Zacks_Analysts' Blog : Xcel Energy Announces 2-tier Rates - Analyst Blog

In a process to encourage customers to cut down on power consumption during summer, Xcel energy (XEL) launched a two-tiered rate plan. The new plan will increase the summer monthly bills of an average residential consumer by 2.5%.

Xcel Energy formulated this two-tier plan to reduce power consumption during the summer months when energy costs are at peak level. The two-tiered rate plan will be effective from June 1 and will continue till September.

To incentivize customers, who consume less energy in summer, the company has introduced a new rate plan by which it will charge 9.8 cents per kilowatt hour for the first 500-kilowatt hours and 14 cents per kilowatt hour for use above the stipulated 500 kilowatt hours. Xcel noted that the average residential customer, who is using about 632 kilowatt per month, will now pay $75 under the new plan, which is a 2.5% increase from the present single-tier system.

During the first-quarter earnings call, Xcel Energy reaffirmed adjusted earnings guidance range of $1.55 to $1.65 per share for the fiscal year. The company considered the weather factor and assumed normal weather pattern for the full year. Xcel assumed weather-adjusted retail electric utility sales increased approximately 1% year over year and weather-adjusted retail firm natural gas sales were up to 1% on a yearly basis.

Our View

We believe Xcel’s favorable geographic, regulatory, environmental and financial position are already discounted by the market and leaves hardly any room for further upside, hence we maintain a Neutral recommendation on Xcel.

Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states. Xcel Energy’s major competitors are ALLETE Incorporation (ALE), American Electric Power Company (AEP) and CenterPoint Energy, Incorporation (CNP).