An investigation of Xcel Energy Inc.’s massive cost overruns during a five-year project to upgrade its oldest nuclear reactor in Monticello is placing much of the blame on the company’s management for letting it happen.

Nuclear and financial experts working for Minnesota utility regulators have concluded that Xcel managers didn’t understand or fully plan for the complex job of replacing major reactor components, didn’t adequately oversee contractors, and misleadingly blamed the U.S. Nuclear Regulatory Commission (NRC) for some of the costly delays.

The project to extend the plant’s life and increase power output ballooned from an estimated $320 million in 2008 to $665 million when it was completed last year. However, the final price tag likely will rise to $748 million, including construction-in-progress financial costs.

A key question in the investigation is whether Xcel’s customers or investors will pick up the cost overruns. Xcel is pushing regulators to make ratepayers pay the entire cost of the Monticello upgrade.

“The confusion, contradictory information to the NRC and start-stop process suggest management indecisiveness and strategic planning that, at best, was not adequately thought out,” said Mark Crisp, a nuclear consultant hired by the state Commerce Department to review Xcel’s handling of the project, in written testimony filed last week.

On Tuesday, the utility disputed the charges of mismanagement, as it did last November when the Star Tribune reported concerns about project oversight.

“We had an experienced team in place that relied on the best information available from our own internal experience and other projects,” said Dave Sparby, chief executive for Xcel’s Minnesota operations, in an interview.

Xcel will file a detailed reply next month to the issues raised in the investigation, Sparby said.

The investigation of the Monticello upgrade project was launched last year by the Minnesota Public Utilities Commission after the magnitude of Xcel’s cost overrun became clear. In an industry that frequently spends hundreds of millions of dollars on construction projects, the Monticello cost overrun is the largest that any Minnesota public utility is known to have incurred, according to Nancy Campbell, a Commerce Department financial expert who also submitted testimony in the investigation.

Recouping the investment in Monticello is one of several reasons behind Xcel’s request for a $291 million, or 10.4 percent, rate hike over two years. Xcel investors have a stake because earnings potentially could suffer if ­regulators decide that ratepayers shouldn’t pay the whole tab.

The Commerce Department, which is handling most of the investigative legwork for the commission, has recommended that Xcel investors absorb a significant part of the overrun. Xcel estimated that share would amount to $94 million when applied across its Midwest territory. That’s equivalent to 36 percent of the profits reported for the first quarter of 2014.

In a follow-up e-mail, Sparby noted that nuclear professionals engage in work with high stakes for safety and they are encouraged to continuously re-evaluate. Many concerns now being raised by other experts “were vetted at the outset of the project, and we continue to believe the decisions made were reasonable ones,” he said.

Major replacements

During intermittent shutdowns over five years, Xcel replaced powerful reactor pumps, the turbine and other major equipment to keep the plant running another two decades and to boost its power output by 13 percent.

The single-reactor plant, which is about 45 miles northwest of the Twin Cities and went in service in 1971, supplies energy equivalent to the needs of 500,000 homes. About three-fourths of its power is used in Minnesota, with the rest used in Wisconsin, North Dakota and South Dakota. The plant is not yet operating at the higher output; Xcel says that should happen by the end of the year.

Laura McCarten, a regional vice president for Xcel, denied that managers tried to mislead Minnesota regulators by partly blaming the NRC relicensing process for delays. “That charge I think is really off base,” she said. “We don’t agree with that.”

In another point of disagreement, Xcel contends that just 22 percent of the upgrade cost was related to boosting power output, with most of the money spent on equipment to extend the reactor’s life another 20 years. But another expert hired by the state, William Jacobs, a nuclear engineer with GDS Associates, concluded that nearly 86 percent of the upgrade costs went to increasing output and just 14 percent to life-extension work.

That’s important because the lower estimated cost for the extra 71 megawatts of power was compared by regulators against alternatives, such as building a natural gas power plant. In hindsight, the Commerce Department now contends, the Monticello power increase doesn’t look like as good of a deal.

To get more output, Xcel needed to install bigger replacement equipment in spaces designed in the 1960s for generally smaller units. Such work is known to be costly, and Xcel should have anticipated it but didn’t, according to the state’s other expert, Mark Crisp, managing consultant for Global Energy & Water Consulting based in Acworth, Ga.

“Unfortunately, in my opinion, it does not appear that the level of skilled project management, communications, and sufficient support for employees entrusted to carry out the project was focused on this project until the later construction time period when it became obvious to the company that costs were spiraling far above expectations,” Crisp testified.

David Lochbaum, director of the Union of Concerned Scientists’ nuclear safety project, raised similar concerns last year. Xcel later issued a seven-page letter rejecting Lochbaum’s position. On Tuesday, Lochbaum said Xcel “has still got some explaining coming,” but praised its willingness to spend what it felt was needed for plant safety.

“On the purely safety standpoint, the good news is that despite some problems, regardless of whose fault they were, the plant wasn’t operated with unsafe equipment,” Lochbaum said.

The investigation is far from over. Under Minnesota’s regulatory process, an administrative judge will later this year review the investigative findings and responses by Xcel and others, then offer a recommendation. The five-member PUC is expected to vote next year whether ratepayers must bear the cost overruns, a decision that will be part of the larger question of how much of a rate hike Xcel deserves to impose for 2014-15.