CenterPoint agrees to settle for a lower rate increase

The parties to CenterPoint’s latest rate increase request have agreed to a settlement that limits the residential rate hike to about half of what the gas company had requested.

On November 1, 2023, CenterPoint filed a petition with the Public Utilities Commission (PUC) to increase revenues for natural gas service by $136.4 million over two years. This would have raised average residential households’ annual bills by over $100 starting in 2025. Following this request, CUB and other stakeholders intervened in the case, arguing that CenterPoint’s request was many millions of dollars higher than justified. 

If the settlement is approved by the PUC, residential rates will increase by 5.2 percent, which will raise average annual bills by a little less than $50 as compared to 2023. This is slightly lower than the interim rate increase charge that customers have been paying in 2024, and less than other customer classes. CenterPoint has said that residential customers can expect small refunds for overpaid interim rates around March.

Rate of return

Investor-owned utilities are allowed a return on capital investments at a rate authorized by the PUC. The “return on equity” is a key determinant of utility profits, a main driver of costs for ratepayers, and a central point of contention in every rate case. Regulated utilities are entitled to a reasonable return – but not an excessive one.

In this case, CenterPoint sought to increase its authorized return from 9.39 percent to 10.3 percent. This alone would have added more than $10 million per year in ratepayer costs to support increased company profits. 

CUB’s financial analysis concluded that CenterPoint’s return on equity should instead be decreased. We recommended the Commission set the return at 9.0 percent, which would lower costs for ratepayers while still allowing the company to earn a reasonable profit. 

While the settlement does not specify CenterPoint’s new return on equity, it stipulates an overall “cost of capital” (of which return on equity is one component) that will result in the company’s return on equity being significantly lower than requested and similar to the Company’s current authorized return. 

Organizational Dues

CenterPoint requested to recover dues paid to trade associations in which it is a member, including organizations that work against the interests of Minnesotans. CUB argued that ratepayers should not be charged to support organizations that promote gas usage or hinder efforts to increase energy efficiency. Specifically, we recommended that dues to the American Gas Association (AGA), Minnesota Utility Investors (MUI), Energy Solutions Center, the Minnesota Blue Flame Association, and various chambers of commerce be disallowed. In the settlement, CenterPoint agreed to remove all of these expenses except for dues paid to the AGA, which will be limited to 50 percent recovery.

Executive Compensation

CenterPoint sought to recover over $600,000 per year in compensation for its top ten executives from Minnesota customers. CUB, the Department of Commerce, and the Office of the Attorney General all pushed back against this request. Ultimately, the parties agreed to remove $200,000 in executive compensation expenses per year.

Rate Case Expenses

Utilities hire subject matter experts and outside legal counsel to represent their interests when applying for rate increases. CenterPoint sought to recover $2.1 million of these expenses over a period of three years, resulting in an annual cost to ratepayers of approximately $690,000. Both the Department of Commerce and the Office of the Attorney General recommended this amount be reduced so that more costs were borne by the company’s shareholders. The settlement reduces cost recovery for these expenses by $344,000 each year, effectively limiting ratepayer contributions to half the requested amount.

Conclusion

In addition to the topics discussed above, the settlement resolves numerous other issues raised by parties. The full agreement can be accessed here.

Now that a settlement has been reached, the regulatory proceeding for evaluating CenterPoint’s rate increase has been put on hold. The Administrative Law Judge overseeing the case will now review the parties’ positions and make a recommendation to the PUC about whether to approve the settlement. Afterwards, the PUC will conduct a hearing and issue a final decision. This is expected to occur some time in 2025.

Until the Commission makes a decision on the settlement, CenterPoint will be permitted to charge interim (temporary) rates. Customers already saw an interim rate increase go into effect in January 2024. At a December 3, 2024 hearing, the PUC decided to set 2025 interim rates at the level agreed upon in the settlement agreement. This is good news for CenterPoint’s residential customers: because the residential rate increase agreed to under the settlement is below the 2024 interim rate, residential customers will see a slightly lower rate beginning in January 2025 and will receive a small refund for overpayments in 2024. 

Keep an eye on the CUB website for additional updates on CenterPoint rates as this regulatory process proceeds into next year.