Today marked the release of the highly anticipated report and recommendations from the Administrative Law Judge tasked with reviewing Xcel Energy’s handling of the life cycle management and extended power uprate (LCM/EPU) projects  The MN PUC initiated review of the LCM/EPU projects at the conclusion of Xcel Energy’s 2012 electric rate case after learning that the total costs of the LCM/EPU projects were approximately double Xcel Energy’s estimates utilized in the underlying certificate of need proceedings.  The thrust of the MN PUC’s inquiry was whether Xcel Energy’s handling of the LCM/EPU projects were prudent, whether the cost overruns were reasonable, and what disallowance remedy, if any, should be adopted.  As a necessary part of this analysis, the MN PUC directed the ALJ to determine what portion of the total $748 million spent on the LCM/EPU projects were for the LCM and EPU, respectively.

Relying heavily on analysis from the Minnesota Department of Commerce, the ALJ’s report questions Xcel Energy’s management of the LCM/EPU projects.  The ALJ ultimately concluded that “Xcel’s principal failure was that it did a very poor job managing the initial scoping and early Project management up until beginning installation during the 2009 refueling outage.  The Company’s decision to proceed with the combined LCM/EPU Project in 2009 rather than 2011 created an extremely difficult task that Xcel was not able to manage.”  The ALJ’s report goes on to chastise Xcel Energy for failing to appropriately track LCM and EPU project costs, proffer a reasonable cost allocation split for the LCM and EPU projects, and demonstrate a reasonable figure for disallowance.

The ALJ concluded that Xcel Energy’s failures justify a disallowance of approximately $72 million of the EPU project costs, resulting in a roughly $10 million reduction to Xcel Energy’s annual revenue requirement on a Minnesota Jurisdictional basis.  This reduction is based on a cost-effectiveness comparison between the final cost of the EPU against the cost of the next least-cost alternative that was considered in the underlying EPU certificate of need proceedings.

Parties to the proceeding will have the opportunity to submit exceptions to the ALJ’s report.  Although no deadline has been set yet, we suspect review of the matter will proceed swiftly.  Oral argument before the MN PUC on this matter has already been set for March 3, with deliberations and an oral decision to follow on March 6.  This schedule was previously set to allow the MN PUC to build the decision into deliberations on Xcel Energy’s pending 2013 electric rate case (set to conclude by March 26).