Minnesota gas companies are upping their investments, leading to higher fees

Natural gas delivery fees have increased significantly since 2010, and researchers expect the fees to increase even more over the next several years while private utility companies reap the profits.

The three investor-owned Minnesota utility companies — Xcel, CenterPoint and Minnesota Energy Resources (MERC) — have upped their capital investments in recent years, and the costs will ultimately be passed on to consumers, according to a new report commissioned by the Citizens Utility Board of Minnesota, a nonprofit that advocates for consumers.

The report raises questions about whether the infrastructure spending is really necessary or if the investments are merely a way to increase profits.

Minnesota’s gas lines are already among the safest in the country, leaking less frequently than the national average, according to the report.

To encourage investment in the safety and functionality of utilities, the Minnesota Public Utilities Commission allows gas companies to recoup their investment spending — plus a profit negotiated with the PUC — from customers. The arrangement is common around the country.

All three companies told shareholders they plan to significantly increase their “rate base” — the total value of the company’s assets — over the coming years. As the companies pour money into their rate base, the fees passed on to customers will also increase.

The report, based on public filings and the companies’ presentations to shareholders, estimates that over the next decade delivery fees will increase by 120% for CenterPoint customers; 47% for MERC customers; and 86% for Xcel Energy customers.

Capital investments by the utility companies significantly outpaced the increase in the number of customers over the past decade. For example, while CenterPoint’s customers increased by about 12% from 2012 to 2022, the company’s capital investments more than doubled, from $1.5 billion to nearly $3.6 billion.

“Most of these investments are not discretionary, but required by stricter federal pipeline safety regulations,” CenterPoint said in a statement.

In a statement Thursday afternoon, Xcel Energy spokesperson Theo Keith said Xcel did not agree with the report’s assertion that increased infrastructure investment was resulting in “significant bill increases.” MERC also disputed some of the report’s findings, calling the assumptions made about the company’s future spending “unrealistic.”

PUC spokesperson Cori Rude-Young said Thursday the commission had yet not reviewed the Citizens Utility Board report. The PUC generally does not review specific distribution-level investments by utility companies, she said, relying on third parties to scrutinize the spending instead.

“This process relies heavily on the Department of Commerce, the Office of the Attorney General, and intervenors – like the Citizens Utility Board – to identify investments or costs that warrant more scrutiny,” Rude-Young said. “When the (PUC) identifies investments or costs that the utility has not proven are reasonable and necessary, they are not included in rates.”

Federal regulators recommend that utility companies replace old pipes and pipes made of certain leak-prone materials. But as investment has increased in recent years, the number of leaks per mile of main line has not changed much. (CenterPoint has a persistent leak issue with its service — not main — lines.)

The report rules out necessary pipe replacements and increased customers as explanations for the significant increase in costs — though it does account for some of the spending.

That leaves business goals as the key driver of the spending.

“Investor-owned utilities have a financial incentive to make capital investments. It’s an important part of their business,” said Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota.

The report, compiled by DHInfrastructure — a Massachusetts consulting firm — also evaluates how Minnesota’s plan to reduce greenhouse gas emissions will impact consumers: by increasing costs even more for those who can’t afford to buy electric heat pumps and stoves.

If gas usage decreases, the private utility companies will still be able to recoup their investment costs — but from a smaller customer base, and one that’s more likely to consist of renters and people of color, Levenson-Falk said.

In that scenario, as gas utility costs become more expensive, switching to electric heating and appliances may start to look like a better deal, further driving up gas fees for remaining gas customers and sending the utility companies into a “utility death spiral.”

“I think we all need to start talking about what that looks like, and how that transition can happen in a way that protects consumers,” Levenson-Falk said.

This story has been updated with comments from Xcel Energy.