Xcel Energy is fighting the scheduled sunset of a Minnesota law that enables utilities to charge customers hundreds of millions of dollars for fossil gas infrastructure upgrades without standard regulatory review, an approach ended in other states amid concerns that such programs significantly increase utility bills and undercut climate goals.

Passed in its current form in 2013, Minnesota’s Gas Utility Infrastructure Cost rider – known as GUIC – was designed to fast-track the most critical improvements to an aging fossil gas pipe network, then expire in June 2023. Over the past decade, utilities have used the rider to recoup from customers the costs of replacing thousands of miles of the oldest, leakiest pipes, delivering on a promise of safety improvements and reduced methane emissions from leaks.

With the most urgent upgrades made and state policy now prioritizing a transition away from the use of methane/fossil gas, critics say the provision should sunset on schedule to avoid inflating customers’ rates and padding utilities’ profits. But Xcel is pushing legislation to extend GUIC for five more years and the bill has quietly edged its way into Minnesota House and Senate omnibus energy bill discussions, set for debate in the coming weeks.

Whether GUIC is in place or not, utilities have a duty to provide safe, reliable service. But the rider offers them wide latitude to invest customers’ money in fossil gas projects and collect a return for themselves. Without the rider, utilities would need to demonstrate the need for such expenditures in a traditional regulatory process before the Minnesota Public Utilities Commission, like a rate case that has significantly more oversight.

As Minnesota zeroes in on decarbonization goals aimed at reducing the use of fossil gas – necessary to avoid the most catastrophic effects of climate change – rate cases have been fertile ground for debates over fossil gas investments in the state. Against this backdrop, dodging added regulatory scrutiny might be particularly advantageous for Minnesota gas utilities. 

Rick Evans, a top Xcel lobbyist in Minnesota, said at a state House committee hearing in March that the rider extension would give Xcel “the flexibility to continue to make those investments without forcing us – our gas company – into another rate case.” He also acknowledged that “the gas utility is under a great deal of scrutiny in terms of how long are we going to have a gas utility and what changes might come in future years.” While Evans argued this is a reason to revisit the rider in five years, clean energy advocates say keeping the rider in place will unreasonably handcuff regulators already working to chart the future of gas in Minnesota. 

“If left to expire this June, the PUC will then have maximum flexibility to determine how these accelerated replacement efforts should move forward — via either a new rider authorized under their existing general authority or a general rate case,” Joe Dammel, managing director at the nonprofit Fresh Energy, wrote in a March letter to legislators. “This option gives the PUC maximum flexibility to consider how future replacement efforts should harmonize with the array of other forward-looking policies currently under development.”

In recent years, state lawmakers have passed bills that promote switching appliances and home heating from gas to electricity. Governor Tim Walz lists building electrification as a priority, and earlier this year captured national headlines for signing a bill that requires Minnesota utilities to transition to 100% carbon-free electricity by 2040. State regulators, meanwhile, have opened a “Future of Gas” proceeding to guide the energy system’s evolution amid a broader transition away from fossil fuels. In addition, an infusion of federal incentives that encourage electrification will flood Minnesota after Congress passed the Inflation Reduction Act last year.

“As we look forward to the future of the gas system, we must also look back and remind ourselves that gas utilities have maintained their systems for decades prior to passage of the GUIC rider,” Dammel wrote to legislators. “Thus, even if GUIC expires, the obligation for utilities to provide safe and reliable service will continue. But regulators will gain the flexibility to address the future of the gas system with all of the regulatory tools in its toolbelt.”

States scrap riders, citing harm to consumers

The bill’s author, Rep. Robert Bierman (DFL – Apple Valley), acknowledged at a committee hearing in March that the measure would benefit large utilities the most. Xcel is Minnesota’s second-biggest gas utility provider behind CenterPoint Energy, but Evans, the Xcel lobbyist, estimated his company uses the rider more than any other utility in the state.

Notably, though, Xcel does not rely on such a measure in Colorado, where it is also a major gas utility. When Colorado debated the expiration of a similar surcharge, Xcel eventually agreed to drop its campaign to extend the provision. Instead, the utility will pursue future pipeline replacements in rate cases with more rigorous oversight. Minnesota clean energy organizations have pointed to Colorado as an example, proposing that Xcel should mirror that state’s processes as it considers non-gas alternatives alongside pipeline replacement projects.

Xcel’s Colorado customers witnessed ballooning costs with the rider in place over the past decade. Xcel raised nearly $610 million via the rider – three times the initial revenue estimate, according to the Colorado Sun.  When Xcel fought to extend that rider for several more years, it met with sharp opposition from Colorado Public Utilities Commission staff, the state’s Utility Consumer Advocate, and the Colorado Energy Office. 

