Two of Minnesota’s three investor-owned electric utility companies earned profits above the industry average over the past two years, according to a report released Thursday, March 12, by a utility watchdog group.
Data collected by the Energy & Policy Institute shows Otter Tail Power Co., which serves 134,000 customers in western Minnesota and parts of the Dakotas, earned about 17 cents on every dollar paid by its customers in 2024 and 2025.
Xcel Energy’s electric subsidiaries, which serve about 3.7 million customers across Minnesota and seven other states, earned about 17 cents on the dollar in 2024 and about 15 cents on the dollar in 2025.
The 110 investor-owned utilities included in the report had an average profit margin of 12.8% from 2021 to 2024 and 14.6% in 2025. Xcel and Otter Tail were in the top 40 both years.
Minnesota’s third investor-owned utility, Minnesota Power, serves about 150,000 customers in Northern Minnesota. Its parent company, Allete, earned about 13 cents for every dollar it billed customers in 2024, in line with the national average. EPI did not collect 2025 data for the Duluth-based utility, which was acquired last year in a “take-private” deal led by BlackRock, the private equity giant. Though BlackRock is a publicly traded company, it’s unclear how much detail it will provide on Allete’s financial performance in the future.
EPI staff, former utility regulators and ratepayer advocates said that U.S. utilities will reap a windfall from the AI-driven infrastructure boom that began earlier this decade. They made their remarks during a Thursday webinar detailing the report’s findings, while introducing a utility profits calculator.
“We are at a particularly extractive moment in time,” said Marissa Gillett, a former Connecticut utilities regulator who clashed with utility executives for years before resigning under pressure last year.
State regulators have long allowed utilities to recover from their customers their capital investments in new power plants, substations, transmission lines and other infrastructure, as well as the cost of operating and maintaining their systems. Regulators also permit investor-owned utilities to bill customers for an “allowed return on equity,” or ROE — profit on capital investments that accrues to shareholders. The ROE doesn’t apply to operational expenses.
These revenue streams combine with other charges to determine each utility’s revenue requirement, or the total amount it’s allowed to take in over a defined period of time. The revenue requirement determines how much each class of customer pays and is typically finalized by regulators after a long, quasi-judicial process called a rate case.
This framework incentivizes investor-owned utilities to build more capital infrastructure rather than invest in cheaper “technological solutions” that won’t produce a return for shareholders, Gillett said. As the AI boom drives what the global credit rating agency Morningstar DBRS calls a utility investment “super-cycle,” U.S. utilities are planning to spend $1.4 trillion from 2025 to 2030 — twice as much as they spent in the previous 10 years.
“That’s contributing to these high profits, and they’re going to get higher if all this investment trickles in,” Gillett said.
Applied Digital, a data center developer, has proposed a massive computing facility in eastern South Dakota that would consume about 430 megawatts of power at full tilt — about 37% of Otter Tail Power’s total generating capacity. The proposed data center is located near an existing Otter Tail Power substation and gas-fired power plant. Stephanie Hoff, the utility’s director of communications, said in an email that Otter Tail has “worked with, and will continue to work with, a variety of companies exploring data center projects in our service area,” but declined to confirm that Applied Digital was among them.
Google recently revealed itself as the company behind data center proposals near Rochester and Duluth that would be served by Xcel and Minnesota Power, respectively.
Hoff said Otter Tail Power’s return on equity is commensurate with the risk inherent in building and operating expensive, long-lived infrastructure for customers’ benefit.
“Our allowed return on equity is designed to strike a careful balance between protecting customers and ensuring the financial strength needed to provide safe, reliable and affordable service over the long term,” she said.
A “competitive” ROE “is essential to attract the long‑term investors who fund this infrastructure at a reasonable cost,” Hoff added.
Theo Keith, a spokesperson for Xcel Energy, said the company invested $3.4 billion last year in Minnesota and the Dakotas as it worked to retire its “legacy” coal plants and build new clean energy. Xcel’s Minnesota customers pay 31% less for electricity than the national average and have the fifth-lowest “share of wallet” — the share of income paid for electricity — in the country, he added.
“Maintaining the balance between system reliability, sustainability and affordability is our main goal, and we’ve proven we can maintain this balance while providing our customers some of the lowest energy bills in the county,” Keith said.
Xcel sued the Minnesota Public Utilities Commission in 2023 after regulators approved a lower ROE than the company requested, arguing the decision would hinder investments necessary for its state-mandated transition away from fossil fuels. It dropped the suit the following year while sharply curtailing its transportation electrification plans in a move Minnesota PUC chair Katie Sieben called “childish and ridiculous.”
Though higher than the national average, Xcel Energy and Otter Tail Power had slimmer profit margins than Georgia Power, Florida Power & Light and several other large investor-owned utilities serving parts of the Southeast.
Like Xcel and Otter Tail, those utilities are vertically integrated, meaning they own their own power and transmission infrastructure along with local electric distribution networks. But unlike utilities in Minnesota and most of the northeastern quadrant of the country, they operate outside the influence of regional energy and capacity markets operated by nonprofits known as independent system operators or regional transmission organizations. They thus have even more operational control over their networks.
“The gap between Southeastern utilities and their counterparts in competitive markets is large enough to warrant scrutiny of whether vertically integrated monopolies operating outside of [regional transmission organizations] are consistently extracting more profit from captive customers than is necessary to provide safe and reliable electricity service,” report authors Daniel Tait, Shelby Green and Sue Sturgis wrote.
Regional dynamics aside, utility profits are “not a natural phenomenon,” the authors said. Nonprofit municipal utilities and cooperatives sell about 30% of the electricity consumed in the United States, they said.
The report recommended state regulators and policymakers use four tools to keep utility ROEs — and customer bills — in check: approve more conservative profit benchmarks, potentially through legislation; scrutinize utility capital structures that involve higher equity holdings; reform the ratemaking process to incentivize performance rather than capital investment; and invite more and better-resourced consumer advocates into ratemaking proceedings.
“We need to get (advocates) a seat at that table to make sure the decisions commissions are making are based on robust evidence,” Gillett said.
Minnesota Reformer is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Minnesota Reformer maintains editorial independence. Contact Editor J. Patrick Coolican for questions: info@minnesotareformer.com.
