June 11, Burl W. Haar Executive Secretary Minnesota Public Utilities Commission th Place East, Suite 350 St.

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1 June 11, 2009 Burl W. Haar Executive Secretary Minnesota Public Utilities Commission th Place East, Suite 350 St. Paul, MN RE: Northern States Power Company, a Minnesota Corporation Annual Report on the Operation and Performance of Its 2008 Incentive Compensation Plan Pursuant to MPUC Orders in Docket Nos. E002/GR , G002/GR , E002/GR and G002/GR Dear Dr. Haar: On May 29, 2009, Northern States Power Company, a Minnesota Corporation ( or the Company) filed its annual incentive compensation compliance report for the year 2008 pursuant to the Minnesota Public Utilities Commission s (Commission) January 14, 1994 Order After Reconsideration in Docket No. E002/GR The Commission s Ordering paragraphs 2 and 3 relate to s electric and gas utilities incentive compensation. Ordering paragraph No. 3 requires that: The Company shall file a report on or before April 1, 1995 and annually thereafter 1 evaluating the operation and performance of its incentive compensation plan. The report shall include, but shall not necessarily be limited to, an accounting of all amounts paid under the plan, an accounting of all amounts recorded as earned but not paid, and an evaluation of the plan s success in meeting its stated goals, including controlling overall compensation costs. Ordering paragraph No. 2 requires that The Company shall record for future refund all incentive compensation payments earned under the terms of the plan and recoverable in rates under this Order but not paid. The Commission in its September 10, 2007 Order provided greater clarity when it stated that it will require Xcel to refund amounts included in the test year for incentive compensation that were not actually paid. 1 The Commission approved a later filing date in its March 27, 2002 Order in the current docket. The Order states Modify the Order Paragraphs to require that the incentive compensation report will be due on May 31, 2002, and annually thereafter. requested a later filing date since it changed the date that incentive compensation payments are made from February 1 to March 15.

2 Burl W. Haar June 11, 2009 Page 2 In its filing, explains that since the Company did not pay incentive compensation for the year 2008, it has recorded $6,080,583 to be returned to ratepayers; $5,425,157 attributable to electric ratepayers and $655,426 to gas ratepayers. The Office of Energy Security of the Minnesota Department of Commerce (OES) reviewed Xcel Energy s report and is satisfied that the Company complied with the Commission s Order. Regarding the refund, the Department analyzed the following areas: the amount of incentive compensation included in current rates; interest requirements; and the timing of refunds. In its Attachment 2, shows the amount of incentive compensation included in current rates for the electric utility is $5,425,157 and for the gas utility is $655,426. The OES reviewed documents from the appropriate rate cases, and verified that the amounts are correct. As detailed in Attachment 3 of its filing, proposes to pay interest for use of the refund money based on the Company s last-approved weighted cost of capital for its natural gas operation and its electric operation (Docket Nos. G002/GR and E002/GR , respectively). Interest will be compounded monthly and will be accrued beginning with March 2009, the date when the incentive awards would have been paid. The OES agrees with the interest application proposed by the Company. proposes to make the refund, via credits to all active accounts, within 60 days of receipt of the Commission s Order approving the refund plan. The Company stated that it is willing to consider alternate methods of refunding. One potential alternate method for the electric portion of the refund would be to hold the electric refund until the conclusion of the Company s current rate case in Docket No. E002/GR , and make the refund simultaneously with the interim rate refund. Although that method could be considered and the OES would not oppose such consideration, the OES agrees that the Company s proposal is reasonable, and the refunds should be made within 60 days of receipt of the Commission s Order approving the refund plan. According to the Company, the refund amount for a typical residential and natural gas customer will be $1.37 and $0.69 respectively, before interest. Based on its analysis, the OES recommends that the Commission accept the Company s 2008 incentive compensation compliance report, and approve the proposal to make the refunds within 60 days of receipt of the Commission s Order approving the refund plan. Additionally, the OES recommends that the Commission require a refund report within 30 days of the refund.

3 Burl W. Haar June 11, 2009 Page 3 The OES is available to answer any questions the Commission may have. Sincerely, /s/ DALE V. LUSTI Financial Analyst DVL/jl

4 CERTIFICATE OF SERVICE I, Sharon Ferguson, hereby certify that I have this day, served copies of the following document on the attached list of persons by electronic filing, , or by depositing a true and correct copy thereof properly enveloped with postage paid in the United States Mail at St. Paul, Minnesota. Minnesota Office of Energy Security Letter Docket No. E002/GR ; G002/GR ; E002/GR ; and G002/GR Dated this 11 th day of June, 2009 /s/sharon Ferguson

