In the Matter of the Application by Northern States Power Company d/b/a Xcel Energy for Authority to Increase Rates for Electric Service in the State of Minnesota.

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A23-1672

In the Matter of the Application by Northern States Power Company d/b/a Xcel Energy
for Authority to Increase Rates for Electric Service in the State of Minnesota.

Filed January 21, 2025
Affirmed in part, reversed in part, and remanded
Frisch, Chief Judge
Concurring in part, dissenting in part, Smith, Tracy M., Judge

Minnesota Public Utilities Commission
File No. E-002/GR-21-630

Thomas H. Boyd, Eric F. Swanson, Kyle R. Kroll, Steven E. Vogel, Winthrop & Weinstine,
P.A., Minneapolis, Minnesota (for relator Northern States Power Company d/b/a Xcel
Energy)

Keith Ellison, Attorney General, Greg Merz, Katherine Arnold, Richard Dornfeld,
Assistant Attorneys General, St. Paul, Minnesota (for respondent Minnesota Department
of Commerce)

Andrew P. Moratzka, Marc A. Al, Amber S. Lee, Stoel Rives LLP, Minneapolis,
Minnesota (for respondent Xcel Large Industrials)

Keith Ellison, Attorney General, Peter G. Scholtz, Joey Cherney, Assistant Attorneys
General, St. Paul, Minnesota (for respondent Office of the Minnesota Attorney General –
Residential Utilities Division)

Keith Ellison, Attorney General, Jeffrey K. Boman, Susan C. Gretz, Assistant Attorneys
General, St. Paul, Minnesota (for respondent Minnesota Public Utilities Commission)

Elizabeth M. Brama, Kodi J. Verhalen, Taft Stettinius & Hollister LLP, Minneapolis,
Minnesota (for amicus curiae Minnesota Public Utilities Group)

Considered and decided by Smith, Tracy M., Presiding Judge; Frisch, Chief Judge;
and Schmidt, Judge.
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NONPRECEDENTIAL OPINION
FRISCH, Chief Judge
Northern States Power Company, doing business as Xcel Energy, appeals from an
order issued by the Minnesota Public Utilities Commission (the commission) regarding
Xcel’s application to increase the rates it charges consumers for electricity in Minnesota .
Xcel challenges three decisions made by the commission in determining the revenue
requirement on which Xcel’s rate will be based: (1) the denial of Xcel’s forecasted
expenses for insurance premiums and the commission’s determination of lower insurance-
premium expenses; (2) the exclusion of Xcel’s prepaid pension asset from its rate base;
and (3) the denial of Xcel’s proposed recoverable expense for annual compensation of its
ten highest-paid executives and the commission’s determination of a lower per-executive
amount capped at the salary of the state’s governor.
We conclude that Xcel has not demonstrated a basis to disturb the commission’s
decision regarding the amount of recoverable insurance- premium expenses. As for the
commission’s decision to entirely exclude Xcel’s prepaid pension asset from its rate base,
we conclude that, in light of intervening caselaw from this court, the commission’s findings
are insufficient and reversal and remand is appropriate for the commission to revisit its
decision. Finally, we conclude that, although Xcel has not demonstrated a basis to disturb
the commission’s denial of Xcel’s proposed recoverable expense for executive
compensation, the commission’s decision to set a lower compensation amount based on
the governor’s salary is arbitrary and capricious and reversal and remand is appropriate for
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the commission to provide further explanation for its decision. We therefore affirm in part,
reverse in part, and remand to the commission for further proceedings.
FACTS
Xcel, the relator in this case, is a public utility that provides electric and natural gas
service and has electric operations in Minnesota, North Dakota, and South Dakota. Xcel
serves commercial, industrial, and residential customers.
Four respondents filed briefs in this appeal, including the commission itself and
three interested parties. The commission has the statutory authority to regulate Minnesota
public utilities. Minn. Stat. § 216B.08 (2024). The Minnesota Department of Commerce
(the department) acts to protect the interests of all ratepayers and is responsible for
enforcing statutes related to utility ratemaking. See Minn. Stat. § 216A.07, subds. 2-3
(2024). The Office of the Minnesota Attorney General – Residential Utilities Division
(RUD) acts on behalf of the attorney general to fulfill the attorney general’s duty to
“represent[] and further[] the interests of residential and small business utility consumers
through participation in matters before the [commission].” Minn. Stat. § 8.33, subds. 2, 5
(2024). Finally, Xcel Large Industrials (XLI) is an ad hoc consortium of Xcel’s largest
industrial consumers.1

1 The consortium consists of Flint Hills Resources Pine Bend LLC, Marathon Petroleum
Corporation, and USG Interiors Inc.

In addition to the above-listed parties, amicus curiae Minnesota Public Utilities
Group filed a brief on appeal supporting Xcel’s position that prepaid pension asset should
be included in rate base. Minnesota Public Utilities Group is an ad hoc consortium of public
utilities operating in Minnesota, consisting of ALLETE Inc. d/b/a Minnesota Power,
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Initiation of General Rate Case
In 2021, Xcel filed a n application with the commission seeking to increase the
electric rates that it charges consumers in Minnesota to reflect the increased cost of
providing service. Xcel proposed a multiyear rate plan that would include three consecutive
annual rate increases —specifically, increases of $396 million (12.2%) in 2022, $150.2
million (4.8%) in 2023, and $131.2 million (4.2%) in 2024. In its application, Xcel
designated the 2022 calendar year as a “test year ,” which is a “12-month period selected
by the utility for the purpose of expressing its need for a change in rates.” Minn. R.
7825.3100, subp. 17 (2023). The commission referred the application to the Office of
Administrative Hearings for a contested-case proceeding.
Contested-Case Proceeding
A contested-case proceeding was held before an administrative-law judge (ALJ).
The proceeding included a two- day evidentiary hearing in December 2022 and nine days
of public hearings. Written public comments were also received.
In March 2023, the ALJ issued a 235-page report containing findings of fact,
conclusions of law, and recommendations (the ALJ report). Relevant here, the ALJ found
that Xcel met its burden to support its proposed insurance-premium expenses but did not
meet its burden to show that it would be reasonable to include its prepaid pension asset in
rate base. Although the ALJ made findings, conclusions, and recommendations relating to
employee-compensation costs generally, the ALJ did not specifically address Xcel’s

