Minnesota Regulator Approves New Rates for Xcel Energy’s Solar Garden Program

The Minnesota Public Utilities Commission on Dec. 3 granted Xcel Energy Inc.’s proposal to modify the value of solar, or VOS, methodology to arrive at a more stable and reasonable rate. The commission agreed that the avoided distribution cost component is the cause for the volatility in the VOS rate, which is used to calculate the bill credit for Xcel’s community solar garden program. If the new method performs well, the agency plans to incorporate the change into the VOS calculation first adopted in 2014 for distributed solar. 

At issue is the VOS rate’s avoided-distribution-capacity-cost component, which aims to quantify the costs of distribution capacity projects that could be avoided as a result of distributed generation projects. The VOS rate is updated annually based on changes in the input data used in the calculation. Xcel claimed that the current VOS method produces an unreasonable rate, noting that it results in a 2020 levelized VOS rate of $0.2484 per kilowatt-hour, which is more than double the 2019 rate of $0.1109 per kWh. Hence, the company proposed a method designed to produce avoided distribution cost values that are more representative of the its actual avoided costs than those yielded under the current methodology, which uses peak demand data to arrive at the capacity cost. Peak demand is volatile year to year due to variables such as customer requirements and weather.

The commission noted that Xcel’s proposal will address the volatility by applying a five-year average of per-kilowatt distribution spending for the 2020 rate applied to its community solar program. As distributed project data is a better representation of avoided costs, the new method is expected to produce more accurate rates than the current use of peak demand data. 

The agency denied Xcel’s 50 percent deferral-reduction factor citing insufficient information. The company argued that the factor, which would reduce the per-kilowatt avoided distribution cost by half, is needed to reflect that the risk that distributed solar cannot avoid all capacity-related distribution projects. Xcel maintained that this risk should be shared between solar owners and system customers. The agency directed Xcel to provide additional evidence in its 2020 compliance filing if it proposes a deferral-reduction factor for the 2021 VOS rate. The company has 30 days to file a framework showing how specific types of distribution projects will be categorized for future calculations of the avoided cost component.