Xcel Energy gas rates will go up 6.8% for 2026. Here’s why.

Xcel Energy’s natural gas customers in Minnesota will pay higher rates starting Jan. 1, which will cost the average home an extra $70 a year.

The 6.8% increase was approved 3-0 by the Minnesota Public Utilities Commission (PUC) in mid-December and affects home heating bills. But the rates are temporary while the PUC scrutinizes Xcel’s larger request for higher gas rates that would cost the typical home about $85.32 every year.

If the PUC approves lower rates than the interim 6.8%, customers will get a refund with interest.

This is the second time in three years Xcel has asked utility regulators to grant the company higher gas rates. That is unusual for Xcel, which usually files gas rate cases less often.

It also makes the request more controversial, especially at a time when politicians and consumer advocates are particularly sensitive about higher energy bills because of public unhappiness about the high cost of living.

Here’s what you need to know about the higher bills:

In October, Xcel asked the PUC for an 8.2% increase to gas rates.

Xcel said it has faced maintenance costs necessary for operating a safe and reliable system, especially for its “peaking” plants that run in times of high demand, like cold winter days. The company stores gas and propane at those plants to avoid buying as much gas on the open market when costs are at their highest or gas is in short supply.

Xcel refurbished peaking plants in Maplewood, Mendota Heights and Inver Grove Heights after one site released gas into the atmosphere during routine tests in 2020 and 2021. But the company found other needs during those projects, such as upgraded fire detection and suppression systems and a new control room at one plant.

The company doesn’t expect similar major costs in the next few years, said Amy Liberkowski, Xcel’s regional vice president for regulatory and pricing in Minnesota, in written testimony filed with the PUC.

Xcel said other costs include higher property taxes, replacing old fleet vehicles, switching over to electric vehicles and higher employee salaries after renegotiated labor agreements. The company said it’s also spending on upgrading and maintaining its nearly 10,000 miles of transmission and distribution infrastructure to keep a modern, safe and efficient system.

The higher rates would be worth about $63.4 million a year to Xcel. Xcel is Minnesota’s second largest gas provider behind CenterPoint Energy. The company has about 492,000 gas customers in 27 counties.

In 2023, Xcel asked for a 9.6% increase. The PUC granted Xcel an 8.17% hike in February of this year after the company struck a deal with state officials, unions and affordability advocates on the lower amount.

Xcel’s gas business, which supplies energy for home heating, cooking and appliances, is separate from its electric utility.

The typical household will pay an extra $70 a year under the interim rates. If the PUC grants the full rate increase next year, the hike would be about $85.32.

Gas rates only make up some of a gas bill, however. Xcel said about half is the price of gas itself, which Xcel passes on to customers without a markup. The overall bill might be lower or higher than last year, depending on the market price of gas.

Xcel said its average rate for natural gas service was 26.5% below the national average for residential customers, according to 2023 data from the federal Energy Information Administration. That does not count the cost of gas.

State officials, including Attorney General Keith Ellison’s office, and some consumer advocates wanted to limit the temporary increase because many customers are facing money problems from the federal government shutdown, higher health insurance premiums and other costs.

The Citizens Utility Board of Minnesota, a consumer advocate watchdog, and the Minnesota Department of Commerce said the PUC should cut in half temporary rates for residential customers, especially after a series of bill increases for Xcel’s gas business.

Most of Minnesota’s largest power companies, including Xcel, are shutting off heat or electricity for their customers in record numbers in the years after a temporary ban on the practice during the COVID-19 pandemic.

Katie Sieben, a Democrat who chairs the PUC, said “affordability concerns that customers are facing are something that are very serious, and we need to find solutions for.”

However, the PUC can only limit temporary rate increases under state law for “exigent circumstances.” The commission invoked that power during the pandemic, but Sieben and others on the PUC said they did not believe the current economic situation qualifies.