Xcel's Minnesota customers will pay more next year — the question is how much

Xcel Energy has filed for an electricity rate increase of $597 million, or 20% over three years, with most of it hitting pocketbooks next year.

But the Minneapolis-based utility — by far the state's largest electricity provider with 1.3 million customers — also said the increase may not be necessary.

That's because Xcel on Monday also proposed to extend its existing rate plan for another year — a so-called rate case "stay-out" — as the company's approximately $2.5 billion COVID-19 investment proposal winds through the Minnesota regulatory process.

"Our preference is to work with parties and the [Minnesota Public Utilities Commission] to achieve a stay-out like we did last year," said Christopher Clark, Xcel's president for Minnesota. "We think that would work really well for customers and policymakers."

If the rate case goes forward, residential customers would see increases of 14% the first year, 1.5% the second and 0.5% the third. Xcel said its current average residential bill in Minnesota is $85.73.

The magnitude of Xcel's proposed rate increase is "really surprising," said Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota, an advocacy group for residential ratepayers.

Many residential customers are already struggling — and unpaid electric bills are rising — due to economic pressure brought on by the coronavirus pandemic, she said. Meanwhile, "the company is doing just fine."

Despite headwinds from COVID-19, Xcel's per-share earnings for the first nine months of 2020 were up 8% over a year ago. Its stock is near an all-time high.

Last November, Xcel proposed a one-year stay-out concurrently with a 15% rate hike request over three years. The Public Utilities Commission (PUC) granted that stay-out, which was sparked by a crowded docket before the commission.

Base rates do not rise during a stay-out. Still, customers will pay more due to a so-called "sales true-up" — just not as much as they might under a full-blown rate case.

The PUC's docket remains crowded this year, particularly since the commission in May requested that the state's electric and gas utilities explain how they could "assist in Minnesota's economic recovery from the COVID-19 pandemic."

Xcel responded with a spending package of up to $3 billion that includes speeding up two large renewable energy projects and launching a rebate program for electric vehicles.

Xcel is waiting to see by year's end how the PUC proceeds on the COVID-19 recovery proposals before going through with its rate case.

In its filing Monday, the company asked for an average 2021 rate increase for all customer classes — including residential, commercial and industrial — of $406 million, or 13.2%. That would be spent partly on infrastructure, i.e. "poles and wires," as well as on information technology projects and expanded nuclear waste storage, Xcel said.

Xcel is asking for a rate increase of $99 million, or 3.3%, in 2022; and $93 million, or 3.2%, in 2023. Plus, the company proposes raising the monthly fixed charge for residential and small business customers by $1.50.

Xcel's plan also calls for an interim rate increase for all customer classes of $308.9 million, or 10.6%, effective Jan. 1.

Such interim increase requests are common, and the PUC usually grants them. However, if the PUC eventually grants a rate hike that is lower than the interim increase, customers should get refunds.

If the PUC grants Xcel a stay-out, all of Xcel's customers in 2021 will still have to absorb $170 million in increased costs, a 5% increase for all customer classes combined, according to PUC filings and Xcel executives.

That increase is due to a "sales true-up," essentially an adjustment of Xcel's current revenue compared to sales in its last rate case. Xcel's sales, like those of almost all U.S. electric utilities, are falling as customers increase their energy efficiency.

Under the stay-out, Xcel's 5% sales true-up increase would hit commercial and industrial customers considerably harder than residents; the latter would see a rise of less than 1%, according to Xcel.

The difference reflects the significant change in electricity demand due to COVID-19, Xcel executives said. Coronavirus-related economic turmoil has cut commercial electricity revenue but raised residential sales as more people work at home.

The company's COVID-19 recovery plan hinges on two slices of spending. They include several hundred million dollars on transmission and distribution investments as well as a $150 million rebate program to buyers of electric cars and buses.

The second is $1.4 billion for a large new solar plant near Becker and the "repowering" of several Minnesota wind farms. Repowering means investing in new equipment that make wind turbines more efficient.

All of these COVID-19 investments eventually would be paid for at least partly — if not mostly — by Xcel's ratepayers. But details on Xcel's cost recovery are not yet clear, according to recent PUC filings by regulators and business groups.

"We will continue to work to provide that clarity," Clark said Monday.

The PUC's call for COVID investments has turned into a hydra of multiple dockets, each requiring its own separate proceedings.

"Stakeholders no longer have the ability or resources to track and understand the impacts of Xcel's various proposals," said a recent PUC filing by a group of Xcel's large industrial customers.

The industrial group, as well as another group representing commercial ratepayers, is asking the PUC to consider Xcel's proposed COVID-19 investments as part of a rate case — not separately.

Mike Hughlett • 612-673-7003