Yesterday, the Minnesota Public Utilities Commission (the “Commission”) met to address the first general rate case filed under section 216B.16 subd. 19 of the Minnesota Statutes. Northern States Power Company, a Minnesota Corporation, d/b/a Xcel Energy submitted the multiyear rate petition on November 4, 2013. In that petition, Xcel Energy asked for an increase in retail electric rates in Minnesota of $192.7 million, or 6.9%, effective January 1, 2014, based on a forecasted 2014 test year, and a proposed return on equity capital of 10.25%. As part of its multiyear proposal, Xcel also asked for a calendar year 2015 step increase of $98.5 million, or 3.5%, effective January 1, 2015. Over the last 500+ days, parties to the proceeding worked through the contested case process, addressing such issues as the revenue requirement, class cost of service study, and rate design.
On December 26, 2014, the Administrative Law Judge issued her Findings of Fact, Conclusions of Law, and Recommendations (“ALJ Report”). On January 16, 2015, Xcel Energy submitted a compliance filing noting that, if the ALJ Report were adopted in its entirety, Xcel Energy’s two-year rate increase would be reduced from $291.1 million to $191.3 million, based on a return on common equity of 9.77%.
The Commission did not adopt the findings and recommendation in the ALJ Report in their entirety. And given the complexity of the issues and their respective interrelationships, the impacts of all of the Commission’s decision yesterday on revenue requirement issues are not yet known. For example, the recent decisions regarding Monticello need to be folded in to the revenue requirement for 2014 and 2015 (coverage here). Another significant portion of yesterday’s decision relates to capital structure and return on equity. The Commission approved Xcel’s proposed capital structure comprised of 52.50% common equity, 45.60% long-term debt, and 1.90% short-term debt for 2014 and 52.50% common equity, 45.61% long-term debt, and 1.89% short-term debt for 2015. But the Commission adopted a hybrid ROE calculation that resulted in an return on common equity of 9.72%. The impact of the Commission’s resolution of other issues, such as pension, corporate aviation costs, will also need to be assessed.
With respect to class cost of service study issues, the Commission appeared to ignore concerns raised by the business community regarding Minnesota’s increasingly uncompetitive rates, rejecting proposed changes related to classification and allocation. Given that some of the changes were built into Xcel Energy’s filed class cost of service study, the Commission ordered that Xcel re-file its class cost of service study to incorporate the Commission’s resolution of various issues.
With respect to rate design, the Commission approved Xcel Energy’s proposed revenue decoupling mechanism (“RDM”), as a three-year pilot program. The Commission modified Xcel Energy’s proposal from a partial RDM to a full RDM and put a soft-cap limitation on the RDM billing rate increases. Xcel Energy is the first electric utility in Minnesota to receive approval of an RDM. A number of other rate design proposals were before the Commission, some of which were accepted and some of which were rejected. Notably, the Commission approved a proposal from a group of industrial consumers for a renewable energy purchase option – Xcel Energy was directed to work with customers to develop a tariff and bring it before the Commission for approval.
The Commission’s written decision will probably be issued in 3-5 weeks. Once received, Xcel Energy will have compliance filing work to complete, including revised schedules of rates and charges to reflect the Commission’s decision, a revised class cost of service study, and a proposal for addressing the interim rates that have been in effect since early 2014. Parties will have the opportunity to comment on these filings and submit petitions for reconsideration or clarification of the Commission’s decision.