Minnesota Energy Resources Corporation, and CenterPoint Energy Resources Corp. d/b/a
CenterPoint Energy Minnesota Gas.
5
proposed expense for its ten highest-paid executives in the ALJ report, nor had that issue
been specifically addressed in the evidentiary hearing before the ALJ. However, members
of the public had filed comments objecting to the amount of executive compensation for
which Xcel sought recovery through rates.
Proceedings Before the Commission
After receiving exceptions to the ALJ report from interested parties, the commission
heard oral arguments from parties over three days in May and June 2023. The record was
then closed, and, in July 2023, the commission issued its findings of fact, conclusions, and
order (the final rate order).
In the final rate order, the commission concurred with most of the ALJ’s findings
and conclusions but reached different determinations on some issues. Relevant here, the
commission made the following determinations. First, the commission determined,
contrary to the ALJ’s recommendation, that Xcel did not meet its burden to support its
proposed insurance-premium expense s for 2022 to 2024. The commission instead
determined that the department’s lower proposal for Xcel’s insurance costs was reasonable
and based on the method that was most supported by the record. Second, the commission
determined, consistent with the ALJ’s recommendation, that Xcel’s prepaid pension asset
could not be included in rate base because Xcel did not meet its burden to prove that its
inclusion would result in just and reasonable rates. Third, the commission determined that
Xcel did not meet its burden to support the reasonableness of Xcel’s proposed amount of
rate-recoverable annual compensation for its ten highest-paid executives. The commission
instead determined that it would be reasonable for ratepayers to pay an amount
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“comparable to the amount they pay for their own executives in state government” and
accordingly limited Xcel’s recoverable annual expense for each executive’s compensation
to the salary of the state’s governor.
Petition for Reconsideration and Clarification
In August 2023, Xcel filed a petition for rehearing, reconsideration, and
clarification. Xcel requested reconsideration of several of the commission’s decisions,
including those related to insurance- premium expense s, the prepaid pension asset, and
executive compensation. In October 2023, the commission denied Xcel’s petition.
Xcel appeals.
DECISION
Generally, before a public utility can raise the rates it charges customers for its
services, the utility must provide the commission notice of the proposed change, as Xcel
did through its petition for a rate increase. See Minn. Stat. § 216B.16, subd. 1 (2024). The
commission is charged with regulating public utilities under the Minnesota Public Utilities
Act (MPUA), Minnesota Statutes sections 216B.01-.67 (2024), which includes authorizing
the rates that the utility may charge for its services. Minn. Stat. §§ 216B.08, .16. When
exercising its powers under MPUA, the commission must set “just and reasonable rates for
public utilities” by “giv[ing] due consideration to the public need for adequate, efficient,
and reasonable service and to the need of the public utility for revenue sufficient to enable
it to meet the cost of furnishing the service.” Minn. Stat. § 216B.16, subd. 6.
It is the utility’s burden to show, by a preponderance of the evidence, that its
proposed rate changes are just and reasonable. Id., subd. 4; In re Petition of Minn. Power
7
& Light Co., 435 N.W.2d 550, 554 (Minn. App. 1989) (describing the utility’s burden),
rev. denied (Minn. Apr. 19, 1989). “[B]y merely showing that [the utility] has incurred, or
may hypothetically incur, expenses, the utility does not necessarily meet its burden of
demonstrating that it is just and reasonable that the ratepayers bear the costs of those
expenses.” In re Petition of N. States Power Co., 416 N.W.2d 719, 723 (Minn. 1987). Even
if the evidence submitted by a petitioning utility is true, the commission must determine
whether the outcome sought by the utility is justified in light of “the Commission’s
statutory responsibility to enforce the state’s public policy that retail consumers of utility
services shall be furnished such services at reasonable rates.” Id. at 722. If the commission
determines that the utility’s proposed rates are unjust, unreasonable, or discriminatory, the
commission must issue an order setting the utility’s new rates. Minn. Stat. § 216B.16,
subd. 5.
To determine whether the proposed rates are just and reasonable, “the commission
must determine both the utility’s revenue requirement and its rate design.” In re
Application by Minn. Power for Auth. to Increase Rates for Elec. Serv., 12 N.W.3d 477,
486 (Minn. App. 2024) (Minn. Power 2024) (citing Minn. Stat. § 216B.16, subd. 2(c)),
petition for rev. filed (Minn. Oct. 9, 2024). A utility’s revenue requirement is the amount
of revenue that the utility needs to meet the cost of providing service, and its rate design
refers to the allocation of the increased revenue among the various classes of the utility’s
consumers. Id. Xcel’s challenges here all relate to the determination of its revenue
requirement.
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A revenue requirement includes the “utility’s costs and a rate of return on [the
utility’s] rate base.” Id. “Costs” generally refers to the utility’s operating expenses. See,
e.g., 73B C.J.S. Public Utilities § 21 (2015) (stating that “the total revenue requirement”
includes “the costs of the operation”). A “rate base” is “[t]he investment amount or property
value on which . . . a public utility[] is allowed to earn a particular rate of return.” Black’s
Law Dictionary 1515 (12th ed. 2024). Xcel argues that its proposed amounts for insurance
premiums and executive compensation should be included as costs and that its prepaid
pension asset should be part of rate base.
Before turning to the issues before us, we first identify the standard of review. Any
party who is directly affected and aggrieved by a decision by the commission may appeal
the decision to this court under the Minnesota Administrative Procedure Act (MAPA),
Minnesota Statutes sections 14.001-.69 (2024 ). Minn. Stat. § 216B.52, subd. 1; see also
Minn. Stat. § 14.63 (providing that “[a]ny person aggrieved by a final decision in a
contested case” may appeal to this court). On review, decisions by the commission “enjoy
a presumption of correctness, and deference should be shown by courts to the agencies’
expertise and their special knowledge in the field of their technical training, education, and
experience.” In re Application of Minn. Power for Auth. to Increase Rates for Elec. Serv.,
838 N.W.2d 747, 757 (Minn. 2013) (Minn. Power 2013) (quotation omitted).
Under MAPA, an agency’s decision may be reversed or modified if the decision
violates constitutional provisions, exceeds the agency’s statutory authority or jurisdiction,
is “made upon unlawful procedure,” is “unsupported by substantial evidence,” or is
“arbitrary or capricious.” Minn. Stat. § 14.69. And the Minnesota Supreme Court has
9
specified different standards of review based on whether the commission acted in a
legislative or quasi-judicial capacity in making the decision in question. In re Request of
Interstate Power Co. for Auth. to Change its Rates for Gas Serv., 574 N.W.2d 408, 412-13
(Minn. 1998); St. Paul Area Chamber of Com. v. Minn. Pub. Serv. Comm’n, 251 N.W.2d
350, 358 (Minn. 1977).
The commission acts in a quasi- judicial capacity when “hearing the views of
opposing sides presented in the form of written and oral testimony, examining the record,
and making findings of fact.” St. Paul Area Chamber of Com., 251 N.W.2d at 356.
Establishing a utility’s revenue requirement is a quasi-judicial action. See, e.g., Minn.
Power 2024, 12 N.W.3d at 488 (determining that substantial-evidence standard applies to
decision regarding what to include in rate base); N. States Power, 416 N.W.2d at 726
(applying substantial-evidence standard when determining whether utility established
reasonableness of an alleged cost). Thus, the quasi-judicial standard of review applies
here.2