5 E002/GR Heather Cusick Minnesota Senior Federation 1885 University Ave W Ste 190 St Paul MN Pam Marshall Energy CENTS Coalition 823 East 7 th Street St. Paul, MN Burl W. Haar, Exec Sec 350 Metro Square Bldg 121 7th Place East St. Paul, MN Sharon Ferguson (4) MN Dept of Commerce 85 7 th Place East, Ste 500 St. Paul, MN James J. Bertrand Leonard Street & Deinard Suit South 5 th Street Corrine A. Heine Holmes & Graven Chartered 470 Pillsbury Center William Flynn, Esq. MBUUC Lindquist & Vennum P.L.L.P IDS Center, 80 S. 8 th St. James Haugen Board of Water Commissioners 1900 North Rice Street St. Paul, MN Marya White MN Dept of Commerce 85 7 th Place East, Suite 500 St. Paul, MN Julia Anderson Attorney General s Office 1400 Bremer Tower 445 Minnesota St. St. Paul, MN Curt Nelson Attorney General's Office 445 Minnesota Street St. Paul, MN Sara J. Desanto Attorney General's Office 445 Minnesota Street 1200 Bremer Tower St. Paul, MN Bill Jordan Champion International Corp. PO Box East Sartell Street Sartell, MN Robert S. Lee Mackall Crounse & Moore Law Offices 1400 AT&T Tower 901 Marquette Avenue Katy Wortel MCCPEQ Inc Pohl Road Mankato, MN Megan Hertzler 800 Nicollet Mall, Ste Richard C. Luis Administrative Law Judge Office of Administrative Hearings 100 Washington Sq., Suite 1700 Minneapolis, MN Tom Meersman Minneapolis Star Tribune 425 Portland Avenue South Minneapolis, MN John C. Sprangers, Sr. Attorney Minnegasco 800 LaSalle Avenue, Fl 11 PO Box Minneapolis, MN SaGonna Thompson 414 Nicollet Mall 5 th Fl Minneapolis MN Chuck Armstrong City of St. Paul 390 City Hall 15 West Kellogg Blvd. St. Paul, MN Bob Bridges International Paper Company 100 East Sartell Street Sartell, MN 56377

6 Lon Stanton Northern Natural Gas Company nd Street West Minneapolis, MN

7 In the Matter of Northern States Power Gas General Rate Case G002/GR (Updated 1/28/94) Burl W. Haar (15 copies) 121 7th Place East, Ste 350 St. Paul, MN SaGonna Thompson 414 Nicollet Mall 5 th Fl Minneapolis MN Megan Hertzler 8000 Nicollet Mall Ste 2900 David Jacobson 350 Metro Square 121 7th Place East St. Paul, MN Docketing (4) MN Dept. of Commerce 85 7 th Place East, Suite 500 St. Paul, MN Marya White MN Dept. of Commerce 85 7 th Place East, Suite 500 St. Paul, MN James M. Strommen Holmes & Graven Attorneys at Law 470 Pillsbury Center Charles Armstrong City of St. Paul 390 City Hall St. Paul, MN James J. Bertrand Leonard Street & Deinard 150 South 5th Street Suite 230 Allan W. Klein Administrative Law Judge Office of Administration Hearings 100 Washington Square, Ste Minneapolis, MN

8 E002/GR Ron Elwood Legal Services Advocacy Project Ste 101 Midtown Commons 2324 University Ave St Paul MN SaGonna Thompson Records Analyst 414 Nicollet Mall 5 th Fl Minneapolis MN Burl W Haar Exec Sec 350 Metro Square Bldg 121 7th Place E Richard J Johnson Moss & Barnett 4800 Wells Fargo Center 90 S Seventh St Lloyd W Grooms / David M Aafedt Winthrop & Weinstine PA 225 S 6 th St Ste Docketing (4) MN Dept of Commerce 85 7 th Place E Ste Kim Lillyblad Dahlen Berg & Co 200 S Sixth St Ste 300 Michael J Sarafolean Gerdau Ameristeel US Inc 4221 W Boy Scout Blvd Ste 600 Tampa FL Julia Anderson /Linda Jensen/ Valerie M. Means Attorney General s Office 1400 Bremer Tower 445 Minnesota St John Lindell Attorney General s Office-RUD 445 Minnesota Street Richard J Savelkoul Felhaber Larson Fenlon & Vogt P A 444 Cedar St Ste Alan R Jenkins Jenkins at Law LLC 2265 Roswell Rd Ste 100 Marietta GA Tim Barth Marathon Petroleum Company LLC PO Box 3128 Houston TX Gordon Hauk Ford Motor Company Executive Plz Dr Dearborn MI Ronald M Giteck / Steve Alpert Attorney General s Office (RUD) 445 Minnesota St Megan Hertzler Law Dept 414 Nicollet Mall 5 th Fl Minneapolis MN Chris Greenman Excelsior Energy Inc Wayzata Blvd Ste 305 Minnetonka MN Christopher Anderson Associate General Counsel Minnesota Power 30 W Superior St Duluth MN Robert S Lee / Andrew P Moratzka Mackall Crounse & Moore Law Offices 1400 AT&T Tower 901 Marquette Ave Pam Marshall Energy CENTS Coalition 823 E 7 th St St Paul MN Michael J Bradley Moss & Barnett 4800 Wells Fargo Center 90 S Seventh St Bruce Gerhardson Otter Tail Corporation 215 S Cascade St PO Box 496 Fergus Falls MN Bob Bridges Mgr Engineering, Maintenance & Utilities Sartell Mill 100 E Sartell St Sartell MN Angie Beehler Wal-Mart Energy Dept S E 10 th St Bentonville AR Byron Starns / Brian M Meloy Leonard Street and Deinard 150 S 5 th St Ste 2300 James C Erickson Director Rates Minnesota Power 30 W Superior St Duluth MN 55802

