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XEL > SEC Filings for XEL > Form 8-K on 27-Aug-2014All Recent SEC Filings

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Other Events

Item 8.01. Other Events
In 2013, Northern States Power Company Minnesota (NSP-Minnesota), a Minnesota corporation and a wholly owned subsidiary of Xcel Energy Inc., completed the Monticello life cycle management (LCM)/extended power uprate (EPU) project. The multi-year project extended the life of the facility and increased the capacity from 600 to 671 megawatts (MW). Monticello LCM/EPU project expenditures were approximately $665 million. Total capitalized costs were approximately $748 million, which includes allowance for funds used during construction (AFUDC). Project expenditures were initially estimated to be approximately $320 million, excluding AFUDC.

In 2013, the Minnesota Public Utilities Commission (MPUC) initiated an investigation to determine whether the final costs for the Monticello LCM/EPU project were prudent.

NSP-Minnesota subsequently filed a report and supporting testimony to provide details regarding the change and prudence of the incurred costs. The filing indicated the increase in costs was primarily attributable to three factors: (1) the original estimate was based on a high level conceptual design and the project scope increased as the actual conditions of the plant were incorporated into the design; (2) implementation difficulties, including the amount of work that occurred in confined and radioactive or electrically sensitive spaces and NSP-Minnesota's and its vendors' ability to attract and retain experienced workers; and (3) additional Nuclear Regulatory Commission (NRC) licensing related requests over the five-plus year application process. NSP-Minnesota has provided information that the cost deviation is in line with similar upgrade projects undertaken by other utilities and the project remains economically beneficial to customers. NSP-Minnesota has received all necessary licenses from the NRC for the Monticello EPU, and has begun the process to comply with the license requirements for higher power levels, subject to NRC oversight and review.

Intervenor testimony
In July 2014, the Minnesota Department of Commerce (DOC) filed testimony and recommended a disallowance of recovery of approximately $71.5 million of project costs, including expenditures and associated AFUDC, on a Minnesota jurisdictional basis. This equates to a total NSP System, which includes NSP-Minnesota and NSP-Wisconsin, amount of approximately $94 million.

The DOC's recommendation indicated that although the combined LCM/EPU project is cost effective, NSP-Minnesota should have done a better job of estimating initial project costs of the investments required to achieve 71 MW of additional capacity (i.e., EPU costs) as opposed to investments required to extend the life of the plant. They asserted that approximately 85 percent of the total $665 million in costs were associated with project components required solely to achieve the EPU.

Rebuttal testimony
On Aug. 26, 2014, NSP-Minnesota and the Office of Attorney General (OAG) filed rebuttal testimony. NSP-Minnesota's rebuttal further supported that the costs of the project were prudent and its decisions and actions do not warrant a disallowance or impairment. NSP-Minnesota's rebuttal testimony is summarized as follows:

         Agrees with the DOC position that the plant is cost-effective for
          customers as a whole;

         Highlights the project benefits providing carbon-free generation
          through a 20-year life extension and uprate of the plant for an
          installed capacity of about $1,000 per kilowatt;

         States that the DOC was incorrect in its analysis that 85 percent of
          the expenditures were associated with the uprate; and

         Provides NSP-Minnesota made prudent decisions based on the information
          available at the time the decisions were made.

The OAG recommended a disallowance of recovery of $321 million for the entire NSP system (based on a total capitalized cost of $748 million), and no return on $107 million. The recommended disallowance is primarily based on criticism of NSP-Minnesota's management of the project.

The DOC and OAG recommendations, NSP-Minnesota's response and comments of other parties are expected to be considered by an Administrative Law Judge (ALJ) later this year, who in turn will make a report of recommendations to the MPUC. The results and any recommendations from the conclusion of this prudence proceeding are expected to be considered by the MPUC in NSP-Minnesota's pending Minnesota 2014 Multi-Year electric rate case.

The next steps in the procedural schedule are expected to be as follows:

Surrebuttal Testimony - Sept. 19, 2014;

Hearing - Sept. 29 - Oct. 3, 2014;

Initial Brief - Oct. 31, 2014;

Reply Brief - Nov. 21, 2014; and

ALJ Report - Dec. 31, 2014.

A final MPUC decision is anticipated in the first quarter of 2015.

Except for the historical statements contained in this 8-K, the matters discussed herein, including the expected impact of rate cases, are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "outlook," "plan," "project," "possible," "potential," "should" and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) to obtain financing on favorable terms; business conditions in the energy industry; including the risk of a slow down in the U.S. economy or delay in growth recovery; trade, fiscal, taxation and environmental policies in areas where Xcel Energy Inc. and NSP-Minnesota have a financial interest; customer business conditions; actions of credit rating agencies; competitive factors including the extent and timing of the entry of additional competition in the markets served by Xcel Energy Inc. and its subsidiaries; unusual weather; effects of geopolitical events, including war and acts of terrorism; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric and natural gas markets; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; actions by regulatory bodies impacting our nuclear operations, including those affecting costs, operations or the approval of requests pending before the NRC; financial or regulatory accounting policies imposed by regulatory bodies; availability of cost of capital; employee work force factors; and the other risk factors listed from time to time by Xcel Energy Inc. and NSP-Minnesota in reports filed with the Securities and Exchange Commission, including Risk Factors in Item 1A and Exhibit 99.01 of Xcel Energy Inc.'s and NSP-Minnesota's Annual Reports on Form 10-K for the year ended Dec. 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014.

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