Xcel Energy says it will keep running its two Sherco coal-fired generators

The first two coal burners in Xcel Energy's big Sherburne County plant are more than 30 years old and a target for environmentalists.

But they aren't ready for retirement yet, the utility has decided. Given the uncertainties around new environmental regulations and the cost of replacing the burners with natural gas units, Xcel has determined that the smart move is to just keep the workhorse engines running and reassess the options when new regulations become clearer. In short, wait.

That's the conclusion of a study Xcel filed Monday with the state Public Utilities Commission.

"We believe the most prudent course is to leave options open until there is greater clarity and certainty on environmental regulations and the associated cost,'' Dave Sparby, president and CEO of Northern States Power Co., a unit of Xcel, said in a statement Monday.

In an interview, Jim Alders, Xcel's regulatory strategy consultant, said he expects the commission to open the filing for public comment.

Regulators had ordered Minneapolis-based Xcel, the state's largest electric utility, to study the future of the Sherco 1 and 2 units in Becker. Alders said the study took about six months and included input from a variety of stakeholders, including such groups as the Sierra Club.

"The big unknown, of course, is what kind of public policy is going to develop around climate change and carbon emissions," Alders said. "We don't have a good feeling of what's going to be established by when."

Xcel is known for embracing fuel diversity, with plants running on everything from coal and natural gas to nuclear fuel, water, wind and biomass. But it has not shifted away from coal as quickly as some groups deem necessary.

A coalition of environmental groups last year sued the U.S. Environmental Protection Agency in federal court in Minnesota for not enforcing air pollution rules on the generators. They want the courts to force the EPA to require Xcel to cut emissions from the units, which emit mercury as well as sulfur dioxide and other particulates that cause breathing problems. The lawsuit is ongoing.

The U.S. Interior Department has found the plant to be a source of haze over Voyageurs National Park in Minnesota and Isle Royale National Park in Lake Superior.

Xcel said it is currently investing $50 million in Sherco units 1 and 2. That includes adding mercury controls in 2014 and working on a program to improve sulfur dioxide and particulate collection. (A third and newer unit, Sherco 3, remains down for repairs.)

According to Xcel's findings, it would cost about $1.7 billion to replace units 1 and 2 with combined-cycle natural gas equipment. Installing top-shelf pollution control equipment, a technology called "selective catalytic reduction,'' in both units would cost nearly $400 million. Either move would have a significant impact on customer rates.

"We wish that Xcel was coming in and saying that they're ready now to retire the plants," Reuther said. "But what it does indicate is that they're interested in making a smart decision.

"It's pretty clear that this is the beginning of the end for Sherco," he said. "Sherco is last century's technology and people want clean energy."