About 23,000 Minnesota households could be in line for a substantial cut to their Xcel Energy electric bills.

The company this week proposed a two-year test of automatic bill credits for Minnesota customers in certain low-income areas that would average to more than $450 a year. Xcel said it wants this program to be as simple as possible, so there are no income limits for these bill credits, and people do not have to enroll: Xcel plans to automatically give the credits to everyone in certain census areas.

An Xcel advisory group focused on equity helped to develop the plan as a way to reduce the impact of energy bills on customers who are low-income and/or Black, Indigenous or people of color. An Xcel filing with the Public Utilities Commission (PUC) said the program would "deliver much-needed support to economically struggling households in some of the poorest areas of [Xcel's] service territory."

"We are particularly proud of this work, as we developed it with our community," said Bria Shea, Xcel's regional vice president of regulatory policy.

Members of that equity advisory group, convened at the direction of the PUC, said state and federal energy subsidies that already exist are important but only reach a small portion of people who are eligible. That's partly because the government programs can be burdensome to enroll in or people can feel shame having to sign up for financial help.

"We're requiring people to give quite a lot of information in order to get assistance, and what we understand from [the equity advisory group] is that, for at least some potential recipients, that's enough to make them not want to apply," said Nick Martin, director of strategic outreach and advocacy for Xcel in Minnesota.

Xcel is targeting people based on the concept of "energy burden," which is the share of household income spent on heating and electricity. Specifically, the pilot aims to help people with an electric energy burden higher than 4% of their yearly income.

The company relied on U.S. census data to identify 77 eligible areas across its service territory. Because Xcel isn't collecting income information, it would use median income metrics to calculate the bill credits. The size of those credits will differ by census block.

Xcel declined to share the exact census areas that qualify. Martin said for now, the company wanted to keep discussion on the pilot project focused on the merits of the idea, rather than on exactly what homes will and won't receive the credit. But Martin said the bill credits will flow around Xcel's service territory, including the core metro area and parts of greater Minnesota.

Xcel illustrated its metrics with a hypothetical house in a north Minneapolis census block where median household income is $12,488 and median electric bills are $1,200 per year. To slash that bill to 4% of income, the bill credit would work out to $701 per year. Every household in the group of 1,533 people would receive that bill credit, even if their household income was higher or lower than the median.

Xcel said there will be people who receive a bill credit in those census areas who don't have a high energy burden, and people with high energy burdens outside of the chosen census areas that won't qualify for a credit. But the company said to avoid that, it would need to solicit income data through enrollment requirements, which could also deter some participants. The pilot will allow people to decline the bill credit if they want.

There were several reasons the equity group was OK with "over-inclusion" in the program, Martin said. One, it's likely a small problem, he said, and making a "community-level investment" has benefits of its own. Martin said the group felt that many people who don't hit the 4% energy burden threshold will still benefit from help on their energy bills.

"They could still be very needy families," Martin said. "Those aren't the kind of people we should be trying to prevent from getting a credit if that could help them with other needs or help them from falling into poverty."

If the PUC approves the pilot program, it would cost Xcel about $10.8 million over two years. Xcel asked to take that money from U.S. Department of Energy settlement payments because the federal government isn't storing nuclear waste as promised.

The pilot comes shortly after Xcel dropped its court fight to raise a key profit measure the PUC limited during Xcel's most recent electric rate case. That will ultimately keep bills lower. The PUC approved a 9.6%, $306 million rate increase over three years that fell short of what Xcel wanted. The company also asked the PUC last year for a 9.6% rate increase for its natural gas service in 2024, and regulators approved an interim rate hike of 8.5% while the issue is under debate.