Law judge says Xcel rate hike should be cut

Xcel Energy Inc. should get significantly less than the record increase it is seeking for Minnesota electric rates, a state administrative law judge said in a nonbinding but influential recommendation to energy regulators.

Under Judge Jeanne Coch­ran's recommendation, Xcel would be allowed to increase rates by $127 million, or roughly 4.7 percent, for its 1.2 million electric customers, according to an analysis the utility released Monday.

Xcel asked for a $285 million, or 10.7 percent, rate hike last November, but has twice pared it back, and most recently said it could accept a $209 million increase, or 7.8 percent.

After reviewing the Minneapolis-based utility's finances, Cochran recommended that many of Xcel's proposed revenue enhancements be tossed out or reduced. She concluded that the utility this year likely will take in $26 million more than it projected and therefore doesn't need as large of a rate increase.

The Minnesota Commerce Department, which analyzes utility rates on behalf of customers, has said Xcel deserved an increase of no more than $97 million, or 3.7 percent, but the judge didn't agree with all of the agency's suggestions.

The judge also recommended that the state Public Utilities Commission authorize a return on equity for investors of 9.8 percent, below Xcel's requested 10.6 percent. The PUC has the final say on the hike and will likely act this fall.

Despite what appeared to be bad news for the company, Xcel shares rose 1.6 percent amid broad gains for utilities in trading Monday.

Travis Miller, a utility analyst at Morningstar, said investors may not have seen the judge's recommendation as bad news and noted that the return on equity in it is not far out of line with recent decisions by regulators in other states. According to the Edison Electric Institute, a national trade association, the average return on equity approved for member electric utilities in the first quarter was 10.23 percent.

"Utilities rarely get everything they want, and regulators rarely take everything away," Miller said. "In the end, I expect all parties to come to reasonable conclusion. Xcel will get some of what it wants, consumer groups will get some of what they want and regulators will split the difference."

In a filing with federal securities regulators on Monday, Xcel said it remains hopeful that the PUC will authorize a rate increase that is closer to its request.

If the PUC accepts Coch­ran's recommendation, Xcel customers will be paying more than they did last year, but less than they do now. That's because customers have been paying 9 percent higher interim rates since Jan. 1.

For Xcel customers, the hike now being scrutinized is the fifth since 2005. The biggest was a $131 million increase approved for 2006.

Xcel already is planning to seek another rate hike next year to cover continuing investment in its system. Some of the cuts in this rate-hike request would only be deferred under the judge's recommended plan.

In a victory for consumers, the judge rejected Xcel's arguments for raising residential customers' basic monthly charge, which is paid regardless of how much electricity is used. Xcel asked to boost it by 40 percent to $10 per month. But Cochran said only a 20 percent increase to $8.50 is reasonable. Homes with underground wires would pay $2 more than that.

The state attorney general, among others, had objected to the big increase, arguing that regulators had never raised the basic charge that much before. But Xcel contended that the charge, even at $10, doesn't come close to covering the basic cost of serving a home.

Thomas Ambrose, a retiree in Minneapolis who earlier this year wrote to the judge and the PUC in opposition to the big rate hike, said Monday that consumers "dodged a bullet" with the judge's recommendation. "From what I've read, Xcel is doing fine," he said. "There are a lot of companies in the U.S. that would love to do as well as those guys do."

Ambrose said he expressed his opposition in part because he thought the firm was inflexible in dealing with him when he fell behind on rate payments earlier this year. Giving the firm everything it seeks in rates "would allow them to be less flexible," he said.

The judge also concluded that Xcel shouldn't be allowed to immediately bill ratepayers for some of the escalating costs associated with upgrading Xcel's 42-year-old Monticello nuclear power plant or its expenses related to a catastrophic 2011 accident at its giant coal-burning plant in Becker, Minn.

The judge rejected a proposal to establish five residential rate tiers that would benefit many customers but force those with above-average power consumption to pay more. The idea was proposed by the Energy Cents Coalition, a nonprofit group that promotes affordable utility service for people with low or fixed incomes.

Staff writer Steve Alexander contributed to this report.

David Shaffer • 612-673-7090

Twitter: @ShafferStrib