Why are Minnesota electric bills going up?

Many Minnesotans experienced sticker shock at their latest energy bill, with the cost of energy a leading source of inflation nationally.

“As a consumer I feel fairly helpless,” said St. Paul resident Shelby Flint, whose July bill from Xcel was more than double what it was last year. “We had to divert money that we would normally have diverted to discretionary spending to supporting, say, local restaurants in our neighborhood.”

We looked into why bills are climbing and why they might continue to rise in the future.

Why is my energy bill so high this summer?

It’s been one of the warmest summers in Minnesota’s history. In July, a mid-month heatwave hiked temperatures above 90 degrees for most of the state.

For many, that means using the air conditioner more frequently and for longer durations. Some electric utilities, including Xcel Energy and Otter Tail Power Company, also charge higher rates in summer months, which could shock customers not expecting the month-to-month shift in prices.

“That’s a big part of why people are seeing higher bills: just air conditioning and the weather that we’ve had over this summer,” said Annie Levenson-Falk, executive director of the Citizens Utility Board of Minnesota, a nonprofit advocate for the state’s utility consumers.

Why are rates going up?

That depends, in part, on where you live.

Each of the roughly 170 electric utilities in Minnesota operates under a monopoly in its respective geographic area. Prices vary wildly throughout the state, said Gabe Chan who studies energy policy at the University of Minnesota. But over the past few years, average Minnesota prices have largely mirrored inflation.

“However, inflation has been at record levels, and so tracking inflation is not necessarily meaning that energy has not become less affordable,” he said. “A lot of consumer sentiment surveys are showing everything is feeling less affordable because of inflation across the entire economy.”

Inflation is also happening unevenly at the three stages of electricity delivery. First, electricity is generated, like at a power plant, then it’s transmitted in bulk across high-voltage transmission lines. Finally, electricity is distributed to individual customers, where costs are rising the most, Chan said.

“A large part of our bills increasingly is being made up of the local infrastructure in your community: the poles, the wires on those poles that you see when you drive around and the transformers — the canisters that are the top of the poles,” he said. “All that has gotten more expensive … primarily due to global supply chain disruptions.”

Those supply chain issues include lasting shocks from COVID-19, as well as ongoing disruptions from tariffs and the Iran war. Federal legislation that repeals clean energy tax credits and keeps aging coal plants running will also make energy more expensive, according to testimony earlier this year from the state’s commerce department.

Why are some of the bigger utilities raising rates?

Minnesota’s largest electric utility, Xcel Energy, had been in the midst of a rate case since late 2024. It asked the state to approve raising rates over the following two years by a total of 13.2 percent, equivalent to about half a billion dollars more annual revenue by 2026.

It’s one of three investor-owned electric utilities operating in the state; a for-profit company whose rates are regulated by the Minnesota Public Utilities Commission. Once they request a rate hike, it may take as long as two years for a decision.

In the meantime, Minnesota law allows companies to charge customers an “interim rate adjustment,” in this case 5.2 percent, which has been on Xcel customers’ bills since January 2025.

Another investor-owned utility, Otter Tail Power Company, which serves parts of western Minnesota and the eastern Dakotas, is in an ongoing rate case and has been levying an interim increase of 12.6 percent since the beginning of this year.

What does Xcel say?

In its application, Xcel cited a variety of reasons for the rate hike, such as the costs of modernizing the grid and generating clean energy.

“We know that affordability is top of mind for customers, and they also expect reliable, safe electric service,” Xcel spokesman Kevin Coss wrote in a statement to MPR News. “We are focusing on making prudent, cost-effective investments that deliver long-term value. This approach helped us keep our average residential electric customer’s bill about 31% below the national average in 2025.

It also asked the commission to approve an increase to the company’s return on equity, or how much money shareholders can earn from each dollar they invest into the system. Minnesota law allows rates to cover the cost of service plus the “opportunity to earn a reasonable rate of return,” which helps attract investment.

In a statement to MPR News, Xcel said Minnesota’s energy system depends on long-term investments.

“A competitive return on equity helps attract the investment needed to build and maintain critical infrastructure at the lowest, reasonable cost,” the statement read.

What did the Public Utilities Commission decide?

In July, the commission allowed a 2.3 percent increase for 2025 and an additional 3.4 increase in 2026. Because the final rates were less than the interim rate of 5.2 percent, customers will be refunded with interest on a future bill.

That rate hike includes an increase in return on equity from 9.25 to 9.6 percent. Xcel initially requested an increase to 10.3 percent, while consumer advocates asked for the figure to stay flat or decrease.

The commission wrestled over the decision, as seen in its multi-hour rate case deliberation that concluded in a split vote that approved the 9.6 percent return on equity.

Karlee Weinmann, researcher at the Energy and Policy Institute, said the commission ultimately didn’t do enough to explain its justification in the official order.

“The reason we allow utilities to operate as monopolies in the first place is in exchange for rigorous regulation,” Weinmann said. “For this big-ticket item to be decided in this way, disputed so thoroughly and vigorously throughout the rate-case proceeding, and then to arrive at an order that doesn’t adequately explain the where, why and how this number came to be is really problematic and deeply unfair to ratepayers.”

Is the PUC decision final?

Maybe not.

State Attorney General Keith Ellison and the Citizens Utility Board of Minnesota have written separate petitions urging the Minnesota Public Utilities Commission to reconsider its decision, citing affordability concerns.

“The company reported more than $2 billion in earnings last year, and in every earnings report we see that those numbers go up,” said Levenson-Falk, the Citizens Utility Board’s executive director. “But ratepayers, on the other hand, are already struggling to afford electricity service.”

The commission has 60 days from when those petitions were filed to grant a rehearing; otherwise, the applications are denied. In this case, that’s Oct. 19.

On the other side of the debate, Minnesota Utility Investors, a trade group that represents shareholders in Minnesota utility companies, submitted on Monday a letter in support of the increased return on equity and asking the Public Utilities Commission not to reconsider its decision.

“The 9.60% authorization provides a reasonable opportunity for Xcel to earn a return while continuing to subject the company to the normal risks and rewards of operating a regulated utility,” it said.

Xcel estimates that residential bills will increase by an average of 2.85 percent, or $2.78 per month.

In its rate case, Otter Tail Power Company is currently seeking a 17.7 percent increase, which the company estimates would increase a typical customer’s bill by $18.14 a month.

Are data centers increasing electricity prices?

Kind of.

Minnesota hasn’t yet seen an influx of the hyperscale data centers that other states have, so Chan said they are not directly to blame for the state’s rising electricity prices.

But national data center construction is increasing the overall demand for distribution equipment like transformers, wires and poles, he said.

“Our utilities need to buy that same equipment, and it’s really the supply and demand of that equipment that’s driving up potentially, this upward pressure on our rates here.”

Looking ahead, as tech companies eye Minnesota for planned and in-progress data center projects, some are concerned about the price tag on new electricity generation and distribution — and who will pay for it.

In some places, data centers are bringing down average electricity prices by spreading out fixed costs across more electricity use.

But Chan said that’s more likely to have happened in places with an excess of supply. How data centers will affect Minnesota’s prices is an open question with a lot of variables, including future electricity supply and demand, the sources of that energy and how rates are designed.

“The jury is definitely out on that,” he said. “That’s a very complicated question, and I would say it is almost exclusively a policy question. It’s not really an economic question.”