Regulators OK interim electric rate hike for Xcel but worry about nuclear costs

State regulators on Thursday approved a 5.5 percent interim rate hike for Xcel Energy electric customers in Minnesota, but signaled that the utility's nuclear-related investments face scrutiny during a review of its latest petition to raise rates.

The rate hike effective Jan. 1 for the utility's 1.2 million customers in the state will remain in effect while the Minnesota Public Utilities Commission examines details of Xcel's request for a larger, permanent rate hike. The process could take more than a year.

It will be the sixth consecutive year that Xcel electric rates have increased in Minnesota.

Once again, regulators are concerned about how nuclear investments affect rates. In Xcel's last rate hike request, the commission refused to allow a profit on cost overruns on earlier upgrades to the Monticello, Minn., nuclear power plant. That action triggered a $125 million write-off by the Minneapolis-based utility in March.

In a surprise move Thursday, the utilities commission ordered Xcel to show its cost projections over time for upgrades to its Prairie Island nuclear power plant in Red Wing, Minn. Xcel intends to invest $891 million in the twin-reactor plant in 2016-2018, on top of $1.7 billion invested since 2012, according to a November regulatory filing.

"These costs are enormous, and I want to be sure that the commission and all the parties have a full opportunity to examine what is going on here," commission Chairwoman Beverly Jones Heydinger said.

The parties include the state Department of Commerce, which reviews rate hike requests to protect ratepayers. Kate O'Connell, who manages the agency's electric and gas oversight, said it may retain nuclear experts to review the investments, as it did for the Monticello cost overruns in 2014.

Both of Xcel's nuclear plants are more than 40 years old. Operating them into the 2030s is part of Xcel's strategy, announced in October, to achieve 63 percent carbon-free electricity and reduce carbon emissions by 60 percent in 15 years.

The U.S. Nuclear Regulatory Commission has given them 20-year license extensions, but major equipment has needed replacing.

One big project — replacing the original generator at Prairie Island Unit 1 — is proposed in 2018. Other large planned investments are for dry casks to store spent fuel and various improvements for reliability and safety compliance, according regulatory filings.

"The projects are ones we believe need to be completed to continue to reliably operate the plant and should be completed during this three-year period," Xcel spokesman Randy Fordice said in an e-mail response to the Star Tribune.

None of the work is unplanned or new, Fordice added.

The increases would be phased in, with the largest in 2016, followed by smaller bumps in 2017-2018.

Xcel's package calls for raising the residential basic rate, which customers pay regardless of how much electricity they use, from $8 to $10 per month.

It is the first three-year rate hike plan submitted by the Xcel under a new state law allowing such requests. Under Xcel's proposal, customers would see smaller rate hikes in 2017 and 2018 as the utility's investment cycle winds down. As an option, Xcel offered to spread and extend the package over five years.

In a small victory for consumers, regulators on Thursday rejected Xcel's request for a second, interim rate hike in January 2017.

However, Xcel has the right to file another request for that interim rate hike.