Administrative law judge says Xcel's rate increase request should be lower

An administrative law judge says Xcel Energy should get about three-quarters of the rate increase the utility is seeking over three years, meaning consumers would see a 12% increase.

The ruling is nonbinding but carries weight. The Minnesota Public Utilities Commission (PUC) has the final say and is expected to decide on Xcel's rate case in June.

Xcel, Minnesota's largest electricity provider with 1.3 million customers, filed in October 2021 for a three-year, $677 million — or 21% — rate increase. Xcel lowered that request to $498 million late last year.

Administrative Law Judge Christa Moseng ruled Friday that Xcel should get $384 million over three years.

The Minnesota Department of Commerce, which represents ratepayer interests before the PUC, has recommended that Xcel be granted an increase of $324 million over three years.

Xcel's allotted return on equity (ROE) is a key reason behind why Moseng and the Commerce Department recommended a lower rate increase. Return on equity is a key measure of profitability.

Minneapolis-based Xcel has argued its guaranteed ROE should be raised from 9.06% to 10.2%, saying it needs to be competitive with other utilities in capital markets. Moseng found that 9.87% is a "reasonable" return for Xcel.

Commerce, which represents consumers in PUC cases, has said that Xcel has been "flourishing" at its current ROE, though an increase to 9.25% is merited. The difference between Xcel's proposed ROE and Commerce's recommendation amounts to $202 million over three years.

The Citizens Utility Board of Minnesota (CUB), a ratepayer watchdog group, has recommended that Xcel's ROE be lowered to 8.8% to 9%.

"I was really surprised at how high the (judge's) ROE recommendation is," said Annie Levenson-Falk, CUB's executive director. "That is going to have really harmful effects on ratepayers. ... Many customers are already having trouble paying their bills."

Xcel, Commerce and other groups intervening in Xcel's rate case will all likely file comments with the PUC on Moseng's ruling.

Xcel's rate increases petition came at a time when energy prices and overall inflation began climbing steeply. The company lowered its request in November partly because it had a new revenue forecast.

Xcel's sales are now expected to be stronger than first anticipated due to a robust economic recovery from COVID-19 — thus reducing rate increase needs. The company has said it needs a rate increase for several reasons, including to further its "clean energy transition" and to create an advanced electricity distribution grid.

The PUC held several public hearings last fall on Xcel's proposed rate increase and fielded 500 written comments on it. Many commenters took issue with Xcel's profitability and the size of the rate increase along with the economic hardship it would cause.