Minnesota regulators approve historic Xcel Energy rate increase of $244 million

Minnesota utility regulators Thursday approved a landmark four-year rate deal for Xcel Energy that will ultimately raise residential rates by 10.6 percent — though a big chunk of that increase is already in place.

The rate case is uncommon in two ways. It's the first multiyear rate plan in Minnesota for investor-owned Xcel, made possible by a 2015 state law change.

Also, it resulted from a settlement between Xcel and several parties it might normally end up fighting — particularly the Minnesota Department of Commerce, one of two Minnesota agencies commissioned with looking out for the public interest in rate cases.

"We're pleased with the outcome," said Chris Clark, president of Xcel's Minnesota operations. "We think achieving a settlement with a diverse group of customers and the Department of Commerce is an important milestone for us."

The deal approved by the state Public Utilities Commission is retroactive to 2016 and follows five consecutive years of rate hikes for Minneapolis-based Xcel, Minnesota's largest utility.

Xcel's residential consumers already have fielded the biggest financial blow from the multiyear plan, which Xcel filed in November 2015. The PUC granted an interim rate hike of 5.5 percent for 2016, and the final rate structure approved Thursday called for a nearly 6 percent residential rate increase in 2016.

Beyond that, residential rates will rise 2.7 percent this year — or about $30 annually for the average residential customer. Residential rates will stay flat in 2018, as will rates for Xcel's business and municipal customers. In 2019, residential rates will go up 1.9 percent, costing the average consumer about $12 a year, according to Xcel.

Xcel's overall rate increase — including business and government customers — is 8.3 percent, or $244 million, as approved by the PUC. Rates for most commercial and industrial customers will rise 6.9 percent over four years, while street lighting rates will climb 13.1 percent.

The money from the rate increases covers cost increases Xcel expects in key operations like transmission and power generation. "This is really focused on the poles and wires — the core parts of our business," Clark said.

It does not include money for planned new wind farms or a gas-fired generator to be built in Becker during the 2020s. Those projects need to be argued in separate proceedings before the PUC.

The PUC Wednesday unanimously voted against Xcel's request to hike the basic residential rate — which customers pay regardless of how much power they use — from $8 to $10 per month. That proposed increase was voted on separately from the settlement.

The settlement was reached in August 2016, and as part of it Xcel agreed to an overall rate increase of 6.1 percent over four years — down significantly from its original request in 2015 of a 9.8 percent hike over three years.

But this winter, the overall rate increase through the settlement was raised to 8.3 percent over four years after Xcel's 2016 revenue in Minnesota fell about $60 million short of its forecast. Increasing energy efficiency by Xcel customers — sparking less demand for power — played a role in that revenue decline.

Joining the Commerce Department in the settlement were organizations ranging from Xcel's large industrial customers to the city of Minneapolis and Energy Cents Coalition, a group representing low-income and fixed income customers.

A review of Xcel's rate case by an administrative law judge recommended approval of the settlement. The judge found that the settlement would contribute to "just and reasonable rates," according to PUC filings.

The Minnesota attorney general's office, which also looks out for the public interest, opposed the Xcel settlement. It had questioned, among other items, Xcel's proposed return on equity and the settlement's benefits to rate payers.

The AG's office also recommended a total rate increase for residential consumers of 7.18 percent over four years — about a percentage point less than what Xcel proposed and the PUC adopted. Essentially, the attorney general's office wanted commercial customers to foot more of the rate increase. The attorney general's office did not respond to a request for comment.

The PUC voted 3-2 in favor of Xcel's rate design over the attorney general's. The commission voted 5-0 in favor of the settlement, despite voicing some misgivings over it.

The settlement lacked transparency compared to a rate case that's essentially fought in front of the PUC and settled by the committee itself, some commissioners said.

"I remain a bit concerned about understanding exactly what we have," said PUC Commissioner Matt Schuerger. "But on the whole, it will lead to just and reasonable rates."

Nancy Lange, chair of the PUC, said it was important that the settlement involved several parties often at odds. "Customers had a look at this, and were willing to sign on," she said.

Mike Hughlett • 612-673-7003