The bill for upgrades to Monticello nuclear plant is expected to grow even more, which may affect utility’s rate hike request.
MONTICELLO, Minn. – A major upgrade to Minnesota’s oldest nuclear power plant is finally finished — and way over budget.
Xcel Energy expects to restart its Monticello Nuclear Power Plant this week after a four-month shutdown that allowed workers to replace aging pumps and other equipment to keep the 43-year-old reactor running another two decades and to boost electric output by 12 percent.
But the cost of the work surged $267 million, or 83 percent, over its 2008 budget of $320 million. The Minneapolis-based electric and gas utility says the final costs will be even higher, but hasn’t publicly disclosed the amount.
In the meantime, Xcel’s 1.2 million electric customers in Minnesota are being asked to pay for the cost overruns. This sort of nuclear-related expense is one of the major drivers behind Xcel’s requested rate hike that an administrative judge recently recommended slashing to 4.7 percent. The Minnesota Public Utilities Commission will decide, probably this fall, how much more ratepayers will pay.
Utility officials declined to answer questions about the cost overruns, saying it would be inappropriate to comment while state regulators are considering the rate hike request. In regulatory filings, Xcel has defended the cost increase for upgrading the Monticello plant, citing schedule changes, vendor issues, evolving regulations and unexpected work. Xcel promised additional explanations later.
“[It] is a large, complex project with many intricate components that required changes from original plans,” Xcel’s chief nuclear officer, Timothy O’Connor, said in recent written testimony submitted to state regulators.
Such cost overruns are further proof of the “very dicey” economics of nuclear power, said Mark Cooper, a senior research fellow for economic analysis at Vermont Law School’s Institute for Energy and the Environment.
“They cannot build these things or repair them or expand them without having severe cost overruns and that is part of the technology,” Cooper said in an interview.
Last year, Xcel dropped a planned power enhancement at its other Minnesota nuclear plant, Prairie Island in Red Wing, saying it no longer was an economical option.
Cost-effective – in 2008
When Xcel proposed upgrading the Monticello plant five years ago, the utility needed to replace major components as part of the 20-year extension of its operating license to 2030.
At the same time, Xcel officials also decided to upsize some of the new equipment so that Monticello’s output could be increased by 12 percent. The power boost represented about 41 percent of the overall $320 million budget and was approved by the state PUC at that price.
About a quarter of the nation’s 104 power reactors have undergone similar power enhancements, known as “uprates.”
“They are generally seen as a way to invest in increased capacity without having to go through the difficulty of siting new nuclear power plants — and in general they have been successful,” said Andrew Kleit, a professor of energy and environmental economics at Pennsylvania State University who has studied such projects.
Indeed, Xcel contends it has been worthwhile to boost Monticello’s output, even though the U.S. Nuclear Regulatory Commission has yet to authorize running the reactor at the higher output. Xcel expects NRC approval later this year.
Large workforce gone
In Monticello, 3,000 construction workers labored at the plant since early March, turning it into a major construction zone.
Mark Schimmel, Monticello site vice president for Xcel, said it was the most people he’s seen on a nuclear work site since the era of reactor construction in the 1970s.
The workers replaced large pumps and motors, a large unit that dries steam within the reactor core and other major equipment. The work took place during a refueling shutdown, as did earlier phases of the upgrade in 2009 and 2011.
“There have been areas where they cut out pieces of wall because they have to move pump motors,” said Patricia Voss, an NRC inspector based at the plant who monitored the work to assure it met federal safety standards. She said in an interview that she wasn’t aware of the cost overruns, but that her job is monitoring for safety, not cost.
The project has been troubled for years by delays and regulatory concerns, including some that grew out of the 2011 Fukushima Daiichi nuclear plant disaster in Japan. Some engineering problems surfaced only after the work began, and had to be addressed on the fly.
O’Connor, the chief nuclear officer, testified that other reactor projects — Grand Gulf in Mississippi, Turkey Point and St. Lucie in Florida and Watts Barr in Tennessee — also experienced cost overruns, in one case double the original estimate.
“It seems like their excuse is, ‘We’re only 80 percent over, some people go twice as much as originally budgeted, so don’t worry,’ ” said Jordan Weaver, project scientist for the Natural Resources Defense Council’s nuclear program. “Generally, what that means is that those types of costs are passed on to consumers.”
Bills left for ratepayers
The state Commerce Department, which analyzes utility rate hike requests on behalf of consumers, contends that Xcel hasn’t offered enough justification for the cost overruns. Commerce officials declined to comment, citing the ongoing rate case.
Just how much customers will have to bear remains unclear.
That’s partly because not all of the cost overruns have been disclosed. Under a state law, Xcel has classified its latest cost-overrun estimate as a “trade secret.” The estimate has been disclosed to regulators, however, and the Star Tribune last week petitioned to have it made public, but the PUC has not yet acted.
Xcel spokeswoman Mary Sandok said in an e-mail that the utility needed to keep the amount confidential because it didn’t want project vendors to “know how much contingency was built into the budget,” thus giving them an edge in negotiations over final bills. The total cost will be disclosed later, she said.
Xcel customers already are paying higher interim electric rates this year, the fifth increase since 2005. Even if the cost overruns aren’t added to rates this year, they could come back in 2014. Xcel plans another rate hike request for next year to recover its continued investments in the electrical system.
Kleit, the Penn State economist, said ratepayers often take the hit for cost overruns in states such as Minnesota where utilities are subject to traditional rate regulation. He said investors would suffer the loss in states with deregulated power markets, a road Minnesota hasn’t taken.
“The ratepayers bear the risk despite the best efforts of the commission,” Kleit said. “The utility always has more resources, more money, more lawyers and more accountants. It is very hard for dedicated regulators to fight all of that.”
David Shaffer • 612-673-7090