Xcel Energy has the highest residential electricity prices in Minnesota, Otter Tail Power has the lowest

Minnesota families who buy their electricity from Xcel Energy are paying the highest prices of any investor-owned utility in Minnesota, according to new data from the U.S. Energy Information Administration. In contrast, Otter Tail Power Company had the lowest rates, with Minnesota Power having rates almost precisely in between Otter Tail and Xcel.

According to EIA data, Xcel’s residential prices were 15.60 cents per kilowatt hour (kWh) in 2022, and Otter Tail customers paid just 11.64 cents per kWh, which is 34 percent less than those paid by families with Xcel Energy.

But why are these prices so different? Electricity rates in Minnesota are governed by the Cost-of-Service formula, which basically says that utility companies are allowed to charge enough for their electricity to cover the cost of providing the service to everyone in their service territories.

Whenever a company builds a new power plant, whether it is a natural gas plant or a wind turbine, the company is allowed to raise the price of electricity to recoup those costs, plus a government-approved profit, generally 7.36 percent. This means the more a utility company spends, the more profit it makes, and the more electricity prices go up.

No utility has been as aggressive in trying to bilk ratepayers build wind and solar installations as Xcel Energy, so it is no surprise that the company has the highest residential electricity rates in Minnesota. Minnesota Power has also climbed on board the carbon-free bandwagon, and their rates have increased as a result.

Otter Tail Power has taken a more balanced approach to resource planning, which is why it announced it intends to keep using its coal plants in North Dakota and South Dakota, along with building modest amounts of wind and solar. This balanced approach is reflected in its rates.

In fact, if Otter Tail Power were its own state, it would have the third-lowest residential electricity prices in the nation. Minnesota Power would be 19th lowest, and Xcel Energy would be 19th highest, which you can see in the graph below, which compares the rates of each Minnesota utility against state averages for July of 2023.

Xcel Energy frequently talks about the importance of “keeping costs low” or making sure electricity is “affordable,” but these are meaningless weasel words that have no objective basis in reality. Unfortunately, the company’s prices will keep climbing due to its decision to shut down the Sherco 2 coal plant and spend $409 million on a solar project just as solar prices soar.

The resource planners at Xcel Energy could learn a lot from their colleagues at Otter Tail, but that would get in the way of the Xcel CEO’s ESG bonus, so don’t hold your breath on that happening.