Minnesota Power asks to raise rates by 18%

Published November 10, 2021

Minnesota Power, the company that provides power to Duluth and portions of northeast and north central Minnesota, is asking to charge customers an additional $108 million more each year. If approved, Minnesota Power says the request would mean a rate hike of 18.22%, or about $15 a month for a typical residential customer. 

Duluth homes

Residential customers can expect to pay an interim rate increase beginning on January 1, 2022. Minnesota law allows utilities to charge interim rates while a rate case is underway and proposed final rate increases are pending approval by the Minnesota Public Utilities Commission (PUC). If the final approved rate is lower than the interim, ratepayers receive refunds with interest. Interim rate amounts are set by law; Minnesota Power says their allowed interim rate increase is 14.23%. However, working with the Energy CENTS Coalition and CUB, the utility agreed to reduce the interim increase to 7.11% for residential customers given the unique considerations facing households right now. Customers continue to work to reduce past-due balances that have built up during COVID-19, and Minnesota Power is working to help people access assistance to do so. In light of this, Minnesota Power agreed it was appropriate to scale back its residential interim rate hike. However, if the final rate increase is more than 7.11%, the utility will be allowed to recover the difference from customers. 

Both Minnesota Power’s interim and final rate increase requests require approval by the Minnesota Public Utilities Commission (PUC). The full rate increase request will go through a rate case: an intensive process through which CUB and others can look under the hood at how Minnesota Power wants to use its customers’ money, and how much revenue is actually justified. The rate case will take about a year, but the PUC will make a decision on interim rates before the end of December.

The context

As we have said about other rate hikes this month from Xcel and CenterPoint, Minnesota Power’s increase comes at a time when many customers are already struggling with their energy bills. One in eight residential Minnesota Power customers is already behind on their bills. Meanwhile, heating costs are way up, housing costs are up, and consumers are facing inflation across the economy. 

A rate increase of any amount will be difficult for many people – and 18% is a very large request. To Minnesota Power’s credit, they recognize this fact and have reduced the residential increase – at least for the interim period. 

Minnesota Power’s request

According to Minnesota Power, the very large industries that the utility serves are a major reason that the utility is asking for a rate increase. Minnesota Power cites “revenue changes and increased risk profile due to a significant concentration of highly cyclical industrial customers.” 

Northern Minnesota mines and mills consume an enormous amount of electricity – about 70% of Minnesota Power’s energy sales – and they are highly cyclical industries. When demand for their products is up, their electricity requirements (and, therefore, Minnesota Power revenues) are very high. When there are market downturns, as happened in 2020, their electricity demand can evaporate quickly, leaving the utility short on revenues. 

Minnesota Power says in its filings that this dynamic makes the company a riskier investment and has caused its credit to be downgraded by rating agencies. This increases its cost of debt, in turn increasing costs to customers. 

Residential and commercial electricity customers have no influence on this dynamic but are now dealing with its effects in a proposed 18% rate hike. 

Minnesota Power is also asking to increase the return on equity that ratepayers contribute for its shareholders from the current authorized rate of 9.25% to 10.25%. This would be a massive increase, and we do not believe that it is justified. However, to the extent that rising risks are increasing the utility’s cost of borrowing, it stands to reason that the customers behind the cost increase should pay for it.  

What’s next

CUB intends to formally intervene in the rate case, and we are just beginning to dig into the deep detail of the filing. There will be opportunities for public comment. We will keep you up to date as the case progresses.

If you are concerned about your bill, here are some resources to help. 

If you have questions, concerns, or would just like to talk with someone to see if there are ways to reduce how much you spend on energy costs, contact us: 651-300-4701 or info@cubminnesota.org.

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Author: Annie Levenson-Falk

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