Xcel Energy is seeking regulatory approval to increase its electricity rates in Minnesota by 4.6 percent next year and 5.6 percent in 2015.
The Minnesota Public Utilities Commission must sign off on the plan, which follows several years of back-to-back rate increases. But Xcel officials say they are making important investments that could help stave off bigger cost increases in the future.
Minnesota regulators approved Xcel's last rate increase three months ago. The utility had originally asked for a 10 percent increase, but that was eventually lowered to slightly less than 4 percent.
This time, the utility is spreading its next rate hike request over a two-year period. The rate hikes will help pay for new wind investments and improvements to the grid, Xcel regional vice president Laura McCarten said.
McCarten said the higher rates also will pay for upgrades at Xcel's Monticello and Prairie Island nuclear plants, which supply 30 percent of the power being generated for the utility's 1.2 million customers. The increases come at the peak of an investment cycle the company needs to complete to ensure its system can provide high quality service, she said.
"Over the next couple of years we expect to be moving out of that, but right now we are making these investments; they are part of the drivers for cost increases," McCarten said. "That's why this request also includes a proposal to moderate or reduce prices to customers than what they otherwise would be and provide predictable prices over the next few years."
Xcel recently announced new wind projects in Minnesota and North Dakota. Company officials say half of the utility's electricity comes from sources that don't pollute the atmosphere with greenhouse gases.
The utility's clean energy portfolio will have to continue growing to help the state reach a goal of reducing carbon emissions 30 percent by the year 2025.
Xcel regional vice president Chris Clark, who oversees the company's rate cases, said he hopes the Minnesota Public Utilities Commission will acknowledge that the utility is working to protect its customers. Two factors — federal regulations on carbon dioxide emissions and price volatility of fossil fuels — could increase the cost of energy in the future, he said.
"We got a great deal on 750 megawatts of wind for our customers and that will actually save customers money on the fuel side of the business," Clark said. "So we think in all we're making decisions that are good for our customers. I think we'll be able to demonstrate to the commission that we made the right choices for our customers and that these costs do represent the costs of doing business."
But consumer advocates say the back-to-back increases can put a real strain on household budgets.
"[It's] the cumulative effect of 4 percent increase for each year for several years when seniors are not seeing that level of increase in Social Security benefits and workers certainly aren't seeing the increase in wages," said Pam Marshall, executive director of the Energy Cents Coalition, which represents low and fixed income rate payers. "So people are going to be faced with an inability to pay their energy bills and when that happens they are at risk of having their utility service disconnected."
During Xcel's last rate case, Marshall's group was able to secure an additional $3.2 million in assistance for low-income customers.
Xcel rate payers will have an opportunity to weigh in on the utility's latest proposal at public hearings next year. By that time, Xcel officials hope an interim rate increase will already be in effect while the utility argues its case before the Public Utilities Commission.