2 The department, RUD, and XLI argue that the commission acted in a quasi-judicial
capacity when it determined whether Xcel introduced sufficient evidence to establish a
given cost as a judicial fact but acted in a legislative capacity when balancing the needs of
the utility and the interests of ratepayers and, therefore, both standards apply, depending
on the decision. Xcel argues that the issues on appeal are quasi-judicial decisions governed
by the substantial-evidence standard, and the commission also applies the standard for
quasi-judicial decisions in its briefing.

We disagree that the standard of review for quasi-legislative decisions applies to
any of the challenged actions here. In Northern States Power , the Minnesota Supreme
Court recognized that the commission may act in both a quasi- judicial and a legislative
capacity in a rate case, but it applied the quasi-judicial substantial-evidence standard to the
commission’s disputed revenue-requirement determinations. 416 N.W.2d at 722 -24.
Accordingly, that is the standard we apply here.
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In reviewing quasi-judicial decisions, we apply the substantial-evidence test. Id. at
723. In rate-case proceedings, the substantial-evidence test requires us to “determine
whether the [commission] has adequately explained how it derived its conclusion and
whether that conclusion is reasonable on the basis of the record.” Id. at 724 (quotation
omitted). However, where there is a question of law, including “whether the Commission
has exceeded its statutory authority,” we apply de novo review. See Minn. Power 2013,
838 N.W.2d at 753. “We resolve any doubt about the existence of an agency’s authority
against the exercise of such authority.” Id. (quotation omitted).
With these principles in mind, we turn to Xcel’s three challenges to the final rate
order.3

3 As a preliminary matter, we reject the department’s argument that, before Xcel can obtain
review of the three decisions it challenges, Xcel must successfully argue that the rates
approved in the final rate order are “confiscatory.” The department contends that, because
Xcel did not argue that the rates are confiscatory, the argument is forfeited and we should
affirm the final rate order without addressing Xcel’s challenges. We disagree.

For rates to be confiscatory, the total effect of the rate order must threaten the
utility’s financial integrity “by leaving it with insufficient operating capital or by impeding
its ability to raise future capital.” In re Request for Serv. in Qwest’s Tofte Exch. , 666
N.W.2d 391, 398 (Minn. App. 2003) (citing Duquesne Light Co. v. Barasch, 488 U.S. 299,
310 (1989)). Confiscatory rates “deprive[] [a utility] of its property in violation of the
Fourteenth Amendment.” Bluefield Waterworks & Improvement Co. v. Pub. Serv. Comm’n
of W. Va., 262 U.S. 679, 690 (1923); see also U.S. Const. amend. XIV, § 1.

Xcel does not argue that the commission’s final rate order is unconstitutional.
Instead, Xcel seeks relief under MAPA and MPUA, both Minnesota statutes. And, in other
utility-rate cases in which a utility sought relief under MAPA, we have not required the
utility to establish that the total effect of the commission’s order is confiscatory in order to
receive relief on appeal. See, e.g., Minn. Power 2024, 12 N.W.3d at 488, 494 (determining
that record did not demonstrate confiscatory rates but reversing part of commission’s
decision because it was unsupported by substantial evidence and arbitrary and capricious).
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I. The commission’s rejection of Xcel’s forecasted insurance-premium expenses
and setting of recoverable amounts is consistent with law, supported by
substantial evidence, and not arbitrary and capricious.

