Settlement reached in Xcel gas rate case

Xcel Energy, CUB, the Minnesota Department of Commerce, the Suburban Rate Authority, and the Laborers' International Union of North America (LIUNA) today filed a settlement in Xcel’s gas rate case. 

While any increase in utility costs is going to be difficult for many people, CUB believes this settlement is a fair outcome. If it’s approved, customer contributions to shareholder profits will go down, and ratepayers will receive refunds. 

Ratepayer benefits would include: 

• Residential rates will increase by 4.1%, less than customers have been paying in interim rates, resulting in refunds. 
• Xcel’s implied return on equity (ROE) will be reduced. The ROE determines how much ratepayers are charged to provide a return to shareholders.  
• Fees for past-due gas bills could be reduced or eliminated.  
• Xcel will report additional information on how gas infrastructure expansion will affect Minnesota’s climate goals. 

Background 

Xcel initiated this case with a request to increase gas rates by 8.2%, or $63 million per year. While some cost increase is necessary, CUB pushed back strongly in the rate case, arguing that Xcel already collects an unreasonable profit margin, while many ratepayers struggle to afford gas service.  

One of the largest factors driving Xcel's proposed increase was a request to raise its authorized return on equity (ROE)—a percentage ratepayers are charged to provide a return for shareholders on the company’s capital investments. Xcel’s currently approved ROE is 9.6%, and the company sought a whopping 10.65%. This ROE increase alone would have added more than $11 million in ratepayer costs each year. Expert witnesses for CUB and the Minnesota Department of Commerce concluded Xcel’s current ROE is significantly higher than needed. Both parties recommended the company’s ROE be reduced to balance utility shareholders’ interest in a fair return with ratepayers’ need for affordable service.  

CUB also argued that Xcel’s 1.5% per month late fee is unjustified and should be reduced or eliminated.  

Since January, Xcel gas customers have been paying an interim rate increase of 6.8%. Minnesota law permits utilities to collect interim rates while a rate case is under consideration. If the final rate approved by the PUC is lower than the interim increase, then Xcel must return the difference to customers, with interest. 

This rate increase is separate from the cost of the gas itself, which is passed directly through to customers with no markup. 

About the settlement 

If the settlement is approved, Xcel’s revenue will increase by 4.88% overall, much less than the company’s initial request. Residential rates will increase by a slightly lower 4.1%. 

The settlement results in a reduction to Xcel’s implied ROE. The settlement itself does not specify an ROE, but settlement terms discussing Xcel’s weighted average cost of capital allow us to calculate an implied ROE of 9.55%.  

Rather than make a determination on Xcel’s late fees, the settlement would adopt the decision the PUC makes on this issue in Xcel’s current electric rate case, in which CUB is similarly arguing for late fees to be reduced or eliminated. The PUC is expected to make a decision on that case at a hearing in June. 

The settlement would also require Xcel to provide additional information about proposed expansions to the gas system, including projected greenhouse gas emissions associated with those investments. This information is crucial to understanding how the utility system will (or will not) align with the state’s 2050 net-zero emissions goal. 

There are numerous other provisions included in the settlement that are in the public interest. It includes no increase to customers’ monthly fixed charges, reduces ratepayer recovery of executive compensation expenses, and reduces or eliminates the amount that customers pay for Xcel’s dues to organizations like the American Gas Association.  

What happens next? 

The administrative law judge overseeing this case has extended the deadline for public comments so that members of the public may weigh in on the settlement. Public comments are now being accepted until June 12th. 

For CUB and the other settling parties, this agreement resolves all aspects of the case. However, the Office of the Attorney General did not join the settlement and is continuing to litigate the case. The administrative law judge will consider all the evidence on the record and will issue a recommendation by September 1. The PUC will then make a final decision this fall.