Investigation: Xcel failures led to reactor cost overruns

Xcel Energy repeatedly mismanaged a major upgrade to its Monticello, Minn., nuclear power plant, and deserves blame for $402 million in cost overruns that more than doubled the final price tag, according to investigative findings released Monday.

The report by an administrative law judge investigating the matter rejected virtually all of the Minneapolis-based utility's explanations for how the project, approved in 2006 and completed in 2013, ended up costing $748 million, an increase of 114 percent in today's dollars.

"We are disappointed with the administrative law judge's recommendation regarding the Monticello nuclear plant's life extension and power uprate project," Chris Clark, president of Xcel's Minnesota regional unit, said in a statement.

The project increased the output of the 1970s-era power plant by nearly 12 percent, although Xcel still hasn't run the reactor at the higher output. The work, done mainly during shutdowns in 2009, 2011 and 2013, also replaced equipment to keep the plant running another 20 years.

Judge Steve Mihalchick, who presided over the state's investigation, concluded that Xcel mishandled the project from the beginning, failing to recognize the complexity of the upgrade and the resulting higher costs.

"Xcel's principal failure was that it did a very poor job managing the initial scoping and early project management up until beginning installation during the 2009 refueling outage," Mihalchick wrote in a 38-page report to the Minnesota Public Utilities Commission.

Despite the findings, ratepayers may not be off the hook for the overruns.

Mark Cooper, a senior research fellow who analyzes nuclear industry economics at Vermont Law School's Institute for Energy and the Environment, said the judge's findings are further evidence that the price of building, maintaining and upgrading reactors has gotten too high for consumers.

"The message here is really overwhelmingly clear — it's time to move on from nuclear power," Cooper said in an interview. "The utilities can't keep aging reactors online at an economic price."

Clark said Xcel is still reviewing the decision and will respond to the commission.

"We take seriously the responsibility for delivering quality projects and believe this project benefits our customers by providing fuel diversity, reliability and reducing the carbon impact of electricity production," Clark added.

The Monticello plant, 45 miles northwest of the Twin Cities, went into operation in 1971, and generates enough power for about 500,000 homes. Federal regulators in 2006 extended the plant's original operating license to 2030.

But Mihalchick, relying on testimony from outside nuclear experts hired by the state Commerce Department, concluded that "the company's failure to recognize problems with spacing, clearances, access and physical arrangements of the plant was a direct failure of its … project management. Nothing related to the characteristics of the plant, including its size, should have surprised Xcel or led to cost overruns."

Mihalchick also questioned Xcel's decision to put the project on a fast track, saying the aggressive schedule "dramatically increased project costs."

During the Monticello upgrade, Xcel also added major items to the project, such as a new feedwater heater and in-plant electrical wiring that drove up costs by $261 million. Mihalchick concluded those extra costs "were caused by Xcel's imprudent management." Overall, he said, "Xcel has failed to demonstrate that the cost overruns it seeks to recover were prudently incurred and are reasonable."

In 2011, as Xcel struggled with the project, it brought in a new contractor, Bechtel Power Corp., to oversee the work. That same year Xcel also hired industry veteran Karen Fili to oversee the project and later manage the plant. Fili resigned last week to join Southern Co., as a site vice president overseeing completion of Vogtle Units 3 and 4 in Georgia. They are the first new U.S. nuclear reactors to be planned and built in three decades.

It was not immediately clear what effect the judge's recommendations will have on Minnesota customers' bills, partly because the PUC could decide on a different remedy. The outcome likely will be clear in March, when the commission is scheduled to vote on a proposed rate hike for Xcel's 1.2 million Minnesota customers.