Xcel argues that the commission’s decision to reject Xcel’s forecasted insurance-
premium expenses for 2022 to 2024 and to instead use the department’s lower amount is
unsupported by substantial evidence, contrary to law, and arbitrary and capricious. We
disagree.
Using its forecasting method, Xcel proposed insurance-premium expenses that
would increase each year of its multiyear plan. To support its request in the contested-case
proceedings, Xcel submitted testimony from its director of hazard insurance, who
discussed how Xcel determined its numbers and why it believed increases were warranted.
The director explained that Xcel’s insurance-premium expenses are the estimated cost of
insurance premiums less the distributions that Xcel predicts it will receive from mutual
insurance pools and captive insurance. The director stated that one such distribution that
could reduce Xcel’s insurance cost could come from Nuclear Electric Insurance Limited
(NEIL), a mutual insurance pool.
Xcel’s forecasted premium-insurance expense for 2022 was significantly higher
than its actual expense in 2021. Xcel’s director of hazard insurance attributed the increase
to factors including a “hardening” in the insurance market— meaning that insurance
capacity is reducing, permitting insurance companies to increase premiums—and an
upward trend in cost for casualty insurance due to an increase in catastrophic events. Xcel

Accordingly, Xcel does not need to establish that the commission’s prescribed rates are
confiscatory to pursue its statutory challenges to the final rate order.
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also asserted that its actual costs in 2021 were lower than forecasted due to an unexpected
level of distributions from mutual insurance pools like NEIL that were unlikely to recur in
2022. In addition, because most of 2022 had passed by the time of the evidentiary hearing,
Xcel submitted testimony on November 8, 2022, comparing its 2022 forecast to its actual
costs so far that year. According to that testimony, Xcel’s forecast varied from its actual
expenses by only 0.4%.
The department raised concerns about the accuracy of Xcel’s forecasted expenses
and the adequacy of its supporting evidence. It pointed out that Xcel’s forecasting yielded
an amount for 2021 that was significantly higher than the actual 2021 costs. It also noted
that Xcel’s requested increases for 2017 to 2021 were much larger than the actual increases
during those years. The department proposed a different approach. Through testimony from
its witness, a public -utilities financial analyst, the department used historical cost
information to generate a forecasted 2022 expense—an amount that was lower than Xcel’s
forecasted 2022 amount. The department arrived at its forecasted amount for 2022 by
increasing Xcel’s 2021 actual expenses by the average percentage of increase for 2017 to
2021. Using its estimated expense for 2022, the department then applied the year-over-year
percentage increases proposed by Xcel for 2023 and 2024. All told, the department’s
method yielded insurance-premium expenses for 2022 to 2024 that were approximately
$30 million lower than Xcel’s proposed amount.
The ALJ found that Xcel met its burden to establish that its proposed insurance-
premium expenses were reasonable and recommended that the commission approve Xcel’s
amount. The ALJ relied on the testimony described above from Xcel’s director of hazard
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insurance regarding the insurance market and factors affecting insurance costs, as well as
his statement that, by the time of the evidentiary hearing, Xcel’s method had accurately
predicted Xcel’s 2022 insurance costs.
In its final rate order, the commission departed from the ALJ’s findings,
conclusions, and recommendation concerning insurance-premium expenses. It determined
that Xcel did not meet its burden to support its proposed insurance expenses. The
commission noted concerns about the accuracy of Xcel’s forecasting method —
notwithstanding the small variance between the 2022 actual and forecasted expenses—
because the same method had resulted in significant over-forecasting in 2017 to 2021. The
commission determined that Xcel’s argument that its 2021 actual insurance expenses
would have been close to Xcel’s forecast but for a larger-than-expected NEIL distribution
was not a sufficient reason to accept Xcel’s forecasting method given “other concerns
raised in the record.” The commission stated that, although Xcel budgets for NEIL
distributions, the amounts Xcel receives from those distributions have previously
“fluctuate[d] significantly and unpredictably,” suggesting that they will continue to do so
in the future. The commission stated that Xcel “relied heavily on overly generalized and
indirect testimony about insurance-market trends” by not providing evidence directly from
brokers or other industry experts. It stated that Xcel failed to show how its reasons for
increased costs in some of Xcel’s insurance programs applied to all its insurance programs.
And the commission determined that “Xcel did not persuasively show that the factors it
cited as affecting the insurance markets [were] so substantial and consequential in Xcel’s
insured locations that they fully account for the expansive differences between Xcel’s
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proposed insurance expenses for 2022-2024 and its actual insurance expenses incurred
from 2017-2021.”
Having found that Xcel did not carry its burden to support its forecasted insurance
expenses, the commission determined substitute values for the expenses. See N. States
Power, 416 N.W.2d at 726 (“When, in the Commission’s judgment, a petitioning utility
has failed to establish the reasonableness of costs which it claims justifies a proposed rate
increase, the Commission itself may compute a hypothetical capital structure that will
afford an ultimate determination of a reasonable and just rate.”). It decided that the
department’s approach for calculating the expenses was reasonable and the approach most
strongly supported by the record. The commission reasoned that, “[w]here costs fluctuate
from year to year based on multiple factors beyond the [utility’s] control . . . , it is often
reasonable to consider historical averages over a range of years in setting test-year costs.”
Xcel challenges the commission’s decision. It contends that the commission denied
recovery of its forecasted costs to make up for past overcollections of insurance-premium
costs, contrary to statute and caselaw. And, regarding past forecasts, while acknowledging
that its 2021 forecasted expense exceeded the 2021 actual expense, Xcel contends that the
commission could not consider over-forecasting for 2017 to 2020 because the commission
did not have the actual-versus-forecasted data for those years. Xcel also asserts that it
explained that the 2021 discrepancy was due to an anomalously large NEIL distribution,
without which its 2021 forecast would have been nearly accurate. Further, Xcel argues that
the commission’s reasoning ignored the testimony of Xcel’s director of hazard insurance
and the accuracy of its 2022 forecast when compared to the 2022 actual expense.
15
We are not persuaded. Contrary to Xcel’s argument, the commission did not suggest
that it was adjusting Xcel’s forecasted insurance expenses to recover past overcollections.
Rather, the commission determined that Xcel’s historical over-forecasting of expenses
“call[ed] into question the accuracy of the forecasts produced through the same process in
this case.” And information supporting the commission’s concern about over -forecasting
for 2017 to 2021 does appear in the record. During oral arguments before the commission
in May 2023, the commission discussed that Xcel had over-forecasted insurance-premium
expenses between 2017 and 2021. During that discussion, Xcel asserted that the
commission was mischaracterizing a prior rate-case settlement related to Xcel’s 2015 case
before the commission. But Xcel did not object to the numbers discussed by the
commission and does not argue here that its previous forecasts, apart from 2022, proved
accurate.
As to Xcel’s other arguments, the commission did not ignore the testimony of Xcel’s
director of hazard insurance. The commission explained that the magnitude of the
requested increase in costs—which Xcel does not dispute was substantial—required Xcel
to provide “more robust record development to support Xcel’s request on this issue.” The
commission identified the shortcomings that it found in the witness’s testimony: that the
testimony was indirect; that it failed to link events causing increased costs in s ome
insurance programs to all programs; and that it did not explain how the factors cited by
Xcel were so substantial in Xcel’s insured locations to fully account for the difference
between historical costs and the forecasted costs for 2022 to 2024. And, although Xcel
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provided an explanation for the over-forecasting in 2021, the commission adequately
explained why it found that reasoning unpersuasive.
It is true that, during the contested-case proceedings, Xcel submitted evidence that
its forecasted insurance expenses for 2022 were turning out to be very close to its actual
expenses for 2022. But we disagree that that fact necessarily overcomes the commission’s
concerns about the accuracy of Xcel’s forecasting process given historical over-forecasting
or the commission’s concerns about an insufficient record to support an increase in costs
of the magnitude requested.
We conclude that the commission’s decision to reject Xcel’s forecasted amount of
recoverable insurance-premium expenses for 2022 to 2024 and to adopt the department’s
method and amount is not contrary to law, lacking substantial evidence, or arbitrary and
capricious.
II. The commission’s categorical exclusion of Xcel’s prepaid pension asset from
rate base is not supported by substantial evidence and is arbitrary and
capricious, and the commission must revisit the prepaid pension asset on
remand.

