Minnesotans who get their electricity from Xcel Energy Inc. could be facing four more years of rate increases.
Despite rate hikes in each of the past three years, the utility serving 1.2 Minnesota electric customers says it needs to collect more revenue to cover $1 billion a year of investments in Xcel’s system.
Executives disclosed Thursday that Xcel wants to spread out the pain of its next request for a “significant” boost in rates, which it plans to file next month. Under a strategy called “rate smoothing” or “rate moderation,” Xcel would forgo a giant increase in 2014, in favor of a series of smaller increases over several years.
“I think you are going to find our rate moderation plans to be in that zone of reasonableness,” CEO Ben Fowke said on a conference call with stock analysts about its third-quarter results.
The Minneapolis-based utility didn’t release complete details Thursday. It has signaled since August that it will seek a sizable multiyear rate increase. In its most recent Minnesota rate case, Xcel requested a 10.7 percent increase, but regulators concluded that wasn’t reasonable and slashed it to 3.8 percent. That came after two smaller rate increases were approved for Xcel in 2011 and 2012.
Now the company says it will offer a rate moderation plan with its requested 2014-2015 increase to be filed with the state Public Utilities Commission, which sets rates for investor-owned utilities. In a presentation to the PUC this month, Xcel suggested spreading out the rate hikes over four years through 2017, with bigger increases in the second and third years.
Yet a series of single-digit increases still can add up to a double-digit increase over time, which is sure to be a concern of ratepayer interest groups.
“We will have to see the details first,” Pam Marshall, executive director of the Energy Cents Coalition, a group that advocates on behalf of low-income ratepayers, said in an interview Thursday.
Even though regulators cut Xcel’s 2013 rate hike, the company reported strong third-quarter earnings of $398 million, with adjusted per-share earnings of 77 cents compared with 78 cents for the quarter a year ago. It said annual earnings should be in the upper half of its guidance range of $1.85 to $1.95 per share, and 2014 earnings from $1.90 to $2.05 per share.
In a continuing sign of weakness in the electricity market, Xcel said it projects a 1.2 percent decline in weather-adjusted annual power sales in the Minnesota region, which includes North Dakota and South Dakota customers. Xcel expected this trend, but Minnesota regulators didn’t agree with the forecast, and predicted the utility would see growth.
But Fowke said Xcel’s “forecasting abilities have been very, very accurate this year.” The trend in electric sales has implications for rates because a growing customer base from new homes and businesses allows utility investments to be spread among more ratepayers.
Xcel’s plan to spread rate increases over several years is a first for a Minnesota utility, and the consequence of a 2011 change in state law allowing multiyear rate cases.
“When you do rate cases under the traditional method, you can get a big jump in one year, and the next year might be much less,” said Chris Clark, Xcel regional vice president for rates and regulation. “This actually lets you levelize that to a degree and take some of that off the first year. It is not like it goes away. We are not saying these costs are not coming into rates. You are changing how they come into rates. We think that reduces the impact to customers.”
Major investments in generation and transmission, including upgrades of its two nuclear power plants, normally would be added into rates starting in 2014-15. Clark said those costs would be spread out using a depreciation-related change. But the company would need to file another two-year rate increase request for 2016-17 to recoup all the investment, he said.
He said rate moderation is designed partly to give customers, especially businesses, greater predictability about their future power rates.