Minnesota utility regulators have given Xcel Energy a July 2013 deadline for studying the cost of upgrading versus retiring its largest coal-fired power plant.

Environmental groups have been calling for Xcel to retire its aging Sherco plant, the largest source of electricity — and air pollution — in Minnesota.

The study requested Thursday by the Minnesota Public Utilities Commission will need to compare the costs of upgrading the plant’s older 1 and 2 units with modern pollution controls versus shutting down the units and replacing them with other generation sources.

The commission also approved the utility’s latest long-range plan, which calls for meeting modest demand growth with natural gas and hydropower imported from Canada, and it instructed the utility to come back in 15 months with a more detailed look at wind, solar and other renewables.

The advocates, and Xcel, were happy with the outcome. Jim Alders, the company’s regulatory strategy consultant, said it lays out a process for making the right decisions.

The Sherco plant study is similar to other so-called baseload diversification studies that the utilities commission has required of other utilities in the state. Xcel is supposed to consider the impact of a federal carbon tax, as well as any likely EPA regulations that could increase the cost of Sherco’s operations.

The study is also supposed to look at how either scenario affects the state’s goals for reducing greenhouse gas emissions: 15 percent from 2005 levels by 2015, 30 percent by 2025, and 80 percent by 2050.

As part of the long-range plan Xcel files in February 2014, the commission expects a re-evaluation of wind power potential in 2015 and beyond, a cost-benefit analysis for increased solar and other distributed generation, and a model of what it might look like to meet 50 percent or 75 percent of its new capacity needs with renewables and conservation only.

The long-range plan from Xcel that the utilities commission approved Thursday in a 5-0 vote was originally submitted in August 2010. The plan generated more than 3,300 public comments, many of which asked for less coal and more renewables.

Jessica Tatro, an organizer for the Sierra Club’s Beyond Coal Campaign, said they would have loved to see the renewable analysis in the current plan, but they’re overall satisfied with the timeline established by the commission.

“We are happy they are addressing these issues,” Tatro said.

The utility is expected to start a competitive bidding process next year for what’s expected to be between 400 and 600 megawatts of natural gas generation. The precise amount and type of power that will be needed by 2018 is still undetermined, though.

Tatro said the Sierra Club hopes Xcel will consider the potential of demand response to lower the amount of generation it will need to commit to building before the wind, solar and distributed generation studies are completed in 2014.

The Sierra Club, along with Fresh Energy and other environmental groups advocating for the study, are members of RE-AMP, which also publishes Midwest Energy News.