The Minnesota Public Utilities Commission is considering a request by Minnesota Power to raise the rates of its 141,000 residential customers.
If approved, the increase would represent the first rate increase in 14 years for Minnesota Power. Company officials say the 9.7 percent increase would recover around $45 million worth of investments in renewable energy, plant and systems upgrades and cost of operations. The investments are in response to long-term production costs and state and federal mandates requiring the company to produce a quarter of its energy from renewable sources by 2025.
To put the proposed rate hike into perspective, company information says residential customers that use around 704 kilowatt per hour should expect about a $16 increase to $55 per month. Average seasonal residential rates for 231 kWh would increase by about $7.
Individual rates varying on customer class and use. There are proposed discounted rates for low-income residential customers that basically keep prices at the current rates.
Minnesota Attorney General Lori Swanson filed intervention papers against Minnesota Power Sept. 26 to oppose what she called “the most dramatic increase in electricity rates for its residential and small business customers.”
According to Swanson, filed testimony states that about half of residential customers would see a rate hike of around 43 percent.
“People can not afford an exorbitant rate hike at this time, especially when it has not been proven to be necessary,” she said.
Swanson said she questions the justification for a residential rate increase that is based on projected costs and revenues. She pointed to MP revenues for 2007 that add up to more than the $45 million requested increase. She also pointed to large power purchasers that would only see an average 3.5 percent rate increase.
State Administrative Law Judge Bruce Johnson is attending several public hearings this month and will make a recommendation to the Utilities Commission based on input from customers and stakeholders. The formal MPUC evidentiary hearings will begin in St. Paul on Nov. 10. If approved the rate hikes would become permanent by mid 2009.
Chris Anderson, an attorney and associate general counsel for Duluth-based ALLETE, of which Minnesota Power is an operating division, said he disagrees with Swanson’s numbers.
Anderson said a cost of service study was produced prior to the rate increase request, he said, to determine the true cost of services to each class. The study called for a 40 percent increase, he added.
“We knew that we couldn’t legitimately get that through the commission,” he said. “We cut it back to a degree that is still palatable and without costing too greatly, and asked for 24 percent over three years.”
Anderson said the rate request is fair, given the length of time since the last increase and state cost recovery requirements. The goal, he said, is not to place a burden on residential customers. MP wants the rates to reflect the true cost of services and notes that commercial and large customers have picked up the remainder of the original proposed rate increase.
“That is the best way to send a signal to make sure that customers understand the true costs and not by employing false numbers,” he said.
Dual fuel customers have voiced concerns that they are not realizing anticipated savings for the investment they made to switch over to interrupted power during peak times on the grid. MP charges fees for installation of pole transformers and wiring and service.
They are also concerned with the lack of incentives to go off peak when they only realize savings for part of the year.
Anderson was concerned that public comments often misrepresent actual savings and costs because they are not starting from the same base costs of standard and dual fuel rates.
He said current dual fuel rates represent an 8.3 percent savings to standard residential rates. The new proposal, he added, would show an average 6.2 percent savings.
Dual fuel remains a valuable resource as an interruptible source for when loads and energy prices are high, he said. Customers would still realize a savings versus regular residential rates, but perhaps not as much as in the past.
“We are under-recovering from the dual fuel class at the current rate and that does not reflect the true cost of providing energy to that base,” he said. “It is not a large class and dual fuel is still an important component rate class.”
Anderson said the assertions about residential rates absorbing a disproportionate amount of the rate increase is a misrepresentation of the numbers. Most of the other service classes are subsidized by large power customers, he added.
The ALLETE quarterly report stated that increased MP interim rates put in place in August are offsetting expenses, but that operation and maintenance expenses were down because they weren’t selling as much power to other power suppliers.
With regard to the rate increase having to do with non-power related investments and assets, Anderson said that MP has an asset utility structure and may only request rates based on its own assets. The other tax related investments of ALLETE are apart from MP and not associated with the rate request, he added.
