Parties reach settlement limiting Xcel Gas rate increase
In November 2023, Xcel filed a natural gas rate case in Minnesota, seeking to raise gas revenues by approximately $59 million, representing an average rate increase of 9.6 percent, and a 10.3 percent rate increase for residential customers. Since then, parties to the rate case, including CUB, have intervened to analyze and challenge several aspects of this proposed rate case. Last week, the parties entered into a settlement agreement that would resolve the rate case, pending approval by the Minnesota Public Utilities Commission (“PUC”). Under the settlement agreement, Xcel’s overall net revenue deficiency decreases from their request of $59 million to $46.31 million. This means that, what began as a proposed 9.6 percent rate increase is now reduced to 7.5 percent average rate increase. Residential rate payers will see a lower-than-average 6.3 percent rate increase, with the increase for certain commercial and industrial customers being higher. (This rate increase is measured by comparing the new rate to 2023 rates.) Below are some additional details about the terms of the settlement and what it means for Xcel gas customers moving forward.
Many Xcel customers filed public comments in this docket expressing frustration over this latest rate increase, which comes immediately on the heels of an earlier Xcel gas rate increase implemented in early 2023. We understand and share that frustration. All rate increases are tough on customers—particularly those customers already struggling to make ends meet. Though CUB cannot prevent rate increases entirely, we strive to help hold utilities accountable to prove the need and reasonableness of their rate increases, and to prevent utilities from increasing rates to cover expenses that the utility should be paying for itself. In that regard, we are pleased this settlement agreement limits Xcel’s rate increase in several important ways. Below are a few examples.
Under pressure from CUB, the Office of the Attorney General (“OAG”), and public commentors, Xcel is no longer requesting rate recovery for any of the hundreds of thousands of dollars in yearly membership dues it pays to a large trade association, the American Gas Association (“AGA”). Xcel had requested rate recovery of 100 percent of these dues, despite recent reports describing the AGA’s history of putting industry interests ahead of consumer interests. A number of states have passed laws prohibiting utilities from charging ratepayers for these types of membership dues. Though the Minnesota Legislature has not yet taken that step, there is no reason that Xcel (or any Minnesota utility) should expect its ratepayers to fund its membership in this kind of trade association. If Xcel chooses to remain a member of the AGA, it should pay those membership dues using shareholder funds.
The settlement also caps the amount of money Xcel can collect from Minnesota ratepayers to pay the salaries of and compensation to its board members. Though Xcel can choose to pay these individuals as much as it wants using shareholder funds, it cannot ask Minnesota ratepayers to write a blank check to cover those expenses.
Finally, the settlement prevents Xcel from increasing its authorized return on equity (“ROE,” a key metric used to determine utility profits) as high as Xcel had hoped. In its initial proposal, Xcel sought to increase its authorized ROE from 9.57 percent to 10.2 percent. Under the settlement, Xcel’s authorized ROE is limited to 9.6 percent. Although the difference between these positions seems minimal, each fraction of a percentage point significantly impacts how Xcel calculates its overall revenue deficiency, and how much it must collect in rates to cover that deficiency.
What happens next?
State law generally requires the PUC to allow utilities to implement a temporary rate increase while rate case legal proceedings are underway. For this reason, an 8.5 percent rate increase, called an interim rate adjustment, already went into effect in January 2024. Assuming the PUC approves the settlement agreement as-is, the final approved rate increase will be less than the 8.5 percent interim rate adjustment. This means that, though customers will still see a rate increase relative to where rates were a year ago, customers will receive a modest refund for excessive amounts collected so far in 2024, and rates will decrease slightly compared to what they have been so far in 2024.
The PUC has not yet scheduled a hearing to consider approval of the settlement. We expect that hearing to happen in the next few months. Keep an eye on the CUB blog for additional updates on this case.