Xcel wants to increase Minnesota residential electricity bills by nearly 20%

Xcel Energy on Monday proposed an electricity rate increase of 21.2%, or $677.4 million, over three years, with just more than half hitting Minnesotans' pocketbooks in 2022.

With the rate hike, the company's average residential customers would see a 19% increase in their electricity bills from 2022 through 2024 — or on average $15 to $21 per month cumulatively.

"This is a pretty straightforward rate case," said Chris Clark, Xcel's president for Minnesota and the Dakotas. "It's really focused on the poles and wires part of our business and making the necessary infrastructure investments."

Minneapolis-based Xcel filed for the rate increase with the Minnesota Public Utilities Commission, which must approve any increase.

Xcel is by far the state's largest electricity provider, with 1.3 million customers. Its residential customers have had stable rates for the past two years. The amount of the proposed rate hike, however, could come as a shock.

"To see a rate increase in the neighborhood of 20% — that is really large," said Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota, an advocacy group for residential ratepayers.

She noted, too, that consumers are already being battered by rising energy costs. Escalating inflation in general is affecting costs for food and general household supplies.

Oil prices have hit seven-year highs, pushing up motor fuel costs. Natural gas prices are about 75 % higher than a year ago — just as the winter heating season is beginning. And propane costs are off the charts.

Meanwhile, Minnesota natural gas customers have just begun paying off a $660 million bill caused by a historic price run-up after a devastating winter storm in Texas. And Minnesota's largest natural gas utilities — CenterPoint and Xcel — are both planning to file for rate increases next week.

"When we talk with the consumer to help them with their overall financial picture, these things all go together," Levenson-Falk said.

Xcel says its average residential bill — currently $86.87 — is below the national average.

Rate cases typically take 18 months or so to adjudicate, though utilities request and usually receive permission for interim rate hikes.

Xcel is asking the Minnesota Public Utilities Commission (PUC) to approve an interim rate increase of 9.4 % — or $288.3 million — that would start Jan. 1. That interim increase would add $4.08 cents to the average customer's monthly bill.

Customers get refunds if a final rate hike is lower than the interim increase allowed by the PUC. Overall rates increases requested by utilities are often higher than what the PUC eventually allows.

In its PUC filing Monday, Xcel also requested an interim rate increase for 2023. It has done so in the past, too, but the PUC has declined to grant the request immediately, asking Xcel to come back a year later.

So this time around, Xcel also made an "alternative" interim rate proposal. It cuts the first-year price increase – but only if the PUC approves a second-year interim hike at the same time. "We need some certainty on the second year," Clark said.

Under the alternative proposal, the average residential customer would see $1.22 added to their average monthly bill on Jan. 1. However, the trade-off in the alternative is a significantly higher interim charge on residents' bills in the second year.

"At the end of the day, we are asking for the same amount of money under each proposal," said Amy Liberkowski, Xcel's director of regulatory pricing and analysis.

Xcel is a leading wind power provider, and it was one of the first U.S. utilities to announcement goals of 100 % carbon-free power by 2050.

The company says the rate increase will allow it to lead "the clean energy transition" and to create an advanced electricity distribution grid. "Most of the investments we are making are really driven by aging infrastructure," Clark said.

Levenson-Falk said that while it's good that Xcel is investing in renewables and related infrastructure, it appears that ratepayers would pay a disproportionate share of the tab — compared to the company's shareholders.

She was also skeptical of Xcel's rate case request to bump its allowed return-on-equity (ROE) from 9.06% to 10.2%

Clark said the higher ROE is "reflective of changing conditions in the market."

In the new rate case, Xcel is asking for $6 million to $22 million annually for electric vehicle rebates originally proposed in mid-2020 as part of a COVID economic recovery package, a PUC filing said. That would partially fund a program that calls for rebates of $100 million for electrified public transportation and $50 million for cars and light trucks over 10 years.

The new rate case would be Xcel's second multi-year rate case since the state legislature allowed them in 2015. In 2017, the PUC approved a four-year rate deal for Xcel Energy that raised residential rates by 10.6%.

That deal was retroactive to 2016, and it followed five consecutive years of rate hikes for Xcel. In both 2019 and 2020, Xcel proposed new three-year rate plans, with the last one calling for a total of $597 million in new revenue.

Like this year's rate hike request, 2020's proposal would have also hit consumers hardest in the first year.

But due to a crowded docket at the PUC in 2019 — which only got worse with COVID-19 restrictions in 2020 — Xcel also proposed rate case "stay-outs" in each of those years. The PUC agreed to both.

Base rates for both residential and commercial classes stayed unchanged during the stay-outs.

However, many business customers still saw significant cost increases due to something called a "sales true-up" — an adjustment of Xcel's current sales to its sales in 2016, the first year of its last rate case.

Since then, Xcel's sales, like those of many U.S. electric utilities, have been falling, making it harder to cover fixed costs. Sales declined primarily because customers — particularly businesses — increased energy conservation.