CUB fighting Minnesota Power’s proposed 18% rate hike

Published April 21, 2022

In November 2021, Minnesota Power filed documents with the Minnesota Public Utilities Commission (the PUC) seeking to raise its rates by about 18 percent. If approved, electricity rates would go up by about $15 per month for a typical household in Minnesota Power’s service territory. 

CUB is fighting back.

Background

This is an exceptionally large rate hike, and it would be unaffordable for many people. Already, 12 percent of households served by Minnesota Power are behind on their electricity bills. 

In December, citing numerous financial pressures on the residential class, the PUC found that the interim rate increase for residential customers should be only half that of other customer classes, because of economic strains facing households. Circumstances have not improved since then. In fact, inflation has increased dramatically in the new year, further straining household budgets.

Adding insult to injury, Minnesota Power has only requested a rate hike because electricity demand from large industrial customers has dropped dramatically. Indeed, at least three of Minnesota Power’s last five rate hikes have come in response to declining revenues from large industry. Residential electricity sales, on the other hand, have increased as people have stayed home more over the past two years.

Minnesota Power sells more than 60 percent of its electricity to just nine, very large customers, and these customers operate in just two, often volatile industries: mining and pulp and paper products. This heavy customer concentration exposes Minnesota Power to unique risks. Downturns in the mining and/or paper industries – which occur with some regularity – mean substantial revenue losses for Minnesota Power. The utility responds by seeking to increase rates for all of its customers.

CUB’s arguments

How much Minnesota Power will ultimately be allowed to raise rates will be determined by the PUC following an ongoing legal proceeding to which CUB is a party. CUB hired an expert witness, Ron Nelson of Strategen Consulting, to review Minnesota Power’s rate increase proposal and provide testimony on behalf of CUB. We, along with the other parties to the proceeding, filed the first round of expert witness testimony on Monday, April 18. 

In the testimony, CUB identifies various ways that Minnesota Power’s proposed rate increase unfairly benefits large industry at the expense of residential customers. Large industry, after all, can increase or decrease their electricity usage depending on economic conditions. Residential customers do what they can to conserve when their budgets are tight, but electricity is an essential item – a household can only reduce its electricity usage so far. For that reason, a utility like Minnesota Power can benefit financially from keeping industry prices low, thereby incentivizing more industrial sales, while maintaining relatively higher residential rates, which their customers will have no choice but to pay.

Accounting for this bias in Minnesota Power’s proposal, the fact that industrial customers are responsible for far greater risk and substantial related costs, and the affordability challenges that Minnesotans face, we recommend that the PUC take the same approach it did in assigning interim rates, and give residential customers a rate increase that is half the level of other customer classes.

Additionally, we recommend Minnesota Power not be allowed to charge customers $1.9 million to cover the cost of software purchased to conduct some of its analysis in this rate case. The utility apparently did not develop a business case for the software nor compare alternatives, and the purchase price ballooned from early estimates without explanation. This is an unreasonable purchase that should be denied.

What happens next?

CUB is now reviewing expert witness testimony filed by other parties to this proceeding. CUB’s Witness Nelson will provide additional testimony replying to other parties’ testimony on May 16 and again on June 6, then we will file formal briefs in July. 

The case is currently before an Administrative Law Judge, who will make a recommendation to the PUC in September. The PUC has the final say and will make a determination on the rate increase after holding a hearing in the fall. 

Get involved

If you are a Minnesota Power customer and you’re concerned about the rate hike, let the PUC know. Public comments will be helpful to bolster the case being made by CUB and other parties. 

Write a comment online or send an email to consumer.puc@state.mn.us, and reference Docket No. 21-335. (Please note that everything in your comment will become part of the public record.)

You can also participate in one of several public hearings that will be held in July. Virtual public hearings will be held on July 19, 2022, and in-person public hearings will be held on July 20, 2022. We will share more specific information about the timing of those hearings, and instructions on how to participate when it becomes available.