Xcel Energy cost overruns: Could customers end up paying for it?

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The significant cost overruns of an upgrade to Xcel Energy's Monticello nuclear power plant were the fault of mismanagement, investigators say – but the company wants consumers to pay for it, the Star Tribune reports.

According to the paper, an investigation by state utility regulators found Xcel management didn't properly plan for or oversee the costly upgrades, then tried to blame the federal Nuclear Regulatory Commission for the issues. And the paper says Xcel is pushing for a rate hike so consumers pay the entire cost of the project, which will now cost about $750 million.

The goal of the five-year upgrade project was to replace aging equipment in order to increase its lifespan, and to boost how much energy it was putting out, the St. Cloud Times said last year. The Monticello Times reported the construction on the project was highly complex. The project replaced hundreds of pieces of equipment and required thousands of workers between 2009 and 2013.

In addition, Xcel's coal-fired plant in Becker was shut down for 22 months for repairs following an industrial accident there. By the time the plant came back online in October of 2013, Xcel's customers had paid millions for replacement power costs during the repair.

Overruns and rate hike requests

Rumblings of cost overruns started last July, when the planned cost of $320 million suddenly became $587 million. Just a few days later it ballooned even more, reaching an estimated $640 million.

In August, the Public Utilities Commission (PUC) began looking into the cost overruns, and said if the investigation finds the overruns were imprudent, the utility’s investors could share in the costs, which may affect earnings. The commission did, however, approve a plan have Xcel's 1.2 million Minnesota customers pay a portion of the costs. Xcel defended the cost increase at the time, citing a number of complications with the project.

The company again defended the overruns as "prudent" in October.

In November, the energy company proposed a two-year, phased-in rate increase – a 4.6 percent bump in January 2014 and a 5.6 percent hike in January 2015. Those hikes would be on top of a 3.8 percent increase approved in August for 2013, which raised an extra $103 million in revenue for the company.

The PUC approved a temporary hike of 4.6 percent the following month. It was the sixth rate increase in the past eight years for Xcel.

Then the company asked for another increase, what would amount to a 10.4 percent price increase over the next two years. Last month, the Minnesota Department of Commerce said that was too large and should be scaled back by 60 percent.

“Xcel’s requested rate increase is way too high. The utility’s math does not add up,” Commerce Commissioner Mike Rothman said.

The utility maintains the rate increase is needed to cover the cost of improvements to its system of generating and transmitting power.

But the Commerce Department’s statement says an investigation found Xcel overstated the costs of its expenditures and understated its revenue from sales and insurance benefits.

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