BISMARCK - A meeting between Xcel Energy officials and North Dakota utility regulators here on Tuesday shed light on a major point of contention sure to arise again as the company seeks approval of a sweeping proposal that would boost rates for its electricity customers.
Xcel's proposed settlement agreement filed last month with the Public Service Commission would increase electricity rates by 5 percent each year in 2013, 2014 and 2015, and hold rates flat in 2016.
If the new agreement is approved, Xcel's residential customers in North Dakota will receive an average refund of $21 for 2013 because the proposed 5 percent rate for 2013 is lower than the 8 percent interim rate they've been paying since February.
Since last February, the commission has been considering a separate rate increase of 9.25 percent proposed by Xcel for 2013. The new agreement between Xcel and PSC advocacy staff would replace that earlier proposal.
One part of the agreement that emerged during Tuesday's informal PSC hearing as a major sticking point would allow Xcel to keep using its current methodology of spreading out production and transmission costs among states where it does business.
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For years, North Dakota regulators have grumbled that Minneapolis-based Xcel is subjecting its North Dakota customers to Minnesota's energy policies and regulations - and higher costs.
The commission has been mulling a change in the methodology - the so-called "demand allocator" - that's been used by Xcel for the past 20 years because it would save the company's North Dakota customers $20 million a year. Xcel would likely appeal such a change to the state Supreme Court.
To head off such a change, Xcel is proposing a study to compare different methodologies and report the findings to the commission by July 1. The information would be used in the company's next electric rate application, which couldn't happen until 2017.
Commissioner Randy Christmann called the study "a really big deal as part of this equation," and he questioned Xcel officials on the proposed timing, saying the information would be outdated by the next rate application.
"I really see this whole study as just something to kind of cover our rear ends here a little bit and show that we made the right decision," he said.
Commission Chairman Brian Kalk said a change in the demand allocator represents a "very large" swing in rates for North Dakota customers - one than could swing the proposed rate increase back the other way. He told Xcel officials he disagreed completely with the idea of including other states in the allocation study, saying it should focus only on North Dakota.
"A study for me is no more than what I think we'll be developing here as a legal record to support some type of decision, and whether we end up rumbling in the Supreme Court on that, we're going to develop a study no matter how this shakes out," Kalk said.
Xcel senior regulatory consultant David Sederquist called the settlement agreement "historic" and a "game-changer" that provides potential for long-term savings and calls for a significant change in the way energy supply resources are assigned to North Dakota.
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"Basically the settlement requires that a framework be developed and approved by this commission that results in North Dakota customers paying for a mix of resources that's consistent with North Dakota policy," he said.
A formal hearing on the agreement is scheduled for Jan. 23.
Reach Nowatzki at (701) 255-5607 or by email at mnowatzki@forumcomm.com .
