8-KOther Events

XCEL ENERGY INC 8-K Report, Corporate Update (Jul 3, 2014)

Filed July 3, 2014For Securities:XELXELLL

Summary

Xcel Energy Inc. is reporting on an ongoing investigation by the Minnesota Public Utilities Commission (MPUC) concerning the cost prudency of Northern States Power Company Minnesota's (NSP-Minnesota) Monticello life cycle management (LCM)/extended power uprate (EPU) project. The project's final costs reached approximately $665 million, significantly exceeding the initial certificate of need (CON) estimate of $320 million. While NSP-Minnesota attributes the cost overruns to scope increases, implementation difficulties, and regulatory requirements, the Minnesota Department of Commerce (DOC), based on consultant recommendations, has proposed disallowing the recovery of approximately $71.5 million in project costs (or about $94 million total NSP-Minnesota amount including AFUDC), primarily related to the EPU portion deemed not cost-effective. The MPUC is expected to consider these recommendations in NSP-Minnesota's 2014 electric rate case, with a final decision anticipated in the first quarter of 2015. Investors should monitor the proceedings as any disallowance could impact future earnings and customer rates.

Key Highlights

  • 1MPUC is investigating the prudence of NSP-Minnesota's Monticello LCM/EPU project costs, which exceeded the $320 million CON by approximately $345 million.
  • 2The project's total final cost was $665 million, with NSP-Minnesota attributing overruns to scope changes, implementation challenges, and regulatory demands.
  • 3The Minnesota Department of Commerce (DOC), advised by consultants, recommends disallowing recovery of $71.5 million in project costs (and associated AFUDC, totaling ~$94 million for NSP-Minnesota).
  • 4The DOC's recommendation focuses on the EPU component of the project, suggesting it was not cost-effective to pursue the additional power output given initial cost estimation shortcomings.
  • 5The consultant's report also criticized the project's scope definition, contractor management, and cost monitoring.
  • 6The MPUC will consider the DOC's recommendations in NSP-Minnesota's 2014 electric rate case.
  • 7A final MPUC decision regarding the cost prudence and potential disallowances is expected in the first quarter of 2015.

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