Xcel customers in Minnesota can soon choose varying electricity rates

Starting next year, Xcel Energy customers will be able to take advantage of a program with electricity rates that vary based on the time of the day.

Customers will need to voluntarily opt in to that program, which offers its cheapest rates from midnight to 6 a.m., the most expensive prices from 6-9 p.m. on weekdays, and a middle-tier price the rest of the week.

The program will not automatically apply to everyone, as the company once proposed.

In theory, the varying rates incentivize people to shift when they use electricity, easing pressure on the grid during peak times and cutting down on Xcel’s expenses to support the heavy use.

For households that use less electricity during peak times, the program could also be a money saver.

In 2018, the state Public Utilities Commission (PUC) asked Xcel to come up with a plan to implement time-of-use rates for all residential customers after finishing a pilot project.

Xcel’s eventual proposal, announced in December 2023, would have made those varying rates the default for all households. While people could have opted out, the proposal drew sharp backlash from customers and several consumer advocates, including Attorney General Keith Ellison. Xcel’s proposed significant gap between peak rates and off hours would have made the utility a national outlier, according to one rates expert.

Now, Xcel is taking a more modest approach with the opt-in program. The PUC voted 3-0 in favor of that scaled-back plan.

Katie Sieben, a DFLer who chairs the commission, said the decision “should sit well with the public, and hopefully people that are able to shift their usage can do so under this offering.”

Xcel spokesman Theo Keith said the new program would give customers more “choices and control over their energy use.”

Under Xcel’s new program, which the company says should begin in early 2026, there will be three electric rates instead of one.

The peak prices would be most expensive from June through September, with a more modest gap between the rate periods from October through May.

Xcel will also have a separate set of variable rates for electric space heating.

Time-of-use rates are becoming more common around the country, especially with the spread of smart meters that help enable the variable pricing.

Duluth-based Minnesota Power has been phasing in default time-of-use rates since 2022. In December, the company said about 10% to 12% of customers were currently on the price system.

Xcel’s initial proposal was not intended to collect more money from customers through higher bills.

Supporters hope the rates incentivize people to shift when they use electricity, reducing strain on the grid when people are home from work in the evening and using the most power.

Flattening out that electric use can help Xcel tap into cheap wind power at night or even avoid building new power generators, like a gas plant that runs only to cover the biggest spikes in energy use.

That could be especially notable as electric need grows with the rise of heat pumps, electric vehicles, electric stoves and data centers.

Others argue that time-of-use rates are simply more fair than flat rates. It is more costly to serve people when overall demand is higher. Time-of-use rates better charge people based on what they are using, proponents say.

Some would pay more, as a result, and others would pay less.

Still, Xcel’s initial plan drew blowback. In letters to the PUC, many Minnesotans said they didn’t have the flexibility to change their energy use because it is dictated by a job or parenting requirements. Some customers argued they shouldn’t be penalized for basic needs like using air conditioning on a hot summer day.

Ahmad Faruqui, a California-based energy and rate design economist, said Xcel’s initial proposed rates, which would have been seven times more expensive during peak hours than off-peak hours, risked shocking people and creating backlash.

The power company backed off its plan, instead pitching the voluntary program in August. It also lowered peak rates, increased off-peak rates and shortened the window with highest prices.

Xcel’s revised plan didn’t win universal acclaim. Some still hoped the varying rates would be the default for customers to encourage wider use.

But the PUC approved the new plan with minor changes. They, too, grappled with public frustration with the idea and how best to shape time-of-use rates to better accommodate basic life needs.

Sieben successfully pushed to change the time frame for peak rates from 7-10 p.m. on weekdays to 6-9 p.m. That was partially based on modeling of customer energy use, but also based on Sieben’s experience as a mother.

“I can’t wait to do five loads of laundry until 9 or 10 p.m.,” she said. Better hours might entice more people to use the rates, Sieben said.

Hwikwon Ham, an independent PUC commissioner, emphasized that he doesn’t want Minnesotans to think the commission is a “social engineering entity” that is trying to change people’s behavior. That perception is what sparked a “huge reaction from the public,” he said.

“I think this is about how we are going to charge people based on their cost causation,” Ham said. “If somebody is using energy at 7 p.m., we need to charge them at that rate, and then if somebody is using the energy at 12 a.m., we need to charge them at that rate.”

Xcel was also ordered to explore whether it can project for customers what their bills would be on and off the time of use rates to compare the programs.