Below the national average. Really?

Three things Xcel Energy doesn’t want you to know about its massive proposed increase in energy prices.

Xcel Energy wants to impose a massive 15.2 percent increase in electricity prices in Minnesota over three years. For that, it intends to underwrite a \$466 million spending spree that will also erase customer savings from energy efficiency. However, the 15.2 percent increase is just an average. In fact, the government-approved monopoly utility is seeking to raise residential electricity rates by 17.75 percent, representing a massive increase in electricity costs for Minnesota families.

Here are three things Xcel Energy doesn’t want you to know about its massive hike on electricity prices.

1. Residential electricity prices will be 29 percent higher than the national average

Have you ever noticed when products at the grocery store start to come in smaller packages, but the prices remain the same? This is what Xcel Energy is doing when it boasts about how electric bills for its customers were 22 percent below the national average in 2018.

This claim is technically true. But Xcel doesn’t tell you that the reason bills were below the national average is that customers used 29 percent less electricity, relative to the national average in 2018. You can see these differences in Table 1.

No one would brag that he or she spent 22 percent less on a container of coffee at the store if the container was nearly 30 percent smaller than the one your neighbor bought. Yet, this is what Xcel Energy effectively does in its TV and radio commercials.

Xcel’s bait and switch makes its Minnesota customers feel like they are getting a deal on their electricity. This way, Xcel can keep raising prices. In reality, consumers pay 10 percent more per kilowatt-hour than the national average. This difference will grow significantly if Xcel is allowed to raise residential rates by 17.75 percent.

Table 2 compares residential electricity prices for Xcel Energy after the rate increase with the national average. The table uses Xcel’s 2018 rates as a base year, and assumes electricity consumption will remain at 2018 levels. You can see that this rate increase will boost electricity prices to nearly 30 percent higher than the national average and cause bills to increase by about \$200 annually.

2. Electricity bills will continue to set new record highs

Xcel claims this will increase customer costs by “only” \$110 per year, but a closer look reveals the actual cost of the proposal will be nearly \$200 per household per year. So, how can Xcel claim the increase will be so much lower than what we’ve calculated?

Table 3, which we obtained through emails with Xcel, shows average monthly bills increasing from \$85.66 in 2019 to \$94.70 in 2022, increasing by \$9.04 per month. Multiplying this dollar amount by 12 gives us the \$110 per year increase that has been reported in the newspapers.

This reporting does not account for the fact that Xcel is assuming electricity usage will fall by about 10 percent during this time. If household electricity use remains constant, Xcel customers will pay nearly \$200 more per year by 2022, resulting in record-high electricity bills.

The graph nearby shows that average monthly electric bills in 2018 for Xcel’s residential customers were the second-highest on record (the failure at Sherco 3 caused 2013 to be the highest year on record). Electric bills have increased by 11.6 percent even though electricity consumption fell by 8.3 percent. If electricity consumption had remained constant during this time, we would expect average monthly bills to be \$99.67, or nearly 22 percent higher than they were back in 2005, the first year Xcel was required to purchase renewable energy.

Xcel’s proposed rate increase guarantees that electric bills for families in its service territories will reach new all-time highs in the coming years. Efforts at energy efficiency will be unable to save customers money because Xcel will simply raise electricity prices again. In fact, this phenomenon is why Xcel is asking for an additional \$135 million. According to Xcel’s rate case filing:

“Q. HOW DOES THE STAGNANT OR DECLINING SALES ENVIRONMENT IMPACT THIS RATE FILING?

A. Similar to our past two rate cases, declining sales necessarily mean that we must recover our investment over fewer units of sales, leading to a portion of our rate increase request.”

3. The tip of the iceberg: Much larger rate hikes to follow

Xcel argues that it needs massive increases in prices to underwrite plans to spend \$466 million over the next three years. Plans include new wind facilities and upgrades to its distribution system and nuclear power plants. All of this is in addition to plans to accumulate more corporate profits.

But what isn’t being talked about is the fact that Xcel’s current rate case does not include nearly \$1 billion in new spending on new wind facilities by 2021. These facilities include the Crowned Ridge, Blazing Star II, Freeborn, Mower, Jeffers, Community Wind North, and the Dakota Range wind projects. Many of these wind facilities will be in the Dakotas and will presumably require large investments in transmission infrastructure.

Even if we assume these new wind facilities will require zero transmission expenditures, \$1 billion for wind projects is more than twice as large as the \$466 million Xcel wants to spend over the next few years, prompting their proposed 15.2 percent rate hike.

If we assume the next residential rate increase is twice as large as this one, and use 2018 as a base year, we could see residential electricity prices increase by 53 percent between 2018 and 2025—assuming Xcel spreads the cost over three years, as it did in this rate case. If these assumptions prove accurate, Xcel Energy customers could be paying an additional \$580 per year, without accounting for federal subsidies for wind.

Renewable advocates will likely cry foul at this analysis for excluding the effect of the wind Production Tax Credit (PTC), but excluding the subsidies makes sense for two reasons: 1) Subsidizing a product doesn’t change its price, it merely changes how it is paid for. Rather than seeing the entire price increase in their electric bill, Minnesota families will bear the costs in the form of higher taxes (or higher deficits); 2) The costs of building wind are front-loaded in electricity rate increases, with ratepayers expected to foot the bill of the upfront construction costs for the promise of lower fuel costs in the future.

While state mandates were the initial driving force behind Xcel’s renewable energy installations, the company has been on track to meet its 30 percent renewable energy mandate for some time. Now, it is Xcel’s own rent-seeking that is driving the rush to renewables. The company’s pursuit of higher corporate profits is why it wants to build unnecessary wind and solar facilities and why it wants to prematurely shutter its coal-fired power plants and generate 60 percent of its electricity from wind and solar by 2030.

Xcel’s current rate increase constitutes a major cost increase on Minnesota families, but unfortunately, this will feel downright affordable compared with what is to come in the very near future.