Minnesota: A wholly owned subsidiary of Xcel Energy? #1 in a series.

Utilities do it everywhere….

It’s in the nature of electric utilities to accumulate too much economic and political power.  They provide essential services, they have almost unlimited resources compared to potential opponents, and they send hundreds of thousands of mailings to all the households in their service areas.  Most are corporations whose management works for stockholders, not customers, but they often get people to forget that.  They almost always have undue influence on the commissions that are supposed to regulate them.

But “NSP” is something special

The chokehold that Xcel Energy (Northern States Power Company) has on the state of Minnesota feels unusual even by utility standards.  The obedience that Xcel seems able to extract from most of our public and private institutions in Minnesota–including the media–is extraordinary, and ramping up very aggressively from this already excessive level.

Stockholder and ratepayer interests have diverged

Why?  There is no mystery to it, really:  There used to be, disregarding the effects of air and water pollution (Xcel is almost certainly the biggest single polluter in Minnesota, killing hundreds of people per year) certain common interests–Xcel provided reliable electric service and reasonable rates, and made a comfortable profit doing so.   Sales grew.  Prices were low and stable, for the most part.

But this traditional business model of utilities, based on monopoly combined with growth, is going away.   The obsolescence of the traditional “business model” is crucial to understand.  Wind was never much of a threat to utility control, but solar offers real alternatives.  Combined with “storage” it can be a knockout punch.   Global warming is here and only curtailing fossil-fuel burning offers hope.  Electricity sales are flat, efficiency is cheaper than new generation, and only the electrification of transport offers new markets.  “Distributed generation,” such as rooftop solar, can reduce the need for traditional utility infrastructure.  All this being so, how can Xcel, a private (“investor owned”) corporation, keep both  its shareholders and its customers happy?

It can’t, their interests have diverged.  What is good for the owners is no longer automatically what is good for the customers.  Of course, this is a common enough situation in the world of monopoly capitalism and Xcel is approaching the problem in the usual manner:  With manipulation and deception.  Welcome to the methods of Coke, Monsanto, and Nestle.  Welcome to the new, harsher, less scrupulous “NSP.”

Xcel has a lot going for it:  It has a tradition of avoiding open conflict with the communities it serves, and a tradition of large community grants for public, visible projects.  Its representatives are generally smart, polite, and well-informed.  the company tends to show a certain artful flexibility where its vital interests aren’t at stake.  It has the resources to buy off nearly everyone.  There seem to be few NGOs in Minnesota not eager to feed at the Xcel trough.

Absurd rate requests and unjustified increases have become the norm.  Welcome to getting screwed.

Consider:  The cost of coal dropped by about one-half in 2015.  The cost of wind power has dropped dramatically.  Average wind power purchase agreements are down to about $20 per megawatt hour.  The cost of solar is dropping dramatically.  The cost and “technical potential” of efficiency (conservation) is dropping.  “Distributed generation,” such as rooftop solar, can reduce the need for traditional utility infrastructure, just as cell phones are displacing traditional telephone infrastructure.

So, shouldn’t the retail price of electricity be dropping?

Yes, it should.  Yet Xcel files for rate increase after rate increase, and always gets some of what it asks for.  The “spread” between the wholesale and retail pricing of electricity is rapidly increasing.  What is the excuse for the increases?  Unneeded expenditures on transmission lines with a private purpose are a key factor in inflating the “revenue requirements” used as the basis for setting rates.  This has been pointed out for years, but these projects are usually promoted by enviro/energy wonk interests who think, or pretend to think, or are paid to think, that the projects are “for wind.”

Have you heard this before?   Likely not.  So effectively does Xcel control the terms of the discussion that the basic illogic of the increases is obscured, with only the Office of Attorney General doing the grunt work.  (The Minnesota Office of Attorney General has a “Residential Utilities and Antitrust Division,” but it maintains a low profile.  It does not appear, for example, on the front page of the AG’s website.)

Look at this graphic from the office of Attorney General Lori Swanson:

The Minnesota Legislature serves as a corporate “back door.”

