9.8 percent rate hike for Xcel isn't justified, regulators say

Two state agencies say Xcel Energy's proposed electricity rate hike for its Minnesota customers — 9.8 percent over three years — is excessive and should be significantly reduced.

The state Commerce Department and attorney general's office made those claims in comments filed this week with the Minnesota Public Utilities Commission (PUC). Both agencies are tasked with looking out for the public interest in rate cases before the PUC.

In November, Minneapolis-based Xcel filed for an electricity rate increase of $297 million over three years, the bulk of which — $195 million, or 6.4 percent — would be realized in 2016.

The Commerce Department is requesting that the proposed $195 million increase for 2016 be reduced to $44 million.

"The Commerce Department analysis finds that Xcel's rate increase proposal overstates the company's costs and understates its revenue while seeking higher profits than is justified in the current market," the department said in a statement to the Star Tribune.

The attorney general's office said Xcel's rate increase would "unreasonably shift tens of millions of dollars of cost responsibility onto residential and small business customers."

The attorney general also panned Xcel's proposal to increase the residential basic rate — which customers pay regardless of how much electricity they use — from $8 to $10 per month. Xcel should be using a different methodology that would actually lower the basic rate, the attorney general's office said. Xcel has said the $2 basic rate hike would bring it in line with the cost of service.

Minnesota's largest electric utility, Xcel has said that major drivers of the rate increase include upgrades to its power grid and nuclear power plants, plus investments in cleaner energy.

"The investment plan we proposed last year will result in cleaner air, a better environment and a more resilient, flexible energy system that will deliver value to our customers," Laura McCarten, Xcel's vice president for state affairs, said in a statement to the Star Tribune.

Xcel said it is reviewing comments submitted this week by state agencies and other stakeholders and will respond to specific issues during the rate-making process.

The Xcel rate case likely won't be decided until early 2017.

Xcel's rates in Minnesota are already among the highest charged by investor-owned utilities in Minnesota, Iowa and the Dakotas, the Minnesota attorney general's office noted in comments filed with the PUC.

Last year, among 15 utilities sampled, Xcel's rates in Minnesota were the third-highest at 9.79 cents per kilowatt hour. A South Dakota utility had the highest, at 11.2 cents per kilowatt hour, followed by Xcel's South Dakota operations at 10.07 cents.

Xcel says its Minnesota residential electric rates are consistent with the national average.

Xcel has increased rates over five consecutive years before the current request. But on average, the PUC has cut Xcel's four most recent rate hike requests by 55 percent because of resistance from state agencies and business and consumer groups.

Xcel's request marks the first time a Minnesota utility has sought a three-year rate increase, an option made possible by a 2015 state law change that was supported by Xcel.

Mike Hughlett • 612-673-7003