Xcel drops rate fight, which will keep Minnesota utility bills cheaper

Xcel Energy is no longer appealing a state utility regulators' decision to limit a crucial profit measure, abruptly ending part of a protracted, bitter debate about electric rates and ultimately keeping bills cheaper.

Last week, the company dropped a central part of its lawsuit against the Minnesota Public Utilities Commission (PUC), which in June granted a 9.6% rate increase through three years that fell short of what Xcel wanted. Xcel had fiercely contested the ruling and its limit on what is known as return on equity, saying it would even hamper the company's ability to transition away from fossil fuels.

When Xcel backed away from a $330 million clean transportation plan in response, PUC Chair Katie Sieben called the move "childish and ridiculous."

"Last year, the Commission granted Xcel a fair outcome on its return on equity while protecting Minnesota ratepayers," Sieben said in a written statement Monday. "Specifically, our decision saved ratepayers more than $200 million. Xcel dropping its appeal on this matter is a win for Minnesotans and Xcel customers."

Xcel did not withdraw its lawsuit entirely: The utility is still challenging aspects of the PUC ruling, including a limit on how much Xcel can make Minnesota customers pay for the salaries of its top executives. But the company will no longer contest a 3-2 vote by the PUC to raise Xcel's guaranteed return on equity (ROE) from 9.06% to 9.25% when Xcel wanted a much higher 10.2%.

ROE drives how much profit Xcel can make and is a key component of how much revenue the company takes in through a rate case. In all, the three-year rate increase the PUC approved was worth $306 million. Xcel's initial request was $677 million, but it later dropped its ask to $440 million.

Xcel spokesman Theo Keith said the company will address ROE levels in future rate-case filings before the PUC.

"This will also allow us to focus more time and resources on the many important items currently in front of the commission as we work to continue the clean-energy transition while ensuring reliability and affordability for customers," Keith said.

In its lawsuit, Xcel said its ROE was lower than what an administrative law judge recommended and smaller than other utilities around the country. The company said its stock price tumbled, losing more than $1 billion in value in two days, and a lower ROE would hurt its ability to attract capital.

The PUC also limited how much money Xcel could recoup from Minnesota customers to pay the cost of insurance premium and executive pay, as well as restricting a return on pension assets. The PUC said Minnesota ratepayers would only be on the hook for $150,000 for each of Xcel's 10 highest-paid executives.

Xcel argued in legal filings compensation to those executives was reasonable and "well below the median of prevailing market rates."

Brian Edstrom, senior regulatory advocate for the Citizens Utility Board of Minnesota (CUB), said the 9.25% ROE is on the low side compared to other utilities but 10.2% would be "very much" on the high side. He said Xcel has other ways to make money and shield itself from risk, adding CUB and others demonstrated the company was asking for more than it needed.

In the case, the Minnesota Department of Commerce pushed for 9.25% ROE, which CUB and a coalition of Xcel's large industrial customers said was sufficient despite initially wanting an even lower rate. Two PUC commissioners argued Xcel's ROE should have been 9.38%.

"As a regulated monopoly, Xcel is entitled to a reasonable return but not an unreasonable one," Edstrom said. "We all benefit from our electric utility being financially healthy because we all depend on electricity, and we want their service to be safe and reliable. But we also don't want to pay more than is necessary for them to profit."

After withdrawing its big electric-vehicle plan, Xcel proposed a smaller $44.5 million proposal, which the PUC approved a modified version of in March. It also now plans to use federal money to pay for three "resilience hubs" in Minneapolis to serve Black and Indigenous communities. Shortly after the rate case, Xcel said the projects had become too expensive. While the company said that wasn't related to the rate case, it still drew criticism from the PUC.

The company 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.