Xcel argues that the commission’s decision to exclude the prepaid pension asset
from its rate base is contrary to law, unsupported by substantial evidence in the record, and
arbitrary and capricious. We conclude that, especially in light of our intervening decision
in Minnesota Power 2024, 12 N.W.3d at 489-94, the commission’s findings are insufficient
and remand to the commission is appropriate.
Xcel offers pension benefits to its eligible employees. As part of maintaining its
pension plans, Xcel calculates a forward-looking pension expense. The pension expense is
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included in Xcel’s revenue requirement and is not at issue in this appeal. To fund its future
pension obligations, Xcel contributes to its pension trust; certain contributions are
mandated by federal law. When cumulative contributions to the pension trust exceed the
cumulative amount of pension expense, that excess is a “prepaid pension asset.” See Minn.
Power 2024, 12 N.W.3d at 489 (using the same definition of prepaid pension asset). Xcel
sought to include its prepaid pension asset in the rate base on which it is authorized to earn
a reasonable return.
The ALJ determined that Xcel had not met its burden to show that inclusion of its
prepaid pension asset in rate base would be reasonable. The ALJ found that the prepaid
pension asset is different from typical rate-base assets because of its fluctuating value. The
ALJ also noted concerns about the use of outdated or unapproved accounting principles in
determining the prepaid pension asset. Although the ALJ stated that “[a] prepaid pension
asset may be recoverable to the extent that a utility can demonstrate that the amounts to be
included in rate base are not supplied by ratepayers or market returns on plan assets,” the
ALJ found that “[t]he [d]epartment has . . . demonstrated that because the value of the asset
is determined in part by market gains and losses, there is doubt with respect to the source
of the asset’s value[, and] [d]oubt must be resolved in favor of ratepayers.” The ALJ
recommended that the commission deny Xcel’s request to include its prepaid pension asset
in rate base.
The commission agreed with the ALJ’s recommendation. It determined that a
“prepaid pension asset is fundamentally different from capital expenditures and other
allowed rate-base categories” and that Xcel did not prove that inclusion of the prepaid
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pension asset would result in just and reasonable rates. The commission noted that a
prepaid pension asset “fluctuates in value” and includes balances that “are temporary and
fundamentally different from typical rate-base assets on which [Xcel] earns a return.” As
part of its reasoning, the commission wrote that “a change in market returns,” among other
things, “can turn the asset into a liability” and that “market conditions” can affect
“[p]ension-plan assets and benefit obligations.”
After the commission’s decision and the parties’ briefing in this appeal but before
oral arguments, we decided Minnesota Power 2024. 12 N.W.3d 477. In Minnesota Power
2024, the commission departed from an ALJ’s extensive findings supporting the ALJ’s
recommendation to include a utility’s prepaid pension asset in its rate base, reasoning that
a prepaid pension asset is different from other typical rate- base assets because it is
temporary and its value fluctuates. Id. at 490-93. The commission also noted that these
characteristics make a prepaid pension asset materially different in character from other
assets in rate base. Id. at 493.
We reversed the commission’s decision to “categorically and entirely” exclude the
utility’s prepaid pension asset from its rate base. Id. at 494. We rejected the commission’s
reasoning that the asset must be excluded because it fluctuates in value, is temporary, and
is distinct from other assets included in rate base. Id. at 492-93. We held that “a utility’s
mandatory contributions to pension plans are an expense of a capital nature to which the
commission must give due consideration in determining the utility’s rate base under Minn.
Stat. § 216B.16, subd. 6.” Id. at 493 (quotation marks omitted); see Minn. Stat. § 216B.16,
subd. 6 (“In determining the rate base upon which the utility is to be allowed to earn a fair
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rate of return, the commission shall give due consideration to . . . expenses of a capital
nature.”). We concluded that the commission’s decision was “unsupported by substantial
evidence because the commission [had] not provided an adequate explanation” and that
“the decision [was] arbitrary and capricious because [it] departed from the ALJ’s
recommendation without adequate explanation.” Minn. Power 2024, 12 N.W.3d at 494.
We remanded the matter to the commission for additional findings. Id. In so doing,
we noted that we could not “conclusively determine” that the utility’s prepaid pension asset
should be included in rate base “because pension plans also earn market returns and
shareholder contributions do not solely drive prepaid pension assets.” Id. (quotation
omitted). We observed that the parties disputed the extent to which the utility’s prepaid
pension asset was “attributable to shareholder contributions as opposed to market returns
or negative pension expense” and explained that “[t]he commission is charged with
resolving this dispute a s part of its overall duty to determine fair and just rates.” Id. The
commission did not petition for review of our decision.
4
Although the parties here did not have the benefit of Minnesota Power 2024 when
they briefed this case, they did address it in oral arguments. The commission candidly
acknowledges that Minnesota Power 2024 invalidated some of the same reasoning that was
employed by the commission here but argues that the commission’s decision nevertheless
should be affirmed. It contends that, here, unlike in Minnesota Power 2024, remand is not

