Xcel Energy Inc. won approval Thursday for a 2.7 percent rate increase for electricity customers in Minnesota, less than half what the utility originally sought.

The 4-0 decision by the Minnesota Public Utilities Commission means residential customers will get a refund, with interest -- about $30 on average -- because they have been charged higher interim rates for 15 months.

In May, the average residential customer should begin seeing a $2 per month decrease on their bills, Xcel said. Commercial-industrial customers will see a 2 percent reduction in May, and later rebates based on their power use, the company said.

Compared with 2010 rates, customers will be paying more, however.

Regulators largely accepted an agreement for a $72.8 million rate hike reached last November between Xcel and business groups that intervened to oppose a larger requested increase.

Even though it signed on to the deal, the Minnesota Chamber of Commerce warned that the state's economy can be hurt by higher electric rates.

"These are creating a competitive disadvantage for retaining and growing business in Minnesota," Richard Savelkoul, an attorney for the chamber, told the commission on Wednesday. "If it is an energy-intensive or high-load-factor customer, they'll just choose to go elsewhere. ... Some we simply won't even see."

The Minnesota Commerce Department, which analyzes rate increases, did not oppose the settlement. But the state attorney general's office, which represents residential and small businesses in rate cases, argued against key parts of it.

Assistant Attorney General Ronald Giteck objected to the amount of employee compensation, corporate aircraft expenses and other costs being charged to ratepayers. He said the employee expenses make up nearly 40 percent of the rate increase, and they are "out of line."

He also said ratepayers shouldn't have to pay $730,000 for the company's two leased Learjets, and criticized Xcel's justifications, which include reducing stress for traveling employees.

"At a time when people ... are experiencing the stress of unemployment or other economic problems, to pay this much for that kind of extravagance is questionable," Giteck said.

Xcel's head of regulatory affairs, Chris Clark, defended the company's financial policies, saying that only half of the corporate aviation costs are charged to ratepayers, a level accepted by regulators in other utility cases and by the administrative judge in this one.

He also said that Xcel pays employees at market rates, with incentives tied to performance. He said other companies, especially during boom times, have tried to lure away Xcel's top professionals such as nuclear engineers and transmission line experts.

"We try to protect ourselves by making sure we are at market," Clark told the commission.

Clark said Xcel recognizes the business groups' concerns about commercial and industrial electricity prices. He said the utility is committed to working with them in the next rate case, which under state law can now span up to three years.

David Shaffer • 612-673-7090