Separating fact from fiction in Xcel Energy's profits

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Minnesota's energy consumers likely saw the recent news that Xcel Energy blames lower profits on a recent regulatory decision by the Minnesota Public Utilities Commission (PUC), which Xcel claims limits its ability to participate in Minnesota's clean-energy transition. To put it plainly, that's baloney.

In 2021, Xcel asked the PUC to increase its electric rates in Minnesota by a whopping 21%. A major portion of this rate increase was driven by Xcel's request to raise its return on equity (ROE) from 9.06% to 10.2% — an excessive amount. For a regulated utility like Xcel, ROE is a key measure of profitability: The higher the number, the more profit it can collect from customers to benefit stockholders. If approved, Xcel's ROE request would have added tens of millions of dollars to Minnesotans' collective energy bills.

After reviewing Xcel's request (and numerous, well-supported challenges to the proposed ROE increase), the PUC ultimately gave Xcel an ROE of 9.25% — less than Xcel wanted, but still an increase. Among other things, the commission also saved Minnesotans around $18 million by limiting the amount of money Xcel can collect from customers to cover the salaries of its 10 highest-paid executives.

Xcel and its stockholders didn't like this outcome. Xcel immediately vowed to ask the PUC to reconsider its decision — and threatened to re-evaluate "planned investments in a cleaner, more reliable system" for Minnesotans.

In public comments later filed with the PUC, one Xcel stockholder complained that the ROE was reduced to 9.25%, while another blamed the decision for "a huge loss in [their] investment in Xcel … from which [they] may not recover." These claims are dubious for a number of reasons.

First, Xcel's authorized ROE went up, not down. It's incorrect to suggest the PUC "reduced" Xcel's profits. Rather, the PUC limited Xcel's ability to greatly increase its profits at the expense of its customers. That's an important difference.

Second, Xcel's own news releases and investor presentations tout both the company's historic profitability and anticipated future profits. In investor presentations just prior to and following the rate case decision, Xcel advertised its ability to consistently deliver solid returns.

Third, Xcel's stockholders have fared very well for a long time. Xcel has paid dividends to its common stockholders every quarter for at least 18 consecutive years. An investor who acquired 1,000 shares of Xcel stock in early 2013 has received about $16,000 in dividend payments and seen their stock value double over that period.

Finally, while Xcel reported lower earnings last quarter and stock prices have fallen from their September 2022 peak, the primary drivers of this change are events unconnected to the Minnesota rate case decision. Xcel's recent securities filings and earnings calls cite multiple reasons for lower earnings, including mild weather, higher operation and maintenance costs, rising interest rates, recent lawsuits filed against Xcel in Colorado, and regulatory decisions in other states. These factors have led to lower earnings in many of the states in which Xcel operates — but not in Minnesota. To the contrary, Xcel reported earnings from Xcel's Minnesota operations increased last quarter compared with the same quarter last year.

All this contradicts the suggestion that the Minnesota PUC decision harms Xcel's stockholders or deters future investment in the company.

The decision does, however, protect Minnesota ratepayers. Setting utility rates is a matter of need and fairness — of balancing stockholders' desire for profit against customers' need for affordable service. Minnesotans have no choice of utility supplier; they depend on consumer advocates and regulators, including the PUC, to look out for their interests.

Investing in stocks, on the other hand, is voluntary and comes with well-known and publicly disclosed risks. Xcel is not entitled to a rate increase each time its stock price declines. If it were, ratepayers should have likewise received rate decreases each time the stock price climbed, as it generally has for decades.

Though periodic utility rate increases are inevitable, an increase prompted by a desire for substantially higher profits for stockholders at the expense of Minnesotans is unacceptable. The PUC did the right thing by carefully considering all the evidence before approving a balanced rate increase that is well-grounded in the facts and law.

Brian Edstrom is a senior regulatory advocate at the Citizens Utility Board of Minnesota (cubminnesota.org), a nonprofit advocate for utility consumers, and former director of securities at the Minnesota Department of Commerce. Annie Levenson-Falk is CUB's executive director.