4 A petition for review was filed by Large Power Intervenors, a consortium of large
industrial customers, on issues that are not relevant to this appeal.

20
required because a threshold question before including a prepaid pension asset in rate base
is the extent to which the asset is shareholder-funded and the ALJ made a finding—
supported by the record and not rejected by the commission—that Xcel failed to meet its
burden to show the extent to which its prepaid asset is shareholder-funded. Xcel, on the
other hand, argues that , on this record, the only reasonable determination is that Xcel’s
prepaid pension asset is solely attributable to shareholder investment and not to market
returns.
Here, much of the ALJ’s and the commission’s reasoning in excluding Xcel’s
prepaid pension asset from rate base is identical to the reasoning that we rejected in
Minnesota Power 2024. It is true that the ALJ made a finding that the value of the prepaid
pension asset “is determined in part by market gains and losses” and therefore “there is
doubt with respect to the source of the asset’s value.” But the finding includes little
explanation. And, in its final rate order, the commission did not address that specific
finding when describing its reasons for excluding the prepaid pension asset. Moreover, the
order’s references to “market returns” and “market conditions” do not sufficiently address
the extent to which Xcel’s prepaid pension asset is attributable to shareholder contributions.
The parties vigorously dispute the significance of market returns and of
methodologies that either permit or preclude negative pension expense in determining the
value attributable to shareholder contributions. As we recognized in Minnesota Power
2024, “the evaluation of prepaid pension assets involves technical and complicated
accounting issues in ratemaking proceedings. ” Id. Given this complexity, and in light of
our decision in Minnesota Power 2024, we conclude that the commission has not made
21
sufficient findings and we reverse its decision. As in Minnesota Power 2024, we conclude
that the appropriate course of action is to reverse and remand this decision to the
commission for additional findings to determine whether any of Xcel’s prepaid pension
asset should be included in rate base. See id. The commission may, in its discretion, reopen
the record.
III. The commission’s denial of Xcel’s proposed expense for executive
compensation is supported by substantial evidence and not contrary to law, but
its substitution of a comparative salary is arbitrary and capricious.

