Judge recommends trimming Xcel's latest rate increase request

An administrative law judge has recommended trimming Xcel Energy Inc.'s proposed rate increase for Minnesota electric customers.

In a 233-page ruling on Friday, Judge Jeanne Cochran rejected the Minneapolis-based utility's request to boost the basic charge paid by residential and small-business ­customers. That charge is assessed regardless of how much power is used.

The judge, who has been analyzing the proposed $249 million rate increase, also concluded that the ­utility shouldn't immediately recover investments to increase output at the Monticello, Minn., nuclear power plant because the reactor isn't yet delivering the promised extra energy.

In another hit to Xcel, the judge recommended a return on equity of 9.77 percent, lower than in past years. Xcel had asked for a return of 10.25 percent, but state Commerce Department analysts and a business group argued for lower returns.

The full implications of the ruling to Xcel investors or to the utility's 1.2 million Minnesota customers wasn't clear on Friday. That's partly because the ruling didn't break out all the cost details, which will be filed later. The ruling also isn't the final word — it's a data-thick recommendation to the state Public Utilities Commission, which will decide customers' rates by early next year.

Chris Clark, regional vice president for rates and regulatory affairs, said about two-thirds of the rate hike request is related to investments in carbon-free energy, such as upgrading nuclear power plants, and modernizing the power grid.

"We are still reviewing today's report from the administrative law judge, but we initially are pleased to see the report recognizes the need for many of these investments," Clark said in a statement.

Customers have been paying a 4.6 percent interim rate hike since Jan. 1, subject to refund if the final rate is lower. It's the sixth rate hike in eight years and followed a 3.8 percent permanent increase in 2013.

As part of its proposed 2014-2015 increase, Xcel had sought to boost the $8 basic monthly charge for residential customers to $9.25. That increase was opposed by AARP, the lobbying group for older Americans, and others. They argued it would discourage conservation and make electric bills less affordable for low-income customers. Cochran agreed, and urged the PUC not to raise the basic charge.

The judge set aside a plan championed by consumer and clean energy groups to create four tiers of residential rates, based on energy usage. Such rates, including one in place at Duluth-based Minnesota Power, reward conservation-minded residential customers with lower bills while making heavy power users pay more. The judge concluded that the proposal should be reconsidered in a separate regulatory proceeding.

Another rate-related adjustment, known as decoupling, should be implemented for three-year trial, the judge concluded. Decoupling is intended to temper seasonal swings in bills while removing a utility's incentive to profit from increased power sales.

Conservation groups supported the idea, but AARP opposed it, arguing it will ­protect Xcel's profits and boost customers' electric bills during economic downturns.