What is the financial impact of the natural gas rate case settlement?

The uncontested settlement for the natural gas rate case proposes a base rate revenue increase of $21 million, which is lower than the initial request of $36 million. This settlement also includes a revenue decoupling mechanism, which helps to align revenues with actual customer usage, and a reduced ROE of 9.57%. While not as high as initially sought, the settlement provides a degree of certainty for future revenue. Interim rates of $25 million were already in effect, subject to refund.

How significant is the opposition to the electric rate case?

The electric rate case faces considerable opposition. NSP-Minnesota initially requested a total revenue increase of $677 million over three years. However, intervenors like the Minnesota Department of Commerce (DOC), Office of Attorney General (OAG), and various customer groups have filed testimony recommending substantial reductions to this request. The DOC, for instance, proposed significant adjustments related to rate base, rate of return, and other operational costs, questioning the company's proposed revenue changes.

What are the potential risks for Xcel Energy from these rate cases?

The primary risk for Xcel Energy lies in the outcome of the electric rate case. The significant pushback from various parties and the proposed revenue reductions by the DOC suggest that the final approved rates could be substantially lower than requested, impacting future revenue growth and profitability. The approved ROE in both cases, especially the electric one if it follows the proposed adjustments, could also be lower than the company's current assumptions, affecting earnings per share. The 'subject to refund' nature of interim rates also means potential adjustments if final rates are lower.

When can investors expect final decisions on these rate cases?

A decision on the natural gas rate case is anticipated in the first half of 2023. For the electric rate case, a final order from the MPUC is expected by June 30, 2023, following hearings and the ALJ report in early 2023.

XEL/XELLL 8-K SEC Disclosure

Summary

Xcel Energy Inc. (XEL), through its subsidiary Northern States Power Company (NSP-Minnesota), has made significant progress in its natural gas and electric rate cases before the Minnesota Public Utilities Commission (MPUC). In the natural gas rate case, an uncontested settlement has been filed, proposing a base rate revenue increase of $21 million and incorporating a revenue decoupling mechanism. This settlement is awaiting a hearing in Q4 2022, with an expected MPUC order in H1 2023. While lower than initially requested, the settlement represents a resolution that stakeholders have agreed upon, which should provide some clarity on future revenue streams. In the electric rate case, NSP-Minnesota initially sought substantial increases totaling $677 million over three years. However, significant opposition has emerged from various parties, including the Minnesota Department of Commerce (DOC), Office of the Attorney General (OAG), and industrial customer groups, who recommend substantial adjustments and lower rates of return. The DOC, in particular, has proposed significant reductions to NSP-Minnesota’s requested revenue changes. Procedural steps including rebuttal testimony and hearings are underway, with a final MPUC order anticipated by June 30, 2023. Investors should monitor the outcome of this electric rate case closely, as it will materially impact future earnings and operational planning.

Key Highlights

1Uncontested settlement reached for NSP-Minnesota's natural gas rate case, proposing a $21 million base rate revenue increase.
2Natural gas rate case settlement includes a revenue decoupling mechanism and a lower authorized Return on Equity (ROE) of 9.57% compared to the initial 10.5% request.
3NSP-Minnesota's electric rate case faces significant opposition, with multiple parties recommending substantial reductions to the requested $677 million revenue increase.
4Key parties in the electric rate case, including the DOC and Xcel Large Industrial Customers (XLI), are proposing lower ROEs and questioning various cost recovery items.
5Interim rates for both natural gas ($25 million) and electric ($247 million) cases were approved subject to refund, meaning potential adjustments once final rates are determined.
6The MPUC is expected to issue an order for the natural gas case in H1 2023 and for the electric case by June 30, 2023.

XCEL ENERGY INC 8-K Report, Corporate Update (Oct 5, 2022)

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