PUC approves a 9.5% rate increase for Minnesota Power

In November 2021, Minnesota Power filed a request with state regulators to charge its Minnesota electric customers an additional $108 million each year. If approved, this rate increase would have caused a rate hike of about 18% — or about $15 more per month for a typical residential customer. After a long process evaluating this request, the Minnesota Public Utilities Commission (“PUC”) recently approved a final rate increase of 9.5%. Below we provide background information about how the PUC reached this decision and what it means for Minnesota Power ratepayers. 

In its regulatory filings, Minnesota Power addressed several reasons why it sought to raise rates. For example, the company noted that its operating expenses had increased since it last conducted a full rate case proceeding and that it faces unique financial risks due to its high concentration of large power customers. (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.) 

Throughout the 12-18 month rate case process, parties to the proceeding engage experts to review the utility's filings and make recommendations and observations pointing out opportunities to lower the rate increase and/or improve how increased rates are collected from different customer classes. While that proceeding is pending, the Minnesota Public Utilities Commission ("PUC") sets "interim" (temporary) rates based on an estimation of what the final rate increase will be. If those interim rates are set higher than the final rates, then customers are refunded the difference.

Soon after Minnesota Power filed its rate increase request, CUB (along with low-income advocate, Energy CENTS Coalition) worked with Minnesota Power to keep interim rates for residential customers as low as possible. The company agreed to voluntarily lower the interim rate increase for residential customers to half that of other customer classes. As a result, Minnesota Power's residential customers saw their rates increase by 7.11% beginning in January 2022, as compared to much higher interim increases for other rate classes. In the time since then, CUB continued to advocate for keeping residential customers' final rates as low as reasonably possible. As part of this advocacy, CUB engaged Ron Nelson of Strategen Consulting to review aspects of the proposed rate increase and to file testimony recommending modifications to that increase. We later filed two legal briefs offering recommendations based on Mr. Nelson's and other witnesses' testimony.

CUB’s Arguments

CUB raised several arguments in the rate case to advocate for the interests of Minnesota Power's residential customers. First, we recommended that 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. As a regulated utility, Minnesota Power had the burden to prove that this was a prudent investment. However, we discovered the company had not conducted a formal cost-benefit analysis of the software investment. Nor did the company follow its own internal purchasing manual, which calls for competitive bids on investments in products or services costing more than $10,000. Because Minnesota Power failed to call for bids, or even contact more than one third-party vendor, CUB argued that it should not be allowed to recover the full cost of its software upgrade. 

Second, we identified various ways that Minnesota Power’s proposed rate increase was largely driven by risks caused by its unique concentration of large power customers. Because residential customers have no control over such risks, we argued that the large power class should bear more of the rate increase. Large industry, after all, can increase or decrease electricity usage depending on economic conditions. Residential customers do what they can to conserve when budgets are tight, but electricity is an essential item – a household can only reduce its electricity usage so far. 

Finally, we argued that the PUC should not raise final rates for the residential class beyond the 7.11% interim rate increase that has already gone into effect. We recognize that widespread inflation continues to make budgets tight for many Minnesota households, and we helped to convey that message to the PUC. Moreover, many of MP's residential customers have already seen their electricity rates increase due to Minnesota Power's recent transition to a time-of-use rate, which charges customers differing amounts depending on when they use electricity throughout the day. We expressed concern about Minnesotans' ability to bear yet another cost increase.

The PUC's decision

On January 23, 2023, the PUC approved a final rate increase of 9.5% for all customer classes. We have mixed feelings about this result. On one hand, we are grateful that this final rate increase is significantly lower than the nearly 18% rate increase originally requested. We are also grateful that the PUC, after agreeing with much of CUB's analysis on Minnesota Power's $1.9 million software investment, "disallowed" recovery of half of those costs. We were also pleased that the company agreed to not apply surcharges to residential customers' bills to retroactively recover the difference between the 7.11% interim rate and the 9.5% final rate over the past year. However, a 9.5% rate increase is still significant, and higher than we hoped it would be. We remain concerned that this additional rate increase will make it harder for residents of Northern Minnesota to make ends meet. We were also disappointed to learn that, almost immediately after the PUC made its decision, Minnesota Power announced it will file another rate case in 2023. 

What comes next?

The Company's final rate increase will go into effect this summer. At that time, residential customers will see their electric rates increase by an additional 2.39% (the difference between the interim rate and the approved final rate). CUB will be watching for Minnesota Power's next rate case filing, and we will evaluate at that time whether and how we intervene to continue advocating for the company's residential customers. In the meantime, if you have any questions about your Minnesota Power bill and how you can address or reduce your energy costs, please reach out to us at 844-MINN-CUB (844-646-6282) or info@cubminnesota.org