After an outcry from state leaders and consumer advocates, Xcel Energy has backed off from its plan to charge Minnesota customers higher electric rates during peak times unless they opt out.
After backlash, Xcel retreats from Minnesota plan for higher peak rates, lower overnight costs
The Minneapolis-based company is now pitching a voluntary “time of use” program that allows residential customers to opt in to dynamic rates with lower peak prices, rather than automatically enrolling everyone.
The Minnesota Star Tribune
August 22, 2024 at 3:45PM
Instead, the utility says it will make its program voluntary and proposed other changes designed to make it more appealing to ratepayers.
Attorney General Keith Ellison’s office said an Xcel pilot program testing the strategy produced “meager” results and did not achieve its goal of reducing electricity use when demand is highest. Many public commenters said they could not change their energy use to avoid higher prices.
Xcel’s plan also would have been a national outlier for the wide price gap between the most expensive peak rates and cheaper off hours, according to California-based energy and rate design economist Ahmad Faruqui.
Faruqui said Thursday he was “stunned” the original plan would subject customers to a “skyrocketing” price during the evenings.
“It looks like they have made a very major concession here to public opinion,” Faruqui said. “Which is really amazing because most utilities dig their heels in, for better or for worse.”
Xcel wanted to enroll residential customers automatically in “time of use” rates, a dynamic pricing scheme gaining traction across the country. The Minnesota Public Utilities Commission (PUC) in 2018 asked Xcel to come up with a plan for default time-of-use rates after finishing its pilot.
Now, Xcel wants to let customers voluntarily enroll in time-of-use rates instead of requiring people to opt out. Xcel also lowered prices during peak hours and shortened the time frame when rates would be the most expensive.
In a statement, Xcel spokesman Theo Keith said the utility changed the plan after months of customer surveys, consulting of experts, and reviewing feedback at the PUC.
Under the new opt-in program, peak hours would be from 7 p.m. to 10 p.m. on weekdays, not including holidays. The first plan was for the highest prices from 3 p.m. to 8 p.m. weekdays.
Xcel would still charge its cheapest rates from midnight to 6 a.m. every day, and then have a base rate for all other hours. The peak and base rates are more expensive from June to September.
Ellison and Gov. Tim Walz’s administration had asked for similar changes, saying such a major switch from flat rates could set customers against it. The PUC must still vote to approve the program before it can begin.
The rates are not meant to make Xcel customers pay more. They’re instead meant to reduce strain on the grid when people are home in the evening and using the most power. That could be on a hot summer night when air conditioners are running full blast.
Leveling out electric use can help Xcel tap into cheap wind power at night or potentially avoid building new power plants. That could be crucial as demand grows with the rise of heat pumps, electric vehicles, electric stoves and energy-hungry data centers.
Xcel also said time-of-use rates can give customers more power over their bills, and the chance to pay less than with flat rates. Supporters of time-of-use rates argue that setting higher prices during peak hours is more fair because it’s more expensive to deliver that power. People who impose fewer costs on the system would then end up with cheaper bills.
The company had predicted the average residential customer would see a 17.8% jump in electric bills during its four summer months under its initial plan and a 10.6% decrease for the rest of the year, resulting in an extra $11.57 per year.
Xcel said the program was revenue-neutral, meaning it would not take in more money from customers. That’s because the company also proposed varied rates for electric space heating, which Xcel said would save the typical customer about $11.26 a year.
Faruqui, who supports time-of-use rates in concept, said in February that roughly 10% of U.S. households are on some version of the pricing scheme, and the programs are becoming more common with the mass adoption of smart meters that allow people to more easily program their electric use.
Xcel is already transitioning to time-of-use rates in Colorado. The company planned to launch the program in Minnesota in mid-to-late 2025 after completing a rollout of new energy meters underway in the state.
Xcel said its plan switch was also prompted by new analysis that showed peak electric demand would fall later in the day than it expected.
On Thursday, Faruqui praised the more “mild” ratio between peak prices and cheaper hours and said that moving peak hours to begin at 7 p.m. means more people can cook, watch television or use lights without being hit with higher bills.
The Citizens Utility Board of Minnesota also praised the change. Xcel can switch to default rates if the opt-in program benefits customers, said Executive Director Annie Levenson-Falk. She also suggested Xcel highlight on customer bills what their payments would be if they switched to time-of-use pricing to compare the options.
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