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Xcel Energy plans $3.5B renewables investment over next 5 years

Xcel Energy Inc.'s "steel-for-fuel strategy," first outlined in the company's third-quarter 2016 earnings discussion, will result in $3.5 billion in investments in renewable energy resources over the next five years, company officials said Feb. 2 in a fourth-quarter 2016 earnings discussion.

Company Chairman, President and CEO Benjamin Fowke III highlighted some of the major renewables initiatives during the call, including the 600-MW Rush Creek wind project in Colorado. He noted that the project was approved by regulators, is progressing as planned and is predicted to be in service in 2018.

In Minnesota, Xcel Energy is seeking to add 1,500 MW of new wind generation, "which reflects an RFP for PPAs, for build-own-transfer projects, and our own self-build proposal to develop 750 MW of wind generation," Fowke said. "As part of the RFP process, we received proposals from 17 bidders with 95 proposals for almost 10,000 MW of wind generation."

Xcel Energy analyzed the bids, developed a short list and is negotiating with the developers, Fowke said. The company plans to file a recommendation with the Minnesota Public Utilities Commission later in the first quarter, and a decision is expected this summer.

The company's $1.5 billion of "undefined" renewables projects included in its capital forecast continue to progress, Fowke said. "We're working with various stakeholders and are in advanced discussions with site developers about adding 500 to 1,000-MW of wind generation at SPS [subsidiary Southwestern Public Service Co.], and we expect to share further details later in the year," he said.

Summarizing the strategy, Fowke said, "Because of the strong wind resources in our service territory, we have a unique opportunity to invest in renewable generation in which the capital costs can be offset by fuel savings."

Company CFO and Executive Vice President Robert Frenzel said Xcel Energy resolved several regulatory issues in 2016 in Texas, New Mexico and Wisconsin, which he called "constructive."

Additionally, a four-year rate settlement was reached in Minnesota, pending approval from the Public Utilities Commission. The PUC also approved Xcel Energy's resource plan, which Frenzel said "sets the framework" for additional renewable energy projects and for two units at one of its coal-fired power plants, owned by subsidiary Northern States Power Co. - Minnesota, to be retired.

Requests were also filed with Colorado regulators for approval of a partial decoupling mechanism and for a certificate of need for its advanced grid initiative, according to Frenzel. Decisions are expected for both initiatives later in the second quarter.

In operations, the company had a strong year, Fowke said, pointing to the successful completion of its 200-MW Courtenay Wind Farm in North Dakota, on time and under budget. "This was our first wind project in which we were the general contractor and it is further evidence of our ability to develop, manage and construct wind projects," he said.

Fowke also pointed to a bill recently introduced in Minnesota that he said would permit Xcel Energy to build a natural gas combined-cycle power plant at its Sherburne County Plant (Sherco) site. He noted that the gas-fired plant was originally part of the company's resource plan, but he said the PUC deferred the decision to a later date and the company must file a certificate of need.

The bill was "driven by legislators who are concerned about the loss of jobs and tax revenue and wanted to expedite the decision process," according to Fowke. "Extensive justification" has been given for the plant, and the PUC would still need to approve cost recovery, he said, adding that if the bill does not pass, Xcel Energy would likely file for a certificate of need. The facility is not part of the company's capital forecast and "any potential capital investment would likely occur after 2021."

Xcel Energy reported $227.5 million, or 45 cents per share, in ongoing earnings for the fourth quarter that ended Dec. 31, 2016, beating the S&P Capital IQ normalized consensus estimate by 1 cent. The results represent a 4-cent-per-share increase in ongoing earnings for the fourth quarter, compared to $209 million, or 41 cents per share, for the comparable quarter of 2015.

Public Service Co. of Colorado contributed 17 cents toward fourth-quarter 2016 ongoing EPS, and NSP-Minnesota contributed 21 cents. Southwestern Public Service contributed 6 cents, and Northern States Power Co. - Wisconsin contributed 3 cents.

Xcel Energy said financial results were helped by increases in electric and natural gas margins. Xcel Energy generated $2.79 billion in fourth-quarter 2016 revenues, including $2.29 billion from the electric segment and $484.9 million from the natural gas segment. This compares to the $2.65 billion generated in the fourth quarter of 2015, with the electric segment contributing $2.17 billion and the natural gas segment contributing $455.9 million.