Minnesotans find Xcel’s dynamic pricing plan too aggressive, not worth energy savings

Dozens of Minnesotans have objected to Xcel Energy’s plans to shift away from flat pricing, including a single parent working two jobs who realized she would have just one hour on weekdays to run her dishwasher or washing machine without incurring the spiked rate.

“I will ... be penalized by paying higher prices,” Marie Weekly wrote to the Public Utilities Commission (PUC), “just because I have to work, and I am lower middle class.”

Weekly isn’t alone in her criticism. State and nonprofit consumer advocates said Xcel’s plan for higher Minnesota electric rates during evening hours and lower overnight costs is too aggressive, and several groups told the PUC last week Xcel’s justification for the plan was flawed, based on a pilot project for “time-of-use” rates that arguably did not achieve the goal of reducing electricity use when demand is highest.

Attorney General Keith Ellison’s office said in a Friday letter the two-year pilot program of 10,000 customers in Minneapolis and Eden Prairie produced “meager” results that do not “instill confidence that moving [Xcel’s] entire customer base to [time of use] will succeed at this time.”

Xcel spokesman Kevin Coss said Xcel is reviewing the feedback and could adopt some suggestions, but the criticism could influence the PUC’s final word on approving, modifying or rejecting Xcel’s rate design.

Dynamic pricing for electric rates — like a surcharge during busy hours for a rideshare service — is becoming more common in the U.S., and many in Minnesota’s energy sector support the concept. In theory, the rates incentivize people to shift when they use electricity, easing pressure on the grid when people are home from work in the evening and using the most power.

Evening out that electric use can help Xcel tap into cheap wind power at night or even avoid building new power plants, which is important as electric need grows with the rise of heat pumps, electric vehicles, electric stoves and data centers.

Coss said time-of-use rates aim “to give customers more control over their electric bill without reducing their energy usage.” Some also argue higher prices during peak demand is more fair because it’s more expensive to deliver that power, and thus people who impose fewer system costs could end up with cheaper bills.

The company predicted the average residential customer would see a 17.8% jump in electric bills during its four summer months and a 10.6% decrease for the rest of the year, resulting in an extra $11.57 cost per year. Xcel said these rates are revenue-neutral, meaning it won’t take in more money from customers. That’s because the company also proposed varied rates for electric space heating, which Xcel said will save the typical customer about $11.26 a year and make its gains negligible.

Still, state officials are wary of shocking people, and say public buy-in is crucial because backlash in other places has stalled these types of rates. That’s why they’re urging caution about Xcel’s plan, which Ahmad Faruqui, a California-based energy and rate design economist, said would be a national outlier for the wide price gap between the most expensive peak rates and cheaper off hours.

The AG’s Office said Xcel should allow people to voluntarily subscribe to dynamic rates if the PUC approves them rather than automatically enrolling 1.2 million residential customers. Xcel’s plan does allow customers to opt out, though.

The Minnesota Department of Commerce recommended Xcel have fewer hours at peak prices and a significantly smaller gap between rates. The Citizens Utility Board of Minnesota (CUB), a nonprofit ratepayer advocate organization, had similar suggestions. CUB and Commerce also asked for a more incremental roll out to better educate the public, as Xcel’s plan would switch all Minnesota residential customers in 2025 after a phased transition in Colorado, another Xcel region, caused some headaches.

The biggest spike in electric use comes during summer afternoons and evenings, when Minnesotans are running air conditioners. In general, Xcel’s highest cost for energy use would be from 3 p.m.-8 p.m. on weekdays, and it would charge its cheapest rates from midnight to 6 a.m. every day. There would be a middle “base” rate for all other hours, which would be more expensive than Xcel’s current flat rate from June to September, but cheaper than the rest of the year.

During those summer months, peak rates during weekday evenings would be seven times more expensive than overnight lows and nearly twice as expensive as all other hours.

The Xcel pilot showed a slight bill decrease on average for low-income customers, and the AG’s Office said these households tend to use less electricity. However, that’s not universal, and low-income people might have less flexibility in shifting their power use — like Weekly, the single parent — which is why the AG asked for bill protections.

Duluth-based Minnesota Power started phasing in default time-of-use rates for residential customers in 2022. But the utility’s plan applies to few customers now and ramps up through the course of several years. The gap between peak prices and base rates is also significantly smaller.