ND regulators approve four-year rate increase plan for Xcel Energy: Hike in prices will bring in $28.4 million

BISMARCK - Xcel Energy customers in North Dakota will see rate increases - and a refund - under a rare four-year agreement approved Wednesday that state regulators said will address some longstanding challenges with the company and give customers more certainty.

The North Dakota Public Service Commission unanimously accepted the agreement, which will allow Xcel to collect a projected $28.4 million in additional revenue through 2016 to help extend the lives of its nuclear power plants, expand its transmission grid and upgrade its distribution system.

The agreement provides for rate increases of 4.9 percent in 2013, 2014 and 2015 and a rate freeze in 2016 for Xcel’s approximately 90,000 customers in North Dakota, primarily in Fargo, Grand Forks, Minot and West Fargo.

The new rates take effect May 1.

The average residential customer will see an increase in their monthly bill of about $1.22 over current rates in 2014, followed by an increase of $3.43 in 2015, based on monthly usage of 750 kilowatt hours, PSC staff estimated.

Because customers have been paying an interim rate increase of 8.05 percent since February 2013, the average customer will receive a refund of about $19 credited to their account.

The agreement concludes 14 months of negotiations that began when Xcel filed a request in December 2012 for a one-year, 9.25 percent rate hike that would have generated $16.9 million in additional revenue.

The rate increases approved Wednesday will allow Xcel to collect $28.4 million in additional revenue over the four-year term, believed to be the longest rate agreement in company history, said David Sederquist, a senior consultant for regulation and financial analysis at Xcel’s office in Fargo.

“We believe that this settlement is a very reasonable and fair settlement,” he said.

Even with the rate increases in this agreement, the commission said Xcel’s rates in North Dakota are projected to remain among the lowest in the Midwest and about 15 percent lower than the national average through 2016.

‘A fundamental shift’

Commissioner Julie Fedorchak said she favored a multiyear agreement because the three-member commission knew the company would otherwise be return for additional rate increases.

“So ultimately I believe it’s beneficial to ratepayers because it locks it in. We know exactly what the rate increase is going to be … through this investment cycle,” she said.

In addition to the rate increases, the agreement contains several provisions aimed at reducing costs to North Dakota customers.

“It’s a fundamental shift in how North Dakota deals with Xcel Energy and Minnesota policies,” commission chairman Brian Kalk said.

The biggest benefit, he said, is the ability for the PSC to “restack” the energy resources North Dakota customers are paying for as a result of Minnesota’s alternative energy mandates, mainly with regard to wind and solar power. The commission estimates restacking could reduce future costs to North Dakota customers by about $5 million.

“Now our staff and (the commission) can sit down with Xcel and say, ‘OK, these resources that you’re building to meet Minnesota mandates, North Dakota customers aren’t going to pay for them,’” Kalk said.

Sederquist said Minneapolis-based Xcel has “a lot of work to do” with the Minnesota Public Utilities Commission and state policymakers to make the case that costs which now may not be recovered in North Dakota could be recoverable in Minnesota “because some of them stem from Minnesota policy.”

With the agreement, the company takes the risk that Minnesota regulators may not agree, and stranded costs could fall to Xcel’s investors.

“That is a very real risk,” he said.

Commitment made

The agreement also requires a third party to conduct a one-year study of the formula Xcel uses to spread certain generation and transmission costs among states where it does business.

The current formula has been used for 20 years, and some analysts believe it may overcharge North Dakota customers for their part of the total system costs, Fedorchak said. A formula change that’s been discussed by the PSC would save Xcel’s North Dakota customers $20 million a year, she said.

Fedorchak also called it a “huge win” that the agreement includes a commitment from Xcel to develop thermal generation resources in North Dakota no later than 2036. Last spring, Xcel proposed adding two 215-megawatt, natural gas-fired generators near Hankinson in the southeastern corner of North Dakota, but the company later backed away from the proposal to the disappointment of PSC members.

Commissioners said the commitment is important because of rising demand from Xcel’s customer base in the Red River Valley and that fact that the company currently has no generation facilities in North Dakota.

Sederquist said there’s a likelihood Xcel will move forward with a project earlier than 2036, but he added, “It’s not going to be a plant that’s simply built because of a commitment. There’ll need to be a need and there’ll have to be a cost-effective analysis of that.”

Deal contains savings

Commissioner Randy Christmann said that with interest rates low for commercial financing, the rate hikes could have been kept lower with four smaller increases, “because there are customers out there that I think don’t have the money available.”

But on the positive side, Christmann noted that the rate hikes average out to a little more than 3.5 percent per year. The agreement also relieves North Dakota customers of the costs of Xcel’s charitable contributions and economic development donations and much of their employee incentive bonuses.

“Now, NSP’s investors will be responsible for these costs, and these changes alone are going to save the ratepayers over $2 million over these four years,” he said.

If Xcel’s earnings exceed what is authorized in the agreement, the company must refund 50 percent of those earnings to customers.

Two wind energy projects - Border Winds near Rolette and the Courtenay wind project in Stutsman County - also will receive advance determinations of prudence through the agreement, meaning Xcel will be able to seek recovery of costs associated with the projects from customers in the future.

“This is sort of a new, innovative way to approach all of these issues,” Fedorchak said. “I think we’ve done so in a manner that helps us address some longstanding challenges that we’ve had to the company.”