Xcel, knowing it can’t justify the increases, got the laws amended last session to eliminate the need to prove up their rate increase demands.  Instead, Xcel now wants “multi-year rate plans” based on Xcel’s own “business plans,” a shift of “cost based” rates to “formula based rates.”  Actual “rate cases,” which require some justification, and give opportunity for opposition, are too much trouble and expense, and don’t always yield the desired results, as shown in the chart above.  In 2014, the Legislature gave Xcel almost all it wanted, with DLF legislators as eager as the Republicans to shovel out favors.   In the Senate, the bill was sponsored by Senator John Marty, Chair of the Senate Energy and Environment Committee.   I reserve special scorn for Marty’s role because of his reputation as a great friend of the people.

What these bills really amount to is replacement of real “regulation” by the Minnesota Public Utilities Commission–such as it is–with unspecified and amorphous feel good festivities controlled by Xcel Energy and other utilities.  In these developments, Xcel is driving the train (Minnesota Power is along for the ride and not always getting what it wants), but the legislation applies to all the regulated utilities in Minnesota.

At the initial hearing on the giveaway bills, only three parties testified against:  Carol Overland, Alan Muller (me), and Mr. James Canaday from the Attorney General’s office.  We do not have a copy of Mr. Canaday’s testimony, but here is a letter from Attorney General Lori Swanson making many of the same points.   No organizations representing Minnesota ratepayers or the environment testified against S.F. 1735 at this hearing.   They were there, but sat silently.   (It would be easy to argue that such testimony is a waste of time, as opportunities to speak come only after the deals have been cut, as with Xcel’s “e21 Initiative,” another issue for a future post.)

Utilities regulate the regulators.

So much for the Legislature.  What about the Public Utilities Commission?   I attended a “planning meeting” regarding Xcel’s “e21 Initiative” between the PUC commissioners and Xcel representatives and stooges on Feb 26, 2015, just about a year ago.  This was a bilateral discussion at which the public was not allowed to speak.  Essentially, Xcel’s reps said they didn’t want to have to bother proving up their demands for rate increases and would go to the legislature to get whatever they could not get directly from the Commission.  They, went, of course, and got it.

In general, so servile is the PUC to Xcel that even the appearance of independence and integrity is not maintained, and one could say the same of the other state agency players, the Department of Commerce and the Office of Administrative Hearings.  In 2009 I wrote:

“Public Utilities Commission soaked in conflicts of interest”

“So, citizens and public-interest organizations coming before the PUC in opposition to unneeded transmission projects, or the continued operation of the Prairie Island nuclear reactors, or whatever, are coming before a Commission defined by its ties to the industries it is supposed to be regulating. Is it any wonder that these regulators cater to special interests rather than the public interest?  That citizens are frustrated and bad decisions are routine?  That improved energy policies are so hard to come by?”

The current Xcel rate increase case is Docket 15-826 and summarized by the PUC this way:

“On November 2, 2015, Northern States Power Company d/b/a Xcel Energy (Xcel or the Company) filed a general rate case seeking three consecutive annual rate increases under the Multiyear Rate Plan statute.1 The proposed rate increases would total $297,100,000, or 9.8% over current rates ….”

“Under Minn. Stat. § 216B.16, subd. 3, the Commission must order an interim rate schedule into effect within 60 days from the filing of a general rate case, unless the Commission allows the proposed final rates to go into effect. The Company included proposed interim rate schedules in its November 2 filing.”

“The proposed schedules would permit the Company to recover an interim rate increase of some $163,670,000, or 5.5%, on an annualized basis, beginning January 1, 2016, and an additional $44,900,000, or 1.5%, on an annualized basis, beginning January 1, 2017. The second increase would result in a total interim rate increase of approximately $208,570,000, or 7%, on an annualized basis.”

All of the official documents can be found on the electronic “edockets” system.  Just search “Documents” for the rate case docket, 15-826.

Next edition:  Details: How Xcel regulates the regulators.