After four years of steady electric rate hikes in Minnesota, Xcel Energy Inc. executives said Thursday that they are hoping to avoid another increase in 2016 as once planned.
Chief Executive Ben Fowke mentioned the possibility of pausing rate hikes in the utility’s home state during a conference call with Wall Street analysts about fourth-quarter earnings.
The Minneapolis-based electric and gas utility reported a 31 percent increase in profits for the quarter that ended in December, but that isn’t why Fowke said he wants to avoid a rate hike next year. Instead, he said the company aims to work with regulators and other interests on a fresh regulatory strategy to make rates — and Xcel’s revenue — more predictable in the future.
“We are certainly interested in it,” Fowke said in an interview. “We are gathering a number of key parties and will be looking at some alternatives to a 2016 rate case.”
Xcel’s 1.2 million electric customers in Minnesota have faced higher rates in six out of the past eight years, including the last four. The increases have ranged from 2.7 percent to 6.3 percent annually, and another bump could come this year after the state Public Utilities Commission votes on Xcel’s pending case, likely in March.
“For ratepayers it’s good news,” said Bill Blazar, interim president of the Minnesota Chamber of Commerce, which routinely challenges utility rate hikes on behalf of business ratepayers.
Will Phillips, state director of AARP, which intervenes in utility rate cases for older Minnesotans, also said “customers will be pleased not to see a rate hike.” But he said rate cases also allow consumer groups to take a closer look at the company’s books — something that should happen regularly.
Xcel has blamed the string of rate hikes on a blip in the utility’s investment cycle that included spending more than $1 billion to upgrade its two aging nuclear power plants in Minnesota. Xcel also has put money into new transmission lines, wind farms and other assets.
Fowke said he expects that infrastructure spending to start to level out. “So the rate increases our customers have been seeing and we have been requesting moderate considerably in the future,” he said.
To avoid another immediate rate hike request, Xcel wants to adapt a rate-modulation strategy it has employed in its last two rate cases, said Chris Clark, the president of Xcel’s Minnesota regional operations. The strategy redistributes depreciation on longer-lasting utility assets, which lowers the company’s near-term revenue need, and thus the size of a rate increase.
During the pause in rate hike requests, Xcel officials said they hope to work with regulators and environmental, consumer and other interests on a new regulatory framework called the E21 Initiative. A report released by the group in December recommended forward-looking policies to address changes in the power industry, rewarding utilities for performance rather than strictly on their level of investment.
“The existing framework essentially looks backward and asks the question, ‘Did we pay the right amount for what we got,’” said Rolf Nordstrom, CEO of the Great Plains Institute, a Minneapolis nonprofit policy group that is overseeing the discussions.
Fowke said that if a 2016 Minnesota rate hike is taken off the table, Xcel could devote more time to the E21 Initiative. One of its proposals is for utilities to develop five-year business and rate plans, creating more predictable rates. Some parts of the initiative might require changes in state laws.
Xcel recently announced it wants to double its Minnesota region wind power capacity by 2027, with a goal of reducing carbon dioxide emissions by 40 percent from 2005 levels. It has proposed dialing back output of two large, older coal-fired generators in Becker, Minn., through 2030.
“We can continue to make the product cleaner and less and less carbon intensive and do it at a great price,” Fowke said. “It is a journey we have been on for a long time now and we are really starting to see the benefits of it. We are open to the new technologies, and when I look at renewables to me it is really an astounding story how far renewables have come in the last decade.”
In its earnings release, Xcel reported net income of $196 million, up from $150 million in the same quarter a year earlier. That works out to 39 cents per share, up from 30 cents last year, beating by 5 cents the consensus estimate of analysts tracked by Bloomberg.
Xcel, which operates in eight states, said higher customer rates approved in New Mexico, Texas and Wisconsin, better electric and gas sales and lower interest charges contributed to higher margins. For the year, Xcel said it earned $2.03 per share, up from $1.95 in 2013. The company reaffirmed its 2015 earnings projection of $2 to $2.15 per share.
The company’s shares closed Thursday at $38.11, up 66 cents, or 1.8 percent.