Published November 3, 2020
Xcel Energy has filed a request with the state Public Utilities Commission (PUC) to increase electric rates in Minnesota.
Xcel is requesting a 20 percent increase in total revenues over three years. Residential customers would see a 14 percent increase in the first year, 1.5 percent in the second year, and 0.5 percent in the third. Industrial and commercial customers would also see increases.
Those numbers might give you a strong feeling of sticker shock – and they should. A rate increase of this magnitude would be massive at any time, but it’s especially questionable when so many of Xcel’s customers are struggling with COVID-19 and the current recession. Unpaid bills are already on the rise among Xcel customers.
From a shareholder perspective, though, Xcel continues to perform very well. Xcel’s stock price is up 15 percent so far this year. (The S&P 500 index, for comparison, is up 1 percent.) Per-share earnings for the first three quarters of 2020 are up 8 percent over a year ago. Xcel’s rate increase proposal includes a higher profit margin for investors. However, given the state of the economy, it will be difficult to justify higher returns. Indeed, low interest rates currently suggest that utilities’ authorized returns on equity should instead be decreasing.
Xcel’s rate increase request must be approved by the PUC in a rate case, a 12-18 month process that typically results in a rate increase below what a utility requests. Xcel has requested a 10.6 percent interim increase starting January 1. An interim rate increase is in place while a rate case is underway. If the final approved rate is lower than the interim, ratepayers receive refunds with interest.
Rather than going forward with the full rate increase request, Xcel has said it prefers a smaller, one-time revenue increase in a proposal to stay out of a rate case for another year. In the “stay-out” option, Xcel has requested a 5 percent revenue increase in 2021, the bulk of which would fall on commercial and industrial customers. Residential rates would increase by less than 1 percent.
The PUC will decide before the end of the year whether Xcel’s stay-out will be approved or whether Xcel’s rate case will go forward. It will need to balance the impact on residential customers with the impacts on other types of customers and the long-term effects of each option. Under either option, customers can expect a rate increase of some amount at the beginning of next year.
If Xcel’s rate case goes forward, CUB will intervene to fight for residential ratepayers. We’ll keep you up to date as these proceedings move forward.
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