Xcel withdraws 2023 rate hike request in compromise with state regulators

Xcel Energy on Tuesday dropped its highly contested request for a $122 million rate increase in 2023. In return, state regulators approved accounting changes that they believe would benefit the utility and its ratepayers.

Minnesota's largest electricity provider had asked the state for a 6% increase to the average residential customer's bill. Ratepayer advocates — including two state agencies — strongly opposed it, saying Minnesotans are already reeling from energy price inflation.

Seeing the fierce opposition, Minneapolis-based Xcel last week filed a complicated alternative plan with the PUC that allowed for a $68 million increase — or none. The plan centers on the changes in accounting for certain costs and revenue.

The Minnesota Public Utilities Commission voted unanimously to accept Xcel's plan — extinguishing the rate hike request.

The Minnesota Department of Commerce had argued that Xcel's last-minute plan would "create unnecessary procedural and record uncertainty."

Still, an attorney for the Commerce Department noted at Tuesday's PUC meeting that its opposition was "procedural" — because the proposal strayed from rate case norms — and not "substantive."

While some PUC commissioners also voiced concerns about tinkering with rate case procedures, they agreed that Xcel's plan had low risk and was in the public interest.

"On balance, this is a thoughtful way to move forward without an interim rate increase," PUC Commissioner Matt Schuerger said at the meeting.

Xcel serves 1.3 million customers in the state.

Last October, the utility filed for a rate increase of $677.4 million — or 21.2% — over three years. The PUC commonly grants interim rate increases to electric and gas utilities until a full rate case is settled.

A year ago, the PUC allowed Xcel a 2022 interim rate increase for all customer classes of $247.1 million. That included $79.8 million from residential ratepayers, about $41 million less than the utility requested.

The PUC noted at the time that Xcel's residential customers were "under financial distress."

Even with the $41 million reduction, the PUC granted Xcel a residential rate hike for 2022 that translated to a 6.4% increase in an average household's electric bills.

The Commerce Department, the Minnesota Attorney General's Office and the Citizens Utility Board of Minnesota (CUB) all contend that Xcel's customers are under at least as much financial distress this year, if not more.

Under Xcel's alternative plan, Xcel asked the PUC to allow it to offset 2023 costs with certain excess revenue expected next year. The revenue would come from an auction of power-generating capacity by the Midcontinent Independent System Operator (MISO), which operates the grid in Minnesota and all or parts of 14 other states.

Xcel and other Minnesota utilities have ample generating capacity, so they are sellers in MISO auctions. Buyers are power providers elsewhere on the grid that are short of capacity.

In 2022, the northern MISO auction price hit a record of $237 per megawatt per day, up from $5 a year ago. It rose on fears of tight electricity supplies.

But since Xcel is a power seller, its revenue for customers from the 2022 MISO auction was about $65 million, far above the usual $2 million to $3 million. Xcel believes that revenue raised from MISO auctions in 2023 will be similar to 2022.

The PUC agreed to Xcel's power auction proposal, accounting for $64.4 million from Xcel's rate hike request of $122 million.

Xcel also agreed to extend the depreciable life of several wind farms and its Monticello nuclear power plant, cutting another $53.9 million from its rate request. (Extending depreciation schedules results in lower annual depreciation costs.)

Xcel said it would absorb the remaining $4 million from the original $122 million rate increase request.

The PUC is expected to adjudicate Xcel's three-year rate case in 2023. Customers get refunds if a final rate hike is lower than interim increases allowed by the PUC. Rate increases requested by utilities are often higher than what the PUC eventually allows.

With the interim increase granted by the PUC a year ago, Xcel is already collecting more revenue than the Commerce Department has recommended, the department said in a PUC filing.

"The department has cast significant doubt — as have other intervenors [in the rate case] — on Xcel's need for any additional increases," Katherine Hinderlie, an attorney for the Commerce Department, told the PUC on Thursday.