Xcel Energy ratepayers and investors will share the financial pain of more than $400 million in cost overruns on a five-year upgrade of Xcel’s nuclear power plant in Monticello, Minn.
The Minnesota Public Utilities Commission decided Friday that Xcel can collect from ratepayers all $748 million it spent to boost output and extend the life of the 1970s reactor.
But commissioners voted 5-0 not to allow Xcel to collect any profit on the overruns.
“We are saying you can recover those costs — you just can’t get a profit on them,” said Commissioner Dan Lipschultz.
Xcel wanted to recover its full investment in the project, along with its usual regulated rate of return, just under 10 percent. The profit limitation represents an estimated $24 million annual hit for the company.
It was not immediately clear how the decision will affect rates for the utility’s 1.2 million electric customers in Minnesota. Those customers are currently paying interim rates that could be modified by the Monticello decision and other factors.
“We’re disappointed with the decision,” Chris Clark, president of Xcel’s Minnesota regional operations, said in an interview after the vote.
Clark said the company will examine the implications of the decision and its effect on investors. The vote happened after the stock market closed. Xcel shares were down 3.6 percent in a broadly weaker market.
Xcel completed the upgrade to its 1970s-era reactor 45 miles northwest of the Twin Cities in 2013. By then, costs had soared to more than double the original $346 million estimate. The commission, which regulates for-profit utility monopolies, launched an investigation into whether the higher costs were prudent. In February, after taking testimony from nuclear experts, a state administrative law judge found that Xcel repeatedly mismanaged the upgrade project and deserves blame for the cost overruns.
Lipschultz said Xcel’s installation costs, mostly for labor, rose nearly threefold from the company’s 2008 estimate. Other commissioners wondered why Xcel’s experts didn’t see the cost escalation earlier and tell regulators about it.
“It seems like to an expert in the field, there shouldn’t have been so many surprises,” said Commissioner Betsy Wergin.
Yet the commissioners also accepted that the upgrade offers benefits to Xcel customers. It boosted output of the power plant by nearly 12 percent, although Xcel still is ramping up to the higher level. Xcel also upgraded major components to enhance safety and extend the plant’s life another 20 years.
The work, done mainly during shutdowns in 2009, 2011 and 2013, replaced the turbine, water-treatment and heating systems, electric wiring and other major equipment.
One factor in the cost overruns is that new, bigger components were difficult to install in cramped spaces designed for the older, smaller gear. Some locations also had high radiation levels. But nuclear experts hired by the state Commerce Department said Xcel and its consultants should have anticipated such problems.
Top Xcel officials, in comments Friday and at another hearing Tuesday, admitted the project’s price soared, but insisted it still was a good investment in carbon-free electricity.
“Certainly, we acknowledge the criticisms of the management, planning and execution of this project,” Clark told the commission Tuesday. “We believed we did what was necessary for the safe, reliable, long-term operation of this plant.”
Aakash Chandarana, Xcel regional vice president of rates and regulatory affairs, was even more blunt when a commissioner asked why the utility’s 2008 cost estimate was off the mark.
“We were naive in our thoughts perhaps,” Chandarana said, “… but at the time we were going through all of that we were moving forward in good faith and utilizing what we thought were good practices, if not best practices, to make sure that what we presented to the commission … was a conservative estimate.”
Two state agencies that review utility matters on behalf of ratepayers disagreed on how much of the cost overrun Xcel should absorb. The state attorney general’s office told regulators that ratepayers should largely be left off the hook, recommending that up to 75 percent of the cost overruns, or $321 million, come out of the company’s pocket.
The Commerce Department, which led the state investigation, recommended that customers should pay much of the bill, with Xcel taking a smaller hit.
The Monticello plant also faced separate federal regulatory action this week. On Wednesday, the Nuclear Regulatory Commission said the plant will be under increased oversight after the discovery of an undisclosed security issue in late 2014. Although the NRC said the security issue has been addressed, federal regulators will “perform an inspection focused on persistent human performance concerns at the plant.”