Xcel will issue $48 million Minnesota refund for 2011 coal plant disaster

Xcel Energy will refund Minnesota customers $48 million for costs related to a 2011 catastrophic equipment failure at the company’s coal plant in Becker.

State utility regulators in October ordered the refund, agreeing with an administrative law judge who found that Xcel was partially responsible for the disaster that sidelined a massive generator at Sherco for almost two years.

The refund is for the cost of replacement power, which Xcel billed to customers, in place of the electricity Sherco’s Unit 3 would have generated.

The Public Utilities Commission (PUC) on Thursday signed off Xcel’s recently calculated refund amount, including interest. Xcel expects to distribute the refund in April — about $12 for the average household.

During a safety test in 2011, a group of turbine blades broke and caused that turbine to “essentially self-destruct,” according to a report by Administrative Law Judge Ann O’Reilly.

In an ensuing fire, a hydrogen explosion hurled a 200-pound piece of the generator across the plant floor. Much of the unit was destroyed. No one was hurt, but repairs to Unit 3 cost $239 million, not including the cost of replacement power.

Ever since, Xcel has been entangled in a fight over who should pick up the tab.

Xcel recovered much of the repair costs from its insurers. Xcel, however, sued General Electric in 2013, alleging GE improperly designed and built the turbine and did not warn Xcel of crucial risks.

The PUC waited until the litigation was resolved before weighing in on whether the separate energy replacement costs should fall on the company or its customers.

In 2018, Xcel settled with GE. Xcel’s insurers continued a lawsuit against GE.

A jury found Xcel negligent in its operations and maintenance at Unit 3, and was 48% at fault. The jury ruled GE was responsible for the rest.

The litigation ended in 2020, restarting a debate at the PUC over the replacement power costs.

In May, O’Reilly followed the jury’s logic and found Xcel should reimburse customers for 48% of replacement power costs — plus interest — because Xcel failed to maintain Unit 3 in a “reasonable and prudent manner consistent with good utility practices.”

Xcel disagreed and said it paid appropriately for the Sherco disaster and has a long track record of safe power plant operations.

The PUC largely followed the advice of O’Reilly in ordering a refund, though it found Xcel should refund customers for 100% of the replacement power costs.

The commission said Xcel, not its customers, was in the best position to screen companies it works with and seek redress when necessary.

Unit 3 is the largest of three coal-fired generators at Xcel’s plant. Southern Minnesota Municipal Power Agency owns a minority stake in the unit, but Xcel operates it.

The company shut down Unit 2 in December 2023 and plans to close the entire plant in stages by 2030, as it transitions from fossil fuels.

Separately, in September, the PUC ordered Xcel to refund customers for replacement power costs after its workers accidentally severed underground cables and shut down the Prairie Island nuclear power plant for months.

Xcel has also proposed returning $176 million to customers in savings from federal tax credits for the production of nuclear energy as part of a $318 million package of refunds that includes the Sherco payments and lower-than-expected fuel costs.