Minnesota utility regulators on Thursday agreed that Xcel Energy Inc. needn't go ahead with a $237 million power-boosting upgrade at the Prairie Island nuclear power plant.

The Minneapolis-based utility says the project to increase power output by 12 percent no longer is a good deal for customers and should be scrapped.

In a procedural step, the state Public Utilities Commission gave anyone who objects to dropping the project 15 days to say so. If an objection surfaces, further regulatory review would be needed.

The decision to drop the power enhancement at the plant near Red Wing, Minn., threw a wrench into Xcel's long-range generation planning, and the commission ordered several actions to address uncertainty about the need for new power plants.

Although power demand has been slack since the recession, the utility had been weighing whether to add up to 600 megawatts of generation after 2017, the equivalent of one large power plant, to meet future demand.

Some of that new capacity would replace two coal-fired generators at the Black Dog power plant in Burnsville that Xcel intends to retire in early 2015. Both units are more than 50 years old and lack up-to-date environmental controls.

"We are very happy about that," said Kevin Reuther, legal director for the Minnesota Center for Environmental Advocacy, a St. Paul-based nonprofit that intervenes in utility cases and has been tracking Xcel's long-range plans.

With the Prairie Island upgrade now off the table -- eliminating more than 100 megawatts of new generation -- the commission on Thursday ordered additional analysis of future generating needs and set a timetable for Xcel and Calpine Corp., a merchant power company, to propose new units.

Both Xcel and Calpine have considered natural gas-fired generators. Calpine would expand its existing plant in Mankato and would sell the power to Xcel. The utility also is considering building generators of its own. Specific proposals are due next March.

Separately, the commission endorsed Xcel's plan to study the future of the two older coal-burning generators at the Sherco power plant in Becker, Minn. The utility is required to complete the study by next July.

At Prairie Island, Xcel had already installed bigger fuel rods in the twin reactors in expectation of increasing their output. But the new rods offered an unexpected opportunity to extend the time between refueling from 18 months to 24. Xcel said that extension represents a major cost saving that benefits ratepayers almost as much as the power upgrade project.

Each of the two units at the plant generates power for about 500,000 homes.

David Shaffer • 612-673-7090