“As the saying goes, if you put a frog into boiling water, it will jump out. But if you put the frog in tepid water that is brought to a boil slowly, then the frog will not perceive the danger. The same is true for riders such as [Colorado’s Pipeline System Integrity Adjustment],” Colorado PUC economist Fiona Sigalla wrote in testimony filed when the issue was under consideration. 

Sigalla went on to say the Colorado measure “outlived and outperformed the commission’s initial intent for this rider, contributing to my concerns about the use and abuse of riders.”

Mirroring the debate in Minnesota, Colorado officials sounded alarms over the risk of “stranded assets,” or fossil fuel infrastructure that becomes obsolete before the utility recovers the total costs from customers. As federal, state, and local governments pursue necessary emissions reductions – including through widespread electrification – the risk grows that gas pipelines will fall into this category. 

In Maryland, a similar rider has prompted concerns from the state’s top consumer advocate. Maryland People’s Council David Lapp estimated last year that his state’s utility customers could still be paying for pipelines replaced this decade until 2100. In a February op-ed, Lapp called for increased regulatory oversight of gas utilities’ infrastructure spending to protect customers, especially low-income households most at risk under the status quo.

“The gas companies are pursuing their economic interests, aggressively, for the benefit of their investors,” Lapp wrote. “They are spending large amounts on their systems, because they make money by recovering their capital investments — along with a return for investors that more than triples the total costs for customers — through utility bills.”

In Illinois, another pipeline replacement surcharge rocketed customers’ bills to untenable levels. Since the program’s debut more than a decade ago, Peoples Gas’ projected costs for pipeline replacement have ballooned to $8 billion, four times its initial figure. Estimates suggest that actual expenses for the utility’s so-called “pipe-palooza” will cost its customers $11 billion as work stretches into the 2040s. 

Peoples Gas charged its residential customers an average of $157 each for the program in 2021, Illinois PIRG found. Meanwhile, the utility’s returns to shareholders have ascended to record levels over the past half-decade. 

“It’s time for Springfield to tell gas utilities to stop treating their customers like an ATM,” Bryan McDaniel of the Citizens Utility Board of Illinois said last year at a news conference on the surcharge alongside several consumer protection and clean energy groups. At the same event, Illinois Rep. Joyce Mason said 2013 legislation that enabled the surcharge “was intended to address safety issues for consumers, not to serve as a blank check for utility companies.”

Significant costs borne by Xcel customers

As in other states, Xcel’s accelerated pipeline replacement spending has inflated Minnesota customers’ rates for a decade. Xcel has projected costs of fast-tracked pipeline repairs at more than $600 million through 2026. Xcel indicated plans in a 2021 regulatory filing to spend roughly $60 million per year in 2021 and 2022 on rider-related infrastructure replacement alone. 

Meanwhile, Minnesota is passing policies designed to accelerate the transition away from gas. Juxtaposed with the gas infrastructure rider extension are several other legislative proposals under consideration that would provide funding for Minnesotans to add heat pumps to reduce their reliance on fossil gas for space heating, upgrade their electric panels to accommodate more electric appliances, and more. Studies show electrification of home heating is feasible in cold climates, and federal incentives to encourage consumers to make that switch have begun to roll out.

Especially as the transition away from gas picks up steam, keeping the Minnesota rider in place increases the threat that the customers least able to electrify will be disproportionately harmed, and over a longer period, by the pursuit of pipeline replacement projects enabled by GUIC.

Xcel fighting for fossil gas

While the customer benefits of extending the rider are in doubt, the benefits for gas utility shareholders are clear.

Xcel has pointed to riders as primary drivers of earnings on investor calls. In January, Xcel executives reported $1.74 billion in profits for 2022 and noted that earnings were driven upward in part by “riders to recover capital investments.” 

More broadly, Xcel has fought efforts to wind down fossil gas. Despite public-facing commitments to support an energy transition, the utility was a driving force behind a pro-gas front group in Colorado that spread disinformation about electrification. Xcel also tried to recruit Minnesota cities to help it advocate for a slower roll-out of the state’s 100% clean electricity requirement.

Additionally, Xcel President and CEO Bob Frenzel sits on the board of the American Gas Association, the gas utility trade association behind a nationwide campaign to scuttle electrification, gut federal electrification incentives for utility customers, and promote gas-friendly policies including pipeline replacement programs.

Before the legislative session ends in May, Minnesota legislators will decide whether to fall in line with Xcel on the rider or end it on schedule.

Photo credit: Ken Wolter via Shutterstock

Posted by Karlee Weinmann

Karlee Weinmann is a Research and Communications Manager for the Energy and Policy Institute. In her previous role at the City of Minneapolis, she focused on climate and land use policy and led development of nationally recognized ordinances that increase transparency of home energy costs. Karlee was also a researcher for the Energy Democracy Initiative at the Institute for Local Self-Reliance and, before that, a reporter covering Wall Street dealmaking for a legal newswire. She lives in Minneapolis.