9 Steve Schneider General Manager Board of Water Commissioners 1900 Rice St St Paul MN Kathleen D Sheehy Administrative Law Judge Office of Administrative Hearings PO Box St Paul MN William Blazar / Mike Franklin MN Chamber of Commerce 400 Robert St N Ste 1500 Peter Grills 440 Cherokee Ave St. Paul, MN Lisa L Veith Assistant City Attorney 400 City Hall and Courthouse 15 W Kellogg Blvd St Paul MN Steven Nyhus Flaherty & Hood PA 525 Park St Ste 470 St Paul MN Larry L Schedin PE LLS Resources LLC 1137 Plymouth Bldg 12 S 6 th St James Strommen / Bryan Shirley Kennedy & Graven 470 US Bank Plz 200 S 6 th St Janet Shaddix Elling Shaddix & Associates 9100 W Bloomington Frwy S.122 Bloomington MN Ron L Spangler Jr Rate Case Mgr Regulatory Services Otter Tail Power Company 215 S Cascade St Fergus Falls MN 56538

10 G002/GR OAH Service List of Burl W Haar Exec Sec (E-file of 15 copies) 350 Metro Square Bldg 121 7th Place E Sharon Ferguson (E-file or 4 copies) MN Dept of Commerce 85 7 th Place E Ste All Parties have agreed to E-File documents at: Filing with edockets shall constitute service on the Public Utilities Commission, the Department of Commerce and the Office of Administrative Hearings. As of this date, all parties have agreed to accept service by at the e- mail addresses listed. However, where indicated, parties have requested that the be followed by mail or delivery of a hard copy. In the event that a pleading or attachment cannot be filed and served electronically, it must be filed and served on each of the parties at the addresses listed. Documents that contain trade secret or nonpublic data may be e-filed, but may not be copied or served electronically. Courtesy copies, except IRs Janet Shaddix Elling (NO IR S) Shaddix and Associates 9100 W. Bloomington Freeway #122 Bloomington, MN Karen Finstad Hammel(1 HARD COPY) Attorney General s Office 445 Minnesota St Valerie Means Attorney General s Office 1400 Bremer Tower 445 Minnesota Street St. Paul, MN Ronald M Giteck (1 HARD COPY) Attorney General s Office-RUD 445 Minnesota St Steven H. Alpert Attorney General s Office 445 Minnesota Street St. Paul, MN Michael J Bradley Richard J. Johnson Moss & Barnett 4800 Wells Fargo Center 90 S 7 th St James M Strommen Peter G. Mikhail Kennedy & Graven 470 US Bank Plz 200 S 6 th St Robert S Lee Andrew P. Moratzka Mackall, Crounse & Moore, PLC 1400 AT&T Tower 901 Marquette Ave Christopher D. Anderson James C. Erickson Minnesota Power 30 West Superior Street Duluth, MN Gerald Dasinger (1 HARD COPY- NO IR S) 350 Metro Square Bldg th Place East St. Paul, MN Robert Harding (1 HARD COPY NO IR S) 350 Metro Square Bldg th Place East St. Paul, MN SaGonna Thompson (1 HARD COPY ONLY NO IR S) 414 Nicollet Mall, 7 th Floor Minneapolis, MN Megan J Hertzler TS Assistant General Counsel Services Inc 414 Nicollet Mall FL 5 Minneapolis MN List: Beverly.Heydinger@state.mn.us BradleyM@moss-barnett.com Burl.Haar@state.mn.us Chris@energycents.org Curtis.Nelson@state.mn.us

11 Annette Henkel Minnesota Utility Investors 400 Robert St N Ste jshaddix@janetshaddix.com JohnsonR@moss-barnett.com Jerry.Dasinger@state.mn.us jstrommen@kennedy-graven.com Karen.Hammel@state.mn.us Megan.Hertzler@xcelenergy.com Robert.Harding@state.mn.us Ron.Giteck@state.mn.us rsl@mcmlaw.com Steve.Alpert@state.mn.us Sharon.ferguson@state.mn.us Valerie.means@state.mn.us canderson@allete.com jerickson@mnpower.com