Xcel argues that the commission’s denial of its proposed expense for compensation
for its ten highest-paid executives is contrary to law and that the commission’s decision to
cap the expense at the authorized amount of the governor’s salary is both unsupported by
substantial evidence and arbitrary and capricious. We conclude that the commission
lawfully rejected Xcel’s proposed amount. But we also conclude that, in substituting a
compensation expense that is tied to the Minnesota governor’s salary, the commission
failed to consider an important aspect of the problem, and we remand the issue to the
commission for reconsideration.
Xcel sought rate recovery for a portion of its total compensation for its ten highest-
paid executives— specifically, about $7 million for each of the three years of the multiyear
plan.
In the contested-case proceedings before the ALJ, the vice president of an Xcel
affiliate testified that Xcel sets compensation for non-bargaining employees near the
median of similar positions in investor-owned utility and nonutility companies. There was
no testimony or evidence specific to the compensation for Xcel’s ten highest-paid
22
executives. Although Xcel was required by statute to file a schedule itemizing expenses for
its ten highest-paid executives with its initial case, see Minn. Stat. § 216B.16,
subd. 17(a)(5), that information was not filed until after the contested-case proceedings,
when the matter was before the commission. The ALJ did not directly address the issue of
compensation for Xcel’s ten highest-paid executives.
Having received more than 20 public comments on the issue, t he commission
decided to specifically address executive compensation in its final rate order. It determined
that Xcel failed, for three reasons, to meet its burden to show that charging ratepayers
$7 million annually for compensation of its ten highest-paid executives was reasonable.
First, Xcel based its market comparison of executive compensation on the compensation
of corporate officers who had “a fiduciary duty of care to shareholders—but no comparable
duty to ratepayers.” Second, Xcel’s compensation structure “focuses the executive team on
shareholder benefits, which are not necessarily aligned with the interests of ratepayers.”
And, third, Xcel did not “meaningfully consider[]” the impact that this cost would have on
ratepayers or “expl ore[] the possibility of reducing any component of the executive
compensation packages it offers as a means of shouldering the burdens of inflation
alongside its customers.” The commission explained that it has an obligation both to verify
the accuracy of the costs and to evaluate “whether, based on the facts in the record and the
application of its judgment, it is just and reasonable to include the cost[s] in rates.” And
the commission determined that Xcel had not met its burden on the just-and-reasonable
question.
23
The commission then determined a level of recovery that it deemed appropriate. It
decided that it would be reasonable for ratepayers to pay an amount comparable to what
they pay their state-government executives. Using the approximate authorized 2024 salary
of the governor of Minnesota, the commission capped the recoverable compensation for
each executive at $150,000 per year, totaling $1.5 million annually for Xcel’s ten highest-
paid executives. The commission stated:
On this record, the Commission concludes that it would be
reasonable for Xcel’s ratepayers to pay an amount for Xcel’s
top 10 executives that is comparable to the amount they pay for
their own executives in state government. Beginning in 2024,
Minnesota’s highest executive officer— its Governor—will be
paid approximately $150,000 per year. The Commission finds
that allowing recovery of compensation at a level similar to that
of Minnesota’s top executive on average for each of Xcel’s 10
highest-paid executives reasonably reflects the level of
expense that should be borne by ratepayers.

The Commission will therefore limit the level of
executive compensation for the top 10 highest-paid employees
and officers recoverable through Minnesota electric rates to
$1.5 million per year in total. This decision also precludes Xcel
from recovering any [annual incentive plan] expense for its 10
highest-paid officers and employees.

. . . .

On this issue as with other compensation-related issues,
the Commission’s decision is limited to the amount of
compensation costs that Xcel may include in its rates charged
to Minnesota customers. [Xcel] has been and continues to be
free to compensate its employees at levels in excess of its
authorized rate recovery if it chooses to do so.

Xcel argues that the commission’s decision is contrary to law because Xcel proved
that its costs were reasonable so it was entitled to recover those costs to allow it to collect
24
sufficient revenue to cover the cost of its service. See Minn. Stat. § 216B.16, subd. 6 (“The
commission, in the exercise of its powers under this chapter to determine just and
reasonable rates for public utilities, shall give due consideration to . . . the need of the
public utility for revenue sufficient to enable it to meet the cost of furnishing the
service . . . .”).
We conclude that the commission’s denial of Xcel’s proposed expense amount
accords with its statutory mandate and is not contrary to law. Xcel had the burden to show
not only that it would incur the expense but “that it is just and reasonable that the ratepayers
bear the costs of those expenses.” N. States Power, 416 N.W.2d at 723. Any doubt about
the reasonableness of rates must be resolved in favor of consumers. Minn. Stat. § 216B.03.
Although Xcel provided general testimony that it set its employee compensation based on
market comparisons with other corporate employers, it did not specifically address the
compensation levels for its ten highest-paid executives—an issue that the commission may
closely consider, especially given the utility’s statutory obligation to provide specific
information about that pay. See Minn. Stat. § 216B.16, subd. 17(a)(5). The commission
expressed concern that, under Xcel’s compensation structure as established in the record,
its executives’ focus was on maximizing profits for shareholders—a focus that can create
a misalignment between ratepayer and shareholder interests. On this record, 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
25
appropriate for ratepayers to pay. See N. States Power, 416 N.W.2d at 723 (providing that
a showing that an expense may be incurred does not necessarily demonstrate “that it is just
and reasonable that the ratepayers bear the costs of those expenses”).
Xcel next argues that the commission acted arbitrarily and capriciously and without
substantial evidence when it limited Xcel’s recovery of compensation for its ten highest-
paid executives to a total of $1.5 million per year. Because Xcel’s arbitrary-and-capricious
argument is dispositive, we start and end our analysis there.
A decision will be deemed arbitrary and capricious if
the agency . . . entirely failed to consider an important aspect
of the problem, if it offered an explanation for the decision that
runs counter to the evidence, or if the decision is so implausible
that it could not be ascribed to a difference in view or the
product of agency expertise.

