Karlee Weinmann Xcel Energy’s multi-year legal fight to charge Minnesota customers more for its executives’ pay is threatening to undermine state regulators’ efforts to remove such costs from utility bills and instead shift them to Xcel’s shareholders.
A Minnesota Court of Appeals opinion issued last week, nearly a year and half after Xcel’s legal challenge, affirms that the Minnesota Public Utilities Commission (PUC) acted lawfully when it capped how much Xcel could charge customers for executives’ pay in a July 2023 decision that saved customers millions of dollars.
But the opinion reversed the specific dollar amount of the cap – $150,000 each for Xcel’s 10 highest-paid executives – while instructing the PUC to “provide further explanation” and “make additional findings” in order to determine the appropriate figure. The court said the PUC can open up the record as part of that effort:
“In remanding to the commission, we express no opinion as to an appropriate measure of recoverable compensation and do not foreclose the commission from setting the compensation level at the same amount if just and reasonable. We simply conclude that the commission did not adequately explain an important aspect of the problem regarding the amount chosen.”
The PUC is reviewing the opinion and has not yet determined when and how it will proceed, a PUC spokesperson confirmed to the Energy and Policy Institute this week. It remains unclear how the Court of Appeals opinion will affect the PUC’s previously set cap and whether it will lead to higher charges for Xcel customers.
“We can’t speculate on what the outcome will be, and how it will impact ratepayers at this time,” the spokesperson said.
The PUC imposed the limit as part of a July 2023 order that granted Xcel a three-year, 9.6% rate hike worth $306 million. The utility had sought a $440 million increase. As part of that, Xcel wanted to charge customers a total of $7 million annually for its 10 highest-paid executives’ pay, nearly five times the $1.5 million ultimately approved by the PUC.
Soon after, Xcel filed a legal challenge to force higher rates, disputing the PUC’s reductions of various charges. In addition to executive compensation, Xcel also contested regulators’ approval of a lower-than-requested return on equity, the key driver of utility profits and a cost borne by utility customers. Xcel later dropped its bid to force a higher return on equity, but has continued its push to charge customers more for executive pay.
PUC decision shifted costs to Xcel shareholders
Utility executives are routinely among the highest-paid corporate leaders in Minnesota. Xcel CEO Bob Frenzel was the fifth highest-paid utility CEO in the U.S. in 2023, the most recent year for which total compensation data are available. His compensation package totaled $21,357,168 — 151 times as much as the median Xcel employee.
In capping customers’ share of top executives’ pay, the PUC also noted that Xcel had not “meaningfully considered the impact of this high cost on ratepayers” or demonstrated efforts to reduce that burden, including by exploring a reduction in executive compensation. Following the PUC’s decision, several Minnesota lawmakers introduced legislation in 2024 to codify the $150,000 cap.
For its part, Xcel has broadly contended that because its executive compensation aligns with industry standards, it was reasonable for customers to cover the costs. The Court of Appeals was not convinced.
“We disagree with Xcel that, because it provided evidence that it generally pays employee compensation at median market rates, the commission was compelled by statute to conclude that Xcel had satisfied its burden to prove that its requested recoverable compensation cost for its ten highest-paid executives is a reasonable and necessary cost of providing service that is appropriate for ratepayers to pay,” the panel wrote in its opinion.
The PUC’s limitation on executive compensation costs did not restrict Xcel’s ability to pay its executives. Rather, it ensured that Xcel’s Wall Street investors would pick up more of the tab. Even with the PUC’s restriction in place, Xcel could compensate any employee at whatever level it saw fit – as long as it used financial sources other than customers’ bills. Xcel has reported over $1 billion in profits each year since 2015.
Xcel, like all investor-owned utilities, has a fiduciary duty to its shareholders. But it doesn’t have a comparable obligation to customers. While Xcel shareholders take annual advisory votes to express support or disapproval of executive compensation, customers cannot directly influence executives’ pay. Instead, it’s up to regulators to weigh these costs – like nearly all costs – against customers’ interests and ability to pay.
When the PUC approved the limit on executive compensation costs, it noted that Xcel’s executive pay structure “focuses the executive team on shareholder benefits, which are not necessarily aligned with the interests of ratepayers.”
Executive pay a pain point for utility customers
Executive compensation commonly surfaces in rate cases, targeted by consumer advocates and frequently highlighted by utility customers who express distrust of utility companies based on their executive compensation plans.
While utility executive pay rose in 2023, the most recent year with available data, millions of customers were disconnected from service when they fell behind on their bills. Amid rising costs, Minnesota utility disconnections reached a 10-year high in 2024. A 2024 study showed that customers in communities of color faced a substantially higher likelihood of disconnection in Xcel’s Minnesota service territory, compared to customers in predominantly white neighborhoods.
When it imposed the limit on customer costs for executive pay, the Minnesota PUC detailed comments from Xcel customers who said it would be “unreasonable” to pay high levels of compensation to utility executives, “particularly as many Minnesotans face continuing economic challenges” including higher costs of “necessities such as food, fuel, and medical expenses; ongoing surcharges and high market prices for natural gas related to extreme weather and market events; and lasting effects of the COVID-19 pandemic on individual incomes and broader economy.”
For its part, Xcel implied that comments expressing concern about exorbitant pay were outliers. The utility had contended that the comments critical of executive compensation costs “represent an incredibly small fraction of Xcel Energy’s approximately 1.3 million customers in Minnesota” and attributed “dissatisfaction” to a “minute subset” – seemingly suggesting that most customers don’t mind paying more to cover millionaire executives’ pay.
In the wake of the Court of Appeals opinion, the PUC stood by its rationale, noting those public comments.
“It’s worth mentioning that this decision highlights the impacts that public comments play in PUC decisions,” the PUC spokesperson said this week. “The level of public engagement on this issue was persuasive and gave the Commission a record from which to make this decision.”
Xcel again seeking rate hike, exec pay charges
The Court of Appeals decision came as Xcel once again seeks to increase electric rates for Minnesota customers, a proceeding that has drawn thousands of public comments. The unprecedented deluge skews heavily in opposition to Xcel’s proposed rate hike, and executive compensation remains a common concern. Xcel is seeking to charge customers $7.3 million for its 10 highest-paid executives’ compensation for the 2025 test year and $7.6 million for the 2026 test year.
“To be clear- clean energy and system improvements are important priorities. Lining the pockets of the executives of a utility that is necessary for modern life is not,” one commenter wrote. “I would urge Xcel to take a hard look at reigning [sic] in excessive executive compensation, especially during this time of economic uncertainty and upheaval, and rethink their priorities.”
The PUC has already directed parties to address the amount of executive compensation that can be charged to customers in the current Xcel rate case, a proceeding that will play out this year. This marks a continuation of recent efforts by the body to rein in such costs.
In August, the PUC approved a settlement in a Minnesota Power case that reduced executive compensation costs borne by customers to $1.5 million – less than the $2.6 million requested by the utility. Later this year, the PUC will consider a settlement in a CenterPoint Energy rate case that would remove $200,000 in executive compensation costs, around one-third of what CenterPoint requested. (The Energy and Policy Institute provided testimony on the issue in the CenterPoint case.)
Photo credit: Ken Wolter via Shutterstock
