Xcel seeks 20% electric rate increase over three years

Minnesota's largest utility, Xcel Energy, is asking to raise its electricity rates by around 20 percent over the next three years.

Xcel says it needs the increase to cover the costs of replacing an aging electrical system as it transitions to more renewable energy. It comes at a time when many Minnesotans are struggling to pay their rising utility costs.

Here’s a closer look at Xcel’s proposal, and what it means for Minnesota ratepayers.

What does Xcel say it needs this proposed rate increase for?

The main reason is to replace aging infrastructure, such as transmission lines and substations. 

Xcel says those investments are needed so it can continue to provide reliable service and expand service to meet customers' future needs.

"This rate case is really about investing in that other part of our business, the poles and wires that deliver that energy to our customers and recognizing that much of that system was installed decades ago,” said Chris Clark, Xcel’s president in Minnesota, North and South Dakota. “It's reaching the end of its life and it needs to be replaced."

The request comes as Xcel is adding more renewable energy to its system, such as solar and wind. The utility has said it wants to use 100 percent carbon-free energy by 2050.

Xcel says the proposed rate increase of 21.2 percent over three years would help it create an advanced electrical grid to connect to those renewable energy sources and distribute the electricity. If it's approved, the rate increase would generate about $677 million.

How much would this proposal cost Xcel customers?

The average residential customer would see their electric bills rise by about $18 to $20 a month cumulatively over the next three years. 

That would equate to an average monthly increase of $4 a month next year, about $8 a month in 2023, and about $6.50 in 2024. 

How soon would customers see this in their bills?

It takes a long time for a rate increase to get approval from the state Public Utilities Commission, the state regulatory body that oversees electricity rates. 

Typically, utilities will ask for an interim rate increase first. If the PUC approves an increase that's less than what Xcel was asking for, its electricity customers would get a refund.

Xcel says it understands that a lot of customers are still dealing with the financial effects of the COVID-19 pandemic.

So it proposed an alternative interim rate that would defer most of that increase next year, reducing the average residential customer’s monthly increase from $4 to $1.25. That would be followed by a bigger increase the following year.

When was the last time Xcel raised its electric rates?

In 2016, when the PUC approved its last multi-year rate plan. Under that plan, base electric rates increased in 2016, 2017 and 2019.

Rates for Xcel's residential customers have held steady over the past two years. 

What's been the reaction to Xcel’s proposed rate increase so far?

At least one consumer advocacy group is calling it a large increase at a time when many people are struggling financially and having a hard time paying their utility bills.

Annie Levenson-Falk, executive director of the Citizens Utility Board, which advocates for Minnesota's utility consumers, said it's good that Xcel is transitioning to more renewable energy and making investments to keep up its aging infrastructure.

But Levenson-Falk said people are already faced with rising prices for other expenses, including natural gas, propane and fuel oil that they use to heat their homes.

“The cost of housing is going up, [there’s] inflation in pretty much every part of the economy,” she said. “That's the picture that consumers are facing. And so to add on an electric rate increase on top of that, it's going to be really difficult for folks.”

Clark said they're aware of the potential impact to customers. He said the average Xcel residential customer's electric bill — $87 a month — is about 22 percent below the national average.

Xcel also has offered relief programs to help customers who were behind on their electric bills and businesses impacted by the pandemic, Clark said.

What will it take for Xcel to get approval to raise its rates?

There's a lengthy process that a rate increase proposal must go through before the Public Utilities Commission. It typically takes about 18 months, so the request probably won't get a vote until sometime in 2023.

If the PUC approves the interim rate increase, that would take effect on Jan. 1.