Minneapolis-based Xcel Energy Corp. was tagged with $1 billion in added fuel costs by Winter Storm Uri in February, for which it plans to seek recovery from state regulatory commissions, according to CEO Ben Fowke.

Fowke, during a 1Q2021 earnings conference call Thursday said the fuel costs from the storm came “despite strong operational performance.” He said the utilities followed policies regarding natural gas purchasing and hedging as approved by the regulators. “We’re in the process of seeking recovery of those costs.”

Xcel executives spent much of the call discussing the utility holding company’s decarbonization plans to meet state goals, particularly in Colorado and Minnesota. The Colorado Pathway proposal would add 560 miles of transmission. Itt plans to add 5,000 MW of renewable-based power in Colorado and to accelerate closing remaining coal-fired plants.

Another proposal is for a series of major transmission upgrades within the Midcontinent Independent System Operator. 

“I think there is a recognition in the case of Colorado that if we are going to achieve an 85% carbon reduction with 80% renewable generated power that we are going to need a strong backbone to do that,” Fowke said of the transmission system. “And when you figure in the cost estimates, it turns out to be incredibly affordable for our customers.”

Fowke said that with some of the incentives proposed in the Biden administration’s infrastructure initiative, the estimates become even more affordable. “I think we have a tremendous opportunity in transmission, aided by the Biden policy proposals.”

Ultimately, increasingly low-cost renewables and various federal tax incentives will push the need for more transmission and more opportunities for electrification, Fowke said. He emphasized that there will still be ongoing tradeoffs between added storage and gas-fired peaking plants. Xcel’s Colorado resource plan calls for 1,300 MW of “flexible” resources in addition to 400 MW of storage.

“We will let the economics decide if it is gas or batteries, but that said, there are still going to be limitations on how much you can rely on batteries longer term, “ Fowke said. “As we saw in storm Uri, you need more than four-hour battery storage.”

Executive Vice President Brett Carter mentioned proposals circulating in Colorado for various pilot programs on dispatchable zero-carbon assets, long duration storage, “and any one of those can solve the reliability and affordability needs of our customers. We look at what is available in the market, and now that is short-duration storage and gas-fired peakers, but in the future there may be other opportunities.

“We can be flexible at this point, but over time we’re betting with technology, not against it.” 

Xcel has reduced its carbon emissions 51% from 2005 levels, bringing it more than halfway to its goal of delivering 100% carbon-free electricity by 2050.

In 1Q2021, net income was $367 million (67 cents/share), compared with $295 million (56 cents) for the same period in 2020. The year/year increase reflected higher gas and electric margins in the most recent quarter, Fowke noted.