Minnesota Power to transition to time-of-day rates

Published August 3, 2021

After several years of study and analysis, Minnesota Power has received approval to transition residential customers to a new electric rate called a time-of-day (TOD) rate. The cost per kWh to customers would vary based on the time of day the energy is consumed. This transition will not happen immediately but instead phase in over the next few years.  This blog post provides an overview of what MP customers can expect as part of this transition.

Over the past several years, Minnesota Power (“MP”) engaged in a TOD pilot program, stakeholder discussions, and regulatory proceedings to assess whether it should transition to a new means of charging customers for energy usage. CUB was an active participant in that process. In 2020, we partnered with Minnesota Power and CUB-Illinois to conduct a statistical analysis assessing  how transitioning to a TOD rate structure would affect MP’s customers. In December 2020, MP submitted a petition (which was informed by CUB’s analysis) to the Commission  seeking authorization to transition from MP’s current rate structure to a TOD rate. The Commission approved the petition at a July 8, 2021 hearing.  

Currently, Minnesota Power uses an inclining block rate (IBR), which is a rate that increases as a customer’s monthly energy usage exceeds certain thresholds. A customer’s first block of energy usage is the least expensive, and the price of electricity goes up as the customer uses more. Under MP’s current IBR rate structure, customers who use a lot of electricity end up with very high bills, because the price per unit of electricity goes up the more you use. Conversely, people who use little electricity have bills that are quite low.

Under TOD rates, customers pay different rates depending on when energy is consumed. Customers enrolled in MP’s TOD rate will pay the highest rate during peak periods (e.g., weekdays from 3pm to 8pm) and the lowest-rate during super-off-peak periods (e.g., weekdays from 11pm to 5am). The peak rates will be about twice the super-off-peak rate. The rate for all other times of the day will be approximately midway between the peak rate and super-off-peak rate.

Time-of-day rates incentivize customers to think more carefully about when they use electricity and to shift some usage (such as charging electric vehicles or high-energy-consuming appliances) to off-peak or super-off-peak periods. TOD rates also allow the utility to rely more on renewable energy resources — a good thing from both a cost and environmental perspective. On the other hand, shifting to TOD rates will cause some customers — particularly high energy use customers —  to experience a rate increase. Fortunately, MP’s plan includes a low-income discount that will help ensure most low-income customers will not experience a rate increase as a result of this transition.

The timing of MP’s transition to a TOD rate is, well…  somewhat complicated. The transition will occur over multiple years, via four distinct phases.  Beginning this fall, there will be an interim transition where all customers will shift to a flat rate (i.e., customers will be charged the same rate per kilowatt hour, regardless of how much energy they use.) In the fall of 2022, new MP customers and those who opt in will transition to TOD rates. Remaining customers will transition to TOD over the 2022-2027 time period. This extended transition will, ideally, allow MP time to finesse and improve the program along the way. 

MP is currently working on communications that will explain in more detail what those phases will entail. Keep an eye on mail and other communications you receive from Minnesota Power to learn more!

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Author: Brian Edstrom

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