Minnesota PUC punishes Xcel for Monticello cost overruns

The Minnesota Public Utilities Commission on March 26 said it took action on a petition by Northern States Power d/b/a Xcel Energy for a general increase in its electric rates, and in the process smacked the utility a bit on cost overruns during a rehab project for the Monticello nuclear plant that went way over budget.

This rate case is a multi-year rate plan, covering the years 2014 and 2015. It is the first multi-year rate case ever filed with the commission, with Xcel acting on statutory authorization enacted in the 2011 legislative session.

As part of its decisions in Xcel Energy’s 2012 electric rate case, in September 2013 the commission opened an investigation into Xcel’s actions and expenses to refurbish the reactor at the Monticello nuclear power plant. This was a life cycle management and extended power uprate project. The purpose of the investigation was to determine whether Xcel’s decisions were prudent and if recovery of the costs from ratepayers was reasonable.

In 2008, Xcel had estimated the cost of the project to be $320 million, but during the course of the 2012 electric rate case the company informed the commission that the actual costs would total $665 million. Subsequent information came in with costs of approximately $748 million.

On March 6 of this year, the commission determined that Xcel’s handling of the project was not prudent. However, although the project costs were high, the state Department of Commerce’s analysis, aided by the work of an outside expert, demonstrated that the project would supply cost-effective generation to ratepayers. Thus, the commission did not disallow the cost overruns.

But because there was ample evidence that Xcel’s overall handling of the project was not prudent, and that the company failed to alert the commission about the cost overruns and their causes, the commission denied Xcel the opportunity to earn any return on the costs that are in excess of the initial figure (adjusted to 2014 dollars) provided by the company at the time the Certificate of Need for the project was filed. The commission also determined that the Monticello extended power uprate project was not used and useful in providing electricity in 2014, and therefore no depreciation expense or return should be allowed for 2014.

The project costs were allowed in rates for the second year, 2015, in this multi-year rate case. The financial implications of these decisions will be incorporated into this rate case.

Written orders formally documenting the commission’s decisions will be issued in several weeks. 

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.