ST. PAUL, Minn. (Minnesota Reformer) – Xcel Energy gas customers are all but certain to see their rates increase next month. Minnesota utility regulators will meet Thursday to decide by how much and for how long.
In October, Xcel asked the Minnesota Public Utilities Commission for permission to raise gas rates for the average residential customer by about $85 per year while significantly increasing its authorized return on equity — essentially, the profit state regulators allow utilities to earn for their shareholders.
It’s the type of request that often prompts a contested case proceeding, a drawn-out period of haggling between utilities, the commission and other stakeholders. In the interim, Xcel asked to raise the average residential customer’s rates by about $70 per year, subject to a refund if the contested case proceeding ends with the commission approving a lower final rate.
That’s all fairly typical of the horse-trading inherent in the regulatory compact between state regulators and monopoly utilities. Less typical is the alternative, seemingly more customer-friendly “stay-out petition” Xcel filed at the same time. It offers a take-it-or-leave-it rate hike of about $32 per year for the average residential customer and a promise not to ask for another increase until late next year. If the commission accepts the proposal, Xcel would drop its other rate request.
“Recognizing that reasonable minds may differ, our stay-out alternative provides a less costly option for our customers and continues to provide us with a reasonable opportunity to recover our costs,” Xcel spokesperson Kevin Coss said in an email.
Coss added that Xcel customers’ gas bills have increased slower than the overall rate of inflation over the last 12 years and said even its higher rate-hike request would keep bills below the national average.
LIUNA Minnesota and North Dakota, an influential union whose members help build and operate Xcel’s energy infrastructure, said last month that the stay-out petition “deserves the Commission’s consideration” but stopped short of endorsing it outright.
The Minnesota Department of Commerce and Attorney General Keith Ellison beg to differ. In separate filings questioning the petition’s legality and urging the commission to reject it, they accused Xcel of trying to avoid the scrutiny of a contested case proceeding while securing similar financial benefits — including more than $25 million to cover capital investments they said the commission or state Legislature would first need to approve.
The Citizens Utility Board of Minnesota, a ratepayer advocate, noted in its own filing that the stay-out petition is written to allow Xcel to recover even more from ratepayers if its capital expenses end up higher than forecast.
In 2019, the commission approved a stay-out petition for Xcel’s Minnesota electric utility prohibiting recovery of excess capital expenses and requiring Xcel to refund ratepayers if those expenses were lower than expected, the Department of Commerce said.
The Citizens Utility Board also noted that in Xcel’s two most recent contested rate proceedings, the commission ended up approving rate increases significantly smaller than the utility’s original ask, suggesting Xcel could come out ahead if the commission approves the stay-out petition rather than initiating a contested case proceeding.
The stay-out request “isn’t necessarily less than the increase that would result from a full rate case…if the rate case goes forward, the final approved increase will be considerably lower,” Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota, said in an email.
Levenson-Falk’s group, the Department of Commerce and the Attorney General’s Office joined the Public Utilities Commission’s own staff in recommending the commission move forward with the rate case.
The three outside groups went further, asking the commission to find that the “exigent circumstances” created by this fall’s federal government shutdown, expiring Affordable Care Act health insurance subsidies and broader economic uncertainty warranted interim rates as much as 50% lower than state law requires.
By law, interim rates “are basically determined by formula” based on how much the utility requests in the first place, Levenson-Falk said.
In a formal response to the Citizens Utility Board and the state agencies, Xcel said it’s fine with a contested case proceeding but “strongly opposes” a reduction in interim rates. If the commission instead approves the stay-out petition, Xcel will provide a detailed accounting of its actual expenses next year, it said in a separate filing.
Xcel’s rate increase requests come as rising natural gas exports, demand from data centers reliant on power from natural gas and expectations for severe winter weather across the northern U.S. and Canada push heating fuel prices higher. But any increase would also support the sorts of gas distribution system investments analysts say are pushing bills up nationwide. Construction spending by natural gas companies has risen nearly 50% this decade, according to the American Gas Association.
Environmental groups like St. Paul-based Fresh Energy warn those investments may prove unnecessary amid a slow but steady shift toward high-efficiency electric heating in new and existing homes. The U.S. Energy Information Administration expects residential natural gas use to peak later this decade and slowly decline through 2050.
“Fresh Energy believes utilities should focus on prudent, targeted safety work and avoid over-investing in new gas infrastructure that could increase long-term customer costs or lock in future emissions,” Caitlin Eichten, the group’s director of building energy transition, said in an email.
Under Minnesota’s 2050 net-zero target, most of the gas burned in homes, factories or power plants at midcentury would need to qualify as renewable natural gas from sources like landfills and agricultural digesters, rather than the geologic deposits that supply the bulk of the gas used today.
Xcel plans — cautiously — to invest in renewable natural gas infrastructure, along with a host of other initiatives to clean up its operations. It’s also pursuing an “electrification first” strategy that Coss said “focuses primarily on evaluating the all-electric options for new buildings when it makes sense for both customers and the system.” Additionally, Xcel offers financial incentives to customers who switch from gas to electric appliances or upgrade their electrical service to enable future fuel-switching.
More than 8,000 customers have taken advantage of those incentives, far exceeding expectations, an Xcel executive told the Public Utilities Commission in October.
Coss said the company’s electrification strategy could limit the amount of infrastructure Xcel needs to build in the future, keeping customer bills in check. But Xcel has not yet joined gas utilities like New York’s Con Edison in actively shrinking its gas distribution system to reduce costs.
“We know many customers will still depend on natural gas in the future, so we will continue to invest in and maintain the gas system and work to reduce emissions from this system,” Coss said.
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