A utility company requesting less money than it initially requested is almost uncommon. Rare, or more precisely, unusual. Xcel Energy anticipated a revenue increase of about $63 million when it first requested a rate increase for its Minnesota gas utility. After more than two months of negotiations, a much more subdued $37.8 million increase was the result. Less than $25 million. That gap did not close on its own.
A back-and-forth between Xcel, the Minnesota Department of Commerce, the Citizens Utility Board of Minnesota, and the Suburban Rate Authority—a group that represents ratepayers in 29 metro areas—led to the recent filing of the Xcel Energy revenue increase settlement, which is currently awaiting approval from the Minnesota Public Utilities Commission. This type of agreement ends up in the mailboxes of almost 500,000 gas customers in the suburban Twin Cities and parts of greater Minnesota, but it doesn’t make the front pages. For them, the result is important.
Under the settlement, residential rates would increase by 4.1%, which is half of what Xcel had originally asked for. The monthly service fees don’t change. The commission is anticipated to make a separate decision regarding the possibility of capping or eliminating late-payment fees, a detail that is easy to ignore but significant to clients who live near the margin. If the deal is approved, customers who already experienced a 6.8% average rate increase in January will get refunds with interest. That is not insignificant.
The agreement also limits the amount that Xcel’s shareholders can profit from the arrangement, which may be more important in the long run. The company requested that the authorized return on equity be increased from 9.6% to 10.65% by regulators. Instead, the settlement reduces that percentage to about 9.55%. Ratepayer advocates have long maintained that these returns tend to favor investors over consumers, and utilities nationwide are under increasing pressure in this regard. In the words of CUB Minnesota’s Annie Levenson-Falk, “customer contributions to shareholder profits will go down.” It’s worth reading that sentence twice.
For its part, Xcel presented the settlement in terms of investments, such as improved fire detection at gas-fired plants in the East Metro, an IT makeover, and more environmentally friendly cars and machinery. The company noted that Minnesota customers’ natural gas prices would still be lower than the national average despite the increase. Depending on where you stand on the utility bill, that framing may or may not be comforting.
A new greenhouse gas reporting requirement is one aspect of the settlement that hasn’t received much attention. Xcel would be required to reveal anticipated emissions from major expansions of its gas delivery system for the first time. Future analyses of whether those expansions are even required or whether there are alternatives would benefit from that data. It’s information that regulators have never had before, according to Levenson-Falk. Although it’s a small clause included in a bigger agreement, it could influence choices for years to come.
Not all of them signed up. The rate case is still pending because Minnesota Attorney General Keith Ellison’s office intervened early and declined to participate in the settlement. The specifics of how that will unfold once the commission considers the agreement are still unknown. In the meantime, the Laborers‘ District Councils of Minnesota and North Dakota joined in support without taking part in the negotiations. This could be interpreted as a sign that the agreement has enough legitimacy to draw support from people outside the room where it was reached.
The commission’s ruling will decide whether or not Minnesota gas consumers receive their refunds, whether or not the lower rate persists, and whether or not Xcel’s aspirations become the new standard. It’s the kind of regulatory result that won’t please everyone. Seldom does it. Reading through the specifics, however, gives the impression that the procedure went more smoothly than it usually does.
