Minnesota utility regulators have approved a 2.7% — or $20.9 million — natural gas rate increase for Xcel Energy.

Xcel had originally asked for a 6.6%, or $35.6 million, gas rate increase in November 2021. In September, the company entered a settlement agreement with several parties to significantly lower the increase.

The Minnesota Public Utilities Commission (PUC) on Thursday approved the settlement.

Residential ratepayers will see an average increase of about $2.56 per month, according to the PUC. Xcel said the average increase will be $2.25.

The PUC in late November granted Xcel an interim gas rate increase of 4.9%, which took effect in January 2022. Because the PUC's final rate increase is lower than the interim hike, Xcel will refund about $4 million to its gas customers.

The company said the refund will be applied as a one-time credit to customers' bills, likely during 2023's third quarter. Xcel said the average residential customer will get a refund of approximately $9.30.

Xcel says it plans to use revenue from the rate increase for ongoing maintenance of its gas system. Xcel said it has been 14 years since its last gas rate increase proposal.

The company is Minnesota's second largest natural gas supplier behind CenterPoint with more than 480,000 customers.

The Minnesota Department of Commerce and the Minnesota Attorney General's Office — both of which represent ratepayers before the PUC — were signatories to the rate settlement, as was the Suburban Rate Authority, the Minnesota Center for Environmental Advocacy and St. Paul-based Fresh Energy, a clean energy advocacy group.