Xcel Energy's residential customers will see no electricity rate hikes for the second consecutive year in 2021, as regulators decided Thursday not to look at long-term rates while the coronavirus pandemic is battering the economy.

Xcel, the state's largest electricity provider, last month filed for a rate increase of a $597 million, or 20%, over three years — with much of it hitting both residential and commercial customers in 2021.

Yet it also gave the Minnesota Public Utilities Commission (PUC) a choice, filing a one-year "stay-out" request that would leave base prices unchanged but add a surcharge for larger commercial customers that would raise $171 million.

The PUC voted unanimously Thursday to accept the "stay-out" with some modifications that would primarily benefit residential customers.

"This is a very complicated matter, but ultimately [this] proposal is to maintain the status quo vs. prosecuting a rate case," said PUC Commissioner Valerie Means. "It creates critical customer safeguards and rate mitigations."

The Minnesota Attorney General's Office, which represents residential and small-business ratepayers before the PUC, supported the stay-out. "I really do think Xcel's proposal is the best proposal in this docket," Ian Dobson, an assistant attorney general, told the PUC.

But the state Commerce Department, which also represents the public before the PUC, opposed Xcel's stay-out, saying it unduly benefits Xcel shareholders over larger commercial customers.

The Commerce Department wanted Xcel to pay a portion of the $171 million surcharge — a recommendation rejected by the PUC.

However, to sweeten its stay-out proposal, Xcel acceded to a Commerce Department demand in separate case before the PUC.

With the pandemic prompting a run-up in past-due power bills, Xcel proposed $17.5 million in credits for its most indebted customers. The utility wanted all Xcel ratepayers to cover the bill over two years.

The Commerce Department said Xcel shareholders should foot half of the $17.5 million tab.

This week, Xcel said it would cover all of it. The company also agreed to absorb an estimated $20 million in pandemic-related costs that — due to a PUC decision earlier this year — could have asked for customers to pay at a later date.

PUC last approved a "rate case" for Xcel in 2016, setting rates for three years. It also drew a stay-out last year, sparked by a crowded regulatory docket.

The docket has only become more crowded throughout the pandemic, prompting the question of why the PUC put off the long-term request for a more substantial rate increase.

"It's not going to get any easier," PUC Commissioner John Tuma acknowledged. But "we can deal with the tough [rate] questions in a year."

Base rates won't change under the stay-out approved Thursday, but ratepayers' bills will likely still rise. The main reason is what's called a "sales true-up," which is an adjustment of Xcel's current sales to its sales in 2016, the first year of its last rate case.

Since then, Xcel's sales, like those of many U.S. electric utilities, have been falling, making it harder to cover fixed costs. Sales declined primarily because customers — particularly businesses — increased energy conservation. This year, commercial sales nose-dived even further as the pandemic hobbled the economy.

Xcel's residential sales, conversely, have risen somewhat in recent years, including in 2020 as many people worked at home because of COVID-19. So, due to sales-true ups, Xcel's residential customers will share $51 million in bill credits for the stay-out approved Thursday, combined with the one authorized a year ago.

Larger commercial customers — about 48,000 in all — were dinged with a $157 million surcharge for last year's stay-out, plus the $171 million approved Thursday.

Attorneys representing some of Xcel's large commercial and institutional customers argued before the PUC that their rates are already higher than the national average. They also said Xcel's cost of service are declining along with sales.

Rate cases delve into the mechanics of matching costs with revenue — and that's what the PUC needs to do, said Richard Savelkoul, an attorney for Minnesota Energy Consumers.

The PUC's decision Thursday isn't "appropriate," he said.

Minnesota Energy Consumers primarily represents the Minnesota Chamber of Commerce.

The Metropolitan Council, the Metropolitan Airports Commission and the University of Minnesota dropped out of the group over the past week after their names were made public.

Mike Hughlett • 612-673-7003