energy facility - electricity: Generating plant w/combined capacity of 50 MW or >Generating plant w/combined capacity of 50 MW or > Transmission Line; 200 KV or >Transmission Line; 200 KV or > Transmission line; 100 KV or > with > 10 miles in Mn., or crosses borderTransmission line; 100 KV or > with > 10 miles in Mn., or crosses border Any nuclear fuel processing or waste storage or disposal facilityAny nuclear fuel processing or waste storage or disposal facility Public and evidentiary hearings Public and evidentiary hearings Minnesota Statute Section 216B.243 Minnesota Statute Section 216B.243

Siting and Routing process Threshold issue: Identifying the best location for a large energy facility found to be in the public interest Threshold issue: Identifying the best location for a large energy facility found to be in the public interest Environmental review – Dept. of Commerce Environmental review – Dept. of Commerce Hearings: Hearings: PublicPublic Evidentiary before ALJEvidentiary before ALJ Siting (generation plant) or routing (transmission line) proceedings can be done in unison with certificate of need. Siting (generation plant) or routing (transmission line) proceedings can be done in unison with certificate of need. Minnesota Statute Chapters 216E & 216F Minnesota Statute Chapters 216E & 216F

Minnesota’s electricity industry Basic Statistics: Summer peaking – 11,500 MW Summer peaking – 11,500 MW Net Generation – 52 million MWH Net Generation – 52 million MWH Average Retail Price – 6.24 cents/kwh Average Retail Price – 6.24 cents/kwh Types of providers: Investor owned utilities (IOUs) – 5 Investor owned utilities (IOUs) – 5 Municipal utilities – 125 Municipal utilities – 125 Distribution Cooperatives - 46 Distribution Cooperatives - 46

Minnesota’s Electric Industry Type of providers

Minnesota’s Electric Industry Generation by fuel source

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