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28
Purchased Gas and Conservation Cost-Recovery Mechanisms — NSP-Minnesota’s retail natural gas rates for Minnesota and North
Dakota include a PGA clause that provides for prospective monthly rate adjustments to reflect the forecasted cost of purchased natural
gas, transportation service and storage service. The annual difference between the natural gas cost revenues collected through PGA
rates and the actual natural gas costs is collected or refunded over the subsequent 12-month period. The MPUC and NDPSC have the
authority to disallow recovery of certain costs if they find the utility was not prudent in its procurement activities.
Minnesota state law requires utilities to invest 0.5 percent of their state natural gas revenues in CIP. These costs are recovered through
customer base rates and an annual cost-recovery mechanism for the CIP expenditures.
Capability and Demand
Natural gas supply requirements are categorized as firm or interruptible (customers with an alternate energy supply). The maximum
daily send-out (firm and interruptible) for NSP-Minnesota was 767,636 MMBtu, which occurred on Jan. 21, 2013 and 732,135
MMBtu, which occurred on Jan. 19, 2012.
NSP-Minnesota purchases natural gas from independent suppliers, generally based on market indices that reflect current prices. The
natural gas is delivered under transportation agreements with interstate pipelines. These agreements provide for firm deliverable
pipeline capacity of 596,411 MMBtu per day. In addition, NSP-Minnesota contracts with providers of underground natural gas
storage services. These agreements provide storage for approximately 26 percent of winter natural gas requirements and 31 percent of
peak day firm requirements of NSP-Minnesota.
NSP-Minnesota also owns and operates one LNG plant with a storage capacity of 2.0 Bcf equivalent and three propane-air plants with
a storage capacity of 1.3 Bcf equivalent to help meet its peak requirements. These peak-shaving facilities have production capacity
equivalent to 246,000 MMBtu of natural gas per day, or approximately 31 percent of peak day firm requirements. LNG and propane-
air plants provide a cost-effective alternative to annual fixed pipeline transportation charges to meet the peaks caused by firm space
heating demand on extremely cold winter days.
NSP-Minnesota is required to file for a change in natural gas supply contract levels to meet peak demand, to redistribute demand costs
among classes, or to exchange one form of demand for another. Contract demand levels for the past five years are being reviewed by
the MPUC.
Natural Gas Supply and Costs
NSP-Minnesota actively seeks natural gas supply, transportation and storage alternatives to yield a diversified portfolio that provides
increased flexibility, decreased interruption and financial risk and economical rates. In addition, NSP-Minnesota conducts natural gas
price hedging activity that has been approved by the MPUC.
The following table summarizes the average delivered cost per MMBtu of natural gas purchased for resale by NSP-Minnesota’s
regulated retail natural gas distribution business:
2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.53
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.41
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.25
NSP-Minnesota has firm natural gas transportation contracts with several pipelines, which expire in various years from 2014 through
2033.
NSP-Minnesota has certain natural gas supply, transportation and storage agreements that include obligations for the purchase and/or
delivery of specified volumes of natural gas or to make payments in lieu of delivery. At Dec. 31, 2013, NSP-Minnesota was
committed to approximately $356 million in such obligations under these contracts.
NSP-Minnesota purchases firm natural gas supply utilizing long-term and short-term agreements from approximately 28 domestic and
Canadian suppliers. This diversity of suppliers and contract lengths allows NSP-Minnesota to maintain competition from suppliers
and minimize supply costs.
See Items 1A and 7 for further discussion of natural gas supply and costs.