July 12: Xcel board under scrutiny in Monticello cost overrun

An unsealed transcript in Minnesota's investigation of a massive cost overrun at Xcel Energy Inc.'s Monticello nuclear power plant is raising questions and controversy about whether the utility's board of directors deserves some of the blame.

In the transcript, a nuclear expert hired by the state said that Xcel directors cut the project budget before any work began, disregarding a recommendation of engineers working on the project, and ordered a "fast track approach" with construction milestones that couldn't be met.

The board's action was among "numerous project risks related to cost issues that, as a whole, points to a dysfunctional project management program, " Mark Crisp, a Georgia-based consultant, said in written testimony that was unsealed at the request of the Star Tribune.

A top Xcel executive said Friday that the claims about board missteps are wrong, even though Crisp based them on a company memo describing early problems with the project.

"That is flat-out inaccurate," Laura McCarten, a regional vice president for Xcel, said of the testimony about the board.

The investigation by Minnesota utility regulators is looking at Xcel's handling of the five-year project to replace 1960s-era equipment, including the turbine and major pumps, to extend the Monticello plant's life and boost output. Construction costs more than doubled to $665 million from the original estimate, and now regulators must decide whether Xcel's investors or its 1.2 million Minnesota customers should absorb all or part of the extra expense.

The previously sealed testimony about the board, along with an internal Xcel memo on which the testimony is based, were released this week after the Star Tribune requested them and Xcel dropped most of its claims to trade secrecy.

Xcel has denied these charges, and says next month it will file a detailed reply, which will be reviewed by an administrative judge overseeing the inquiry.

If the newly released testimony about Xcel's board is correct, it paints a more complicated picture, suggesting that company directors created early hurdles for nuclear managers from which they didn't recover.

The internal memo from Xcel seems to back up the state expert's conclusions. "The project never caught up to workload, " said the memo, which also stated that the project's "initial scope and schedule were inadequate."

Yet it would be unusual for any board of directors to reject a recommendation from management for an important decision. Dave Sparby, chief executive of Xcel's Minnesota regional operation, said that it didn't happen with the Monticello project.

"Management presented only one estimate and one schedule to the board for approval — these were prepared by the Project Management in 2007 and agreed to after internal review and approval," Sparby said in an e-mail. "The board approved these recommendations in August of 2007."

Xcel's McCarten said Friday that she didn't have a full explanation for the memo, but that the higher 2007 cost estimate may have come from an in-plant team, not the engineers working on the project.

Mike Porter, an adjunct business professor at the University of St. Thomas Opus College of Business, said it may be difficult for investigators to sort out responsibility. Complicating the picture, he said, is that big companies often have competing cultures that don't communicate well.

"The engineers are one group. The managers are another group," Porter said after reviewing parts of the testimony at the request of the Star Tribune. "Then you have got the downtown [executive] people and the board is separate from that. … The people in the boardroom don't necessarily connect with the boots on the ground."