Xcel will increase capital spending by $11B as data centers, climate change put pressure on system

Xcel Energy says it needs to increase spending on infrastructure by $11 billion over the next five years to address a confluence of challenges simultaneously crashing into the electric sector, including the switch to clean energy, an acceleration in the number of energy-hungry data centers and more intense wildfires from climate change.

Just last year, Minneapolis-based Xcel said it would spend $34 billion from 2025 to 2030. But Thursday, it said it needed $45 billion to keep up with the demands on its services — nearly 30% of which would be spent in Minnesota and the Dakotas.

Roughly 63% will fund upgrades and additions meant to modernize and harden the aging transmission and distribution system. That will help Xcel help move wind and solar power across great distances, protect against severe weather and wildfires and guard against what the company described as national security issues.

Xcel’s territory touches eight states, including Texas and Colorado, which have seen devastating wildfires in recent years that led to lawsuits against the company.

“We as a company, we as an industry, are probably going to have to invest at a greater speed than we’ve done in the past to keep up with reliability and safe service for our customer base,” Frenzel said in an interview. “Our customers are demanding speed and scale. The climate demands speed and scale.”

Xcel also said it would ask Minnesota regulators on Friday for a rate increase, though officials did not indicate how much.

The capital spending plan was announced along with the release of Xcel’s third quarter earnings report, which were up 4% to $682 million, or $1.21 per share. Revenue, at $3.6 billion, was up slightly.

The spending includes Xcel’s share of a package of transmission lines under development by a host of electric utilities across the Midwest under the direction of the regional grid operator that will cost at least $10 billion. The grid operator is also eyeing an even larger $23 billion construction plan, which is not included in Xcel’s current five-year spending plan.

Frenzel said the plan will be financed primarily by “internally generated cash flow,” but Xcel will need to seek an unprecedented amount of capital investment by raising debt and equity from third parties. He said Xcel has secured nearly $500 million in government incentives over the last five years and will ask for another $300 million this year to offset the cost of infrastructure.

Duluth-based Allete struck a deal to go private in a sale to a large infrastructure firm, in large part to help it secure the eye-popping amount of money needed to fund its transition away from fossil fuels.

One major challenge for Xcel is supplying the energy for data centers as tech companies expand machine learning and artificial intelligence technologies.

The company has a pipeline of potential data centers across its eight-state territory that would need nearly 9,000 megawatts of electricity, a staggering amount. The company can deliver about a third of that by 2030, said Amanda Rome, Xcel’s executive vice president.

For comparison, a 1,000 megawatt data center is equivalent to the power demands of one million residential customers. Xcel’s massive coal plant in Becker is capable of generating roughly 1,540 megawatts.

Data centers have caused consternation among some environmentalists who fear they will result in utilities building more fossil fuels to handle the power, or just building more power infrastructure in general that will increase bills.

Rome said Xcel is focused on ensuring new data centers will be beneficial to existing customers, in part by sharing power costs to lower the burden for ratepayers, as well as driving economic development in local communities. Xcel says its access to wind and solar are attractive for tech companies with clean energy goals and big energy needs.

Xcel’s power needs are rising from the switch to electric appliances and electric vehicles, among other factors. It’s the first major spike in energy demand in decades.

The spending plan doesn’t include any major new or previously unannounced projects in Minnesota. Xcel is currently pitching a long-range plan to state utility regulators that includes a tremendous amount of wind, solar and batteries, plus a gas plant. The company will retire its coal fleet in Minnesota and the rest of its territory by 2030.

Xcel hasn’t said publicly how much it wants to raise electric rates. In June of 2023, the Minnesota Public Utilities Commission granted a 9.6% rate increase for Xcel through three years that fell short of what Xcel had wanted. The company contested that ruling, bringing a lawsuit against the PUC.

In April, Xcel dropped part of that lawsuit. It’s no longer fighting the PUC decision to limit a crucial profit measure known as return on equity. Xcel is still challenging other aspects of the ruling, however, including a limit on how much Xcel can make Minnesota customers pay for the salaries of its top executives.

Xcel says its residential bills are 26% below the national average and is focused on keeping bills low. The energy transition isn’t all new costs for Xcel. Frenzel said its wind farms in the Upper Midwest saved customers $2 billion over the last five years because Xcel doesn’t have to buy fuel for wind turbines.

Separately, Xcel asked the PUC last year for a 9.6% rate increase for its natural gas heating service in 2024. Regulators approved an interim rate hike of 8.5% while the issue is under debate.