In re Application of Minn. Power for Auth. to Increase Rates for Elec. Serv., 929 N.W.2d
1, 9 (Minn. App. 2019) (Minn. Power 2019) (quotation omitted) , rev. denied (Minn.
Aug. 6, 2019).
After the commission determined that Xcel had not met its burden on executive
compensation, it decided what level of recovery was appropriate. In making that
determination, the commission was required to determine “just and reasonable” rates by
giving “due consideration to the public need for adequate, efficient, and reasonable service
and to the need of the public utility for revenue sufficient to enable it to meet the cost of
furnishing the service.” Minn. Stat. § 216B.16, subd. 6 (noting that the interests of the
public and of the utility must be given “due consideration” when the commission exercises
“its powers under this chapter”); see also N. States Power, 416 N.W.2d at 726 (stating
26
when a utility fails to meet its burden to establish reasonable costs, the commission “itself
may compute a hypothetical capital structure that will afford an ultimate determination of
a reasonable and just rate”).
In setting an alternative executive-compensation expense, the commission stated
that “it would be reasonable for Xcel’s ratepayers to pay an amount for Xcel’s top 10
executives that is comparable to the amount they pay for their own executives in state
government” and that that amount “reasonably reflects the level of expense that should be
borne by ratepayers.” The commission then chose the Minnesota governor’s salary as the
appropriate amount. As Xcel argues, the commission’s reasoning focuses exclusively on
the interests of ratepayers without explaining why the Minnesota governor is a reasonable
proxy for a utility executive or why the governor’s salary is an amount that is “sufficient
to enable [Xcel] to meet the cost of furnishing service.” Minn. Stat. § 216B.16, subd. 6.
Apart from identifying the governor as the state’s “highest executive officer,” the order
does not explain why the governor is an appropriate comparison for determining the
recoverable compensation for the highest-paid executives of a large public utility. By not
describing how or why the governor’s salary was the appropriate measure to meet the needs
of the ratepayer and the utility, the commission “failed to consider an important aspect of
the problem.” Minn. Power 2019, 929 N.W.2d at 9 (quotation omitted). As a result, w e
conclude that the commission’s decision is arbitrary and capricious.5

5 In support of its arbitrary-and-capricious argument, Xcel asserts that the commission
followed an irregular procedure, which indicates that the commission’s decision was
arbitrary and capricious. Because we conclude that the commission’s decision is arbitrary
and capricious on other grounds, we decline to reach this issue.
27
We therefore reverse the commission’s decision to set total recovery for Xcel’s
annual compensation of its ten highest-paid executives at $1.5 million annually and remand
to the commission to make additional findings. The commission may, in its discretion,
reopen the record.6
In sum, for the foregoing reasons, we affirm in part, reverse in part, and remand to
the commission to make additional findings regarding the prepaid pension asset and
appropriate compensation expense for Xcel’s ten highest-paid executives. The commission
may, in its discretion, reopen the record for either issue.
Affirmed in part, reversed in part, and remanded.

6 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.
C/D-1

SMITH, TRACY M., Judge (concurring in part, dissenting in part)
I concur in the court’s opinion except for its conclusion that the public utilities
commission acted arbitrarily and capriciously in setting the rate-recoverable expense for
Xcel’s compensation of its ten highest-paid executives at $1.5 million annually. As to that
part, I respectfully dissent. I would not remand that issue to the commission.
In my view, the commission adequately explained its decision and did not act
arbitrarily and capriciously. As the commission decided and as we agree, Xcel did not
satisfy its burden to prove that $7 million annually is a reasonable and necessary cost that
is appropriate for ratepayers to pay for compensation of its ten highest-paid executives.
The commission therefore tasked itself with determining a substitute amount rather than
denying the expense entirely.
In so doing, the commission applied reasoning that is explicit throughout the final
rate order. That reasoning is that it is not just and reasonable for ratepayers to pay the full
expenses of an employee-compensation structure that, through incentive-pay provisions,
focuses on earnings and shareholder benefits without necessarily serving the interest of
ratepayers in receiving “adequate, efficient, and reasonable service.” Minn. Stat.
§ 216B.16, subd. 6 (2024). The commission applied that reasoning in other compensation-
cost decisions that were not challenged by Xcel. Specifically, the commission denied
Xcel’s request to recover costs for certain elements of its long-term-incentive
compensation and capped at 15% of base salary Xcel’s recovery of costs for its annual-
incentive-program, which is tied to earnings per share. In determining that Xcel did not
carry its burden with respect to its proposed executive -compensation expense, the
C/D-2

commission observed that Xcel relied on market comparisons to corporate officers who
have a duty only to shareholders and no comparable duty to ratepayers and highlighted the
shareholder focus of Xcel’s executive-compensation package.
From all these decisions, it is evident that, to determine what portion of Xcel’s
executive compensation is a just and reasonable amount to be borne by ratepayers, the
commission looked for executive compensation that is based on serving only the public’s
interest and not private interests. The commission decided that it was reasonable for Xcel’s
ratepayers to pay an amount for Xcel’s executives that is comparable to what they pay for
their own state-government executives. The commission chose the state’s highest
executive officer—the governor— and set the recoverable amount for Xcel’s highest-paid
executives at the governor’s salary. To me, this is a rational and sufficient explanation,
even if the commission also had other rational options.
It is important to recognize, as the commission did in its final rate order, that the
commission’s decision is limited to the amount of executive-compensation costs that Xcel
can include in the rates that it charges Minnesota consumers and that Xcel continues to be
free to compensate its employees at higher rates. Xcel submitted evidence that, to maintain
a qualified workforce, it pays its employees at the median of market rates. Nevertheless,
while not conceding that it is not entitled to recover it, Xcel did not seek to recover the full,
market-rate-based compensation of its ten highest-paid executives, and reasonably so.
Unquestionably, the market rates for Xcel’s ten highest- paid executive positions are
substantially higher than the governor’s salary. But the question for the commission was
not what amount would be sufficient total compensation to attract persons to Xcel’s
C/D-3

executive positions; the question was what would be a just and reasonable amount for
ratepayers to pay, taking into account the public need for adequate, efficient, and
reasonable service and the revenue needs of the utility to provide such service. See id. I do
not think the commission acted arbitrarily and capriciously in deciding that question.