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Xcel Energy Modifies Rate Request

Zacks Equity Research

Xcel Energy Inc. (XEL) announced a change in its plan for the proposed hike in electric rates originally filed in Nov 2012 with the Minnesota Public Utilities Commission. The fresh rate hike request reduces the extent of the hike asked for in the earlier application.

As per the proposal, electric rate will now rise to around $220.0 million from the prior $285.0 million, which roughly translates into an overall rate hike of 8.2% from the 10.7% requested earlier. If approved, an Xcel Energy customer will witness a 10% increase in electricity bill compared to the earlier 12%. The company expects the rate of return on equity to remain the same at 10.6%.

The rate decline move was a part of Xcel Energy’s strategy to maintain a balanced growth objective by cushioning its customers from excessive cost pressure while simultaneously recovering investment costs.

The company believes this even approach will help achieve a constructive regulatory outcome. If approved, the new competitive rates will come into effect from the first quarter of 2014. We note that from Jan 1, 2013, the interim rate increase has come into effect. 

The key alterations made in the new fillings include reduction of $35.0 million for the Sherburne County (Sherco) Generating Station Unit 3 and deferment of 2012 and 2013 costs. This will equalize the cost of the unit with its return to service by the end of the year. At present, the Sherburne facility is undergoing extensive repair works from the aftermath of an accident in late 2011.  

In addition, the company proposed another $8.0 million reduction for the expansion of power production in the Monticello Plant. This also includes the 2013 costs which have been deferred for later recovery, subject to the review of the commission. Lastly, a $9.0 million for leveling the impacts of the 2008 recession on pension expenses was proposed by the company.

On the flip side, besides the Minnesota rate case the company has in store other rate fillings under review in North Dakota, South Dakota and New Mexico. This might be an overhang on Xcel Energy’s operations. Presently, the company has a Zacks Rank #3 (Hold).

Other energy stocks that we presently prefer are Zacks Ranked #1(Strong Buy) Otter Tail Corp. (OTTR), Pike Electric Corp. (PIKE) and Brookfield Infrastructures L.P. (BIP).

Based in Minneapolis, Minn., Xcel Energy through its subsidiaries engages in the generation, purchase, transmission, distribution, and sale of electricity in the United States.

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