Xcel Energy Inc.'s electric customers in Minnesota could face two or three more years of rate increases, the utility said Thursday.
As the power company awaits regulators' decision on a pending rate increase request for its 1.2 million Minnesota customers, CEO Ben Fowke said that because of major investments in its nuclear power plants and other assets, "we will need to file a sizable rate case later this year for 2014."
Fowke, speaking to investment analysts on a quarterly earnings conference call, didn't say how big the next rate hike request would be. But he said that for the first time the company will ask for two or three years of increases in a single rate case. The Minnesota Public Utilities Commission, which sets rates for investor-owned utilities, has authority to approve multiyear rate increases under a 2011 state law.
"It's uncharted territory," said Bill Blazar, senior vice president for public affairs and business development for the Minnesota Chamber of Commerce, which tracks utility rates.
But Blazar said he isn't surprised that Xcel wants multiyear rate hikes because the company lobbied for the law change. He said a big issue is what benchmarks the utility will be required to meet before it can collect higher rates in the second or third years.
For Pam Marshall, executive director of the Energy Cents Coalition, a St. Paul nonprofit that intervenes in utility cases for low-income customers, the idea of multiyear rate hikes is little different from what's happening already.
"They are coming in every year for rate hikes — this might make it easier," she said.
In 2010, when Xcel filed its last rate increase request, it ended up getting a two-step increase in 2011 and 2012.
Marshall said the PUC's multiyear procedures, issued in June, offer protections for consumers and groups like the coalition to petition regulators if Xcel's financial picture changes and approved rate hikes no longer seem justified.
In an e-mailed statement, Xcel spokeswoman Mary Sandok said the multiyear approach offers benefits during a time of significant investments in the utility's infrastructure over several years. The benefits to customers and the company include "greater certainty with respect to our prices and revenues" and more transparency about the utility's plans without losing oversight and customer protections, she added.
Next week, the PUC will hear final arguments from Xcel, customers and other interests and then begin deliberations over the utility's pending rate increase request. In July, Administrative Law Judge Jeanne Cochran recommended that Xcel get no more than a 4.7 percent rate hike, or less than half what the company requested.
Minnesota Xcel customers already are paying 9 percent more for power under an interim rate increase that took effect Jan. 1. The final rate hike is sure to be lower than that, with the overpayments since Jan. 1 credited back to customers' bills. This hike is the fifth for Xcel electric customers in the state since 2005.
One of the items Xcel hopes to recover in this and future rate cases is the nearly $2 billion being invested in its nuclear plants at Monticello and Red Wing, mostly to extend 1970s-era reactors' operating lives by 20 years.
At the Monticello plant, workers recently completed a major upgrade that included boosting the plant's output by nearly 13 percent. Fowke said the cost grew to $655 million — more than double the 2008 estimate — and $15 million higher than an estimate in January. Before Xcel can charge ratepayers for the cost overrun, it must convince regulators the spending was prudent.
"We believe a multiyear [ratemaking] plan may allow us to obtain timely cost recovery of our capital expenditures while limiting the need for multiple rate cases given the substantial investments we continue to make in Minnesota," Fowke told analysts.
Xcel Chief Financial Officer Teresa Madden said the company hasn't decided whether to make a two- or three-year rate hike request.
Xcel earned $196.9 million, or 40 cents a share, on revenue of $2.58 billion in the second quarter, beating analysts' estimates. Increased margins on electricity and natural gas helped boost profits, but the company reported continued weak growth in electric sales — a trend common across the power industry.
"In Minnesota, we are seeing an erosion in sales," Madden said.
Over the next five years, Xcel expects power sales to grow 1 percent annually over its eight-state region — a bit less than that in Minnesota and Colorado, and a bit more in Wisconsin and Texas regions.
One reason behind the latest sales drop: the June storm that knocked out power to 600,000 Minnesota customers. But Fowke said the company showed its operational excellence by restoring power to 96 percent of those customers in three days and all customers in six.
Xcel shares rose 39 cents, or 1.3 percent, to $30.34 Thursday.
Staff writer Steve Alexander contributed to this report.