Last November, the Minnesota Public Utilities Commission approved Xcel Energy’s 2011-2025 Integrated Resource Plan and established various compliance filing requirements and deadlines. Pursuant to that November 2012 Order, the Commission directed Xcel to conduct a Life Cycle Management Study (“LCM Study”) examining the feasibility and cost-effectiveness of continuing to operate, retrofitting, or retiring Sherburne County (Sherco) Generating Station Units 1 and 2, two coal-fired units each having a production capability of 750 MW. The Commission’s November 2012 Order also outlined a number of study components, including the parameters for a base case and various modeling sensitivities, and ordered Xcel to file the results with the Commission on July 1.

At the conclusion of that study, Xcel proposes a wait and see approach. Low natural gas prices, higher CO2 prices, higher coal prices, or higher costs at Sherco favor retirement of Units 1 and 2.  Conversely, higher natural gas prices, lower or later implementation of CO2 costs, or higher construction costs for replacement generation favor retrofitting the units with selective catalytic reduction (“SCR”) instead.  In light of these uncertainties, Xcel believes that the most prudent course of action is to continue operating Sherco 1 and 2 until more is known regarding environmental regulation, particularly as it pertains to CO2.  Xcel believes keeping the status quo leaves both continuing operation and Sherco-replacement options open until there is greater clarity on environmental regulations, timing, and cost.  To provide guidance to subsequent resource plan proceedings, Xcel suggests the Commission order a re-evaluation of how to proceed with Sherco 1 and 2 if (1) air quality regulations establish a need for SCRs or (2) carbon regulation becomes clear.

The Commission has not established a timeframe for interested parties to comment. But given the number of parties participating in the stakeholder process, including the North Dakota and South Dakota Public Service Commissions, City of Becker, environmental groups, and business representatives, there will likely be at least one (if not many) alternative suggestions. As a prophylactic measure, Xcel emphasized no decisions should be made in response to the LCM Study. Instead, Xcel asserts “It is in the context of the next Resource Plan, and not this study, that the size, type, and timing of future resources will be decided.” If the Commission follows its precedent from a similar docket involving another Minnesota utility, Minnesota Power, it will wait to act until Xcel’s next resource plan, which is due February 1, 2014. Replacing 1,500 MW of coal-fired generation would require extensive analysis and, if ordered by the Commission, significantly alter Xcel’s generation portfolio. Stay tuned.