Xcel Energy electric rates are going up once again in Minnesota.

The state Public Utilities Commission on Thursday approved a 4.6 percent interim rate increase in January. It is the sixth rate hike in eight years and comes just months after regulators finalized Xcel’s 2013 rate hike — a 3.8 percent increase that was significantly less than what the utility had sought.

The utility said the increase is driven largely by capital spending, including work on its Monticello and Prairie Island nuclear plants.

“We are moving through a period of peak investment,” said Chris Clark, regional vice president for rates and regulation at the Minneapolis-based utility.

The interim rate hike will apply at least through 2014 while regulators review Xcel’s request for a permanent 10.4 percent increase that would be phased in over two years.

The commission rejected a request from the state attorney general’s office for no interim rate hike.

“We have back-to-back-to-back rate cases,” said Assistant Attorney General Ian Dobson, whose office represents consumer interests.

For the average residential customer using 675 kilowatt-hours per month, a monthly bill will go up $4 to $84.39 in January. The monthly increase in 2015 would be about $6.25 for the same customer under Xcel’s proposed two-year rate plan.

Before 2006, Xcel’s electric customers in Minnesota went 12 years without seeing their rates go up.

James Strommen, an attorney representing Twin Cities suburbs, asked commissioners to pare back the latest rate increase. Xcel repeatedly has gotten interim rate hikes that far exceed the final rates approved by regulators, he noted.

“Our concern is that these rates are artificially high, and they have not been shown by Xcel in the past to have been justified,” Strommen told the Star Tribune.

Potential for confusion

If final rates are lower than interim rates, as happened with Xcel in 2013, the company must refund the difference with interest. For the past year, customers’ bills have been raised 9 percent under interim rates, but regulators set the permanent increase at 3.8 percent.

Many customers will get credit for the 2013 overpayments on their December bills, with others seeing it in January, Xcel said. That refund arrives just as the new 4.6 percent interim rate kicks in, a potential source of confusion for ratepayers, who initially may think their electric bills are going down.

“I don’t know if people are going to understand what the rates are,” said Dobson, of the attorney general’s office.

Utilities, by law, are allowed interim increases during pending rate cases. Commission Chairwoman Beverly Jones Heydinger defended the decision, saying this interim increase is two-thirds of what Xcel seeks in a permanent rate hike.

“Would I wish another year or two before I saw another rate case? Absolutely,” she said.

Commissioner Dennis O’Brien, a Republican appointee whose term expires in January with slim odds of re­appointment by a DFL governor, had the most passionate voice about the effect on working people.

“While the economy has improved for capital accumulators, it hasn’t improved for wage earners,” said O’Brien, who ultimately voted for the rate hike.

‘Rate smoothing’

For 2014, upgrading the Prairie Island and Monticello nuclear power plants represents the largest capital expense that Xcel is trying to recover from ratepayers. But the list of reasons for the rate hike is long, and includes the return of a large coal power plant to service, transmission and distribution upgrades, new software and higher property taxes. In 2015, wind farm investments top the list of rate drivers.

In what Xcel calls “rate smoothing,” the utility has proposed a longer depreciation period for some assets like power poles. The effect is to reduce how much annual revenue is needed from ratepayers, reducing the rate bump.

But utility executives have signaled that additional rate hikes may be requested in 2016 through 2018, though they likely would be smaller.

Thursday’s action sets in motion a yearlong process that will include public meetings and a trial-like process before an administrative law judge who will issue recommendations on the size of the increase. In recent rate cases, Minnesota regulators have allowed, on average, about half the amount that Xcel originally sought. In the last case, just 36 percent of the requested amount was authorized.