Minnesota Power moving to rates that vary by time of day

DULUTH – Minnesota Power is poised to be the first utility in the state to fully switch to "time of day" electricity rates for residential customers, meaning power is more expensive during certain hours and discounted when it is more readily available.

The move is prompted by an increase in renewable energy and its variability — the Duluth-based utility now gets half its power from renewable sources compared with nearly all coal a few decades ago — and the need to better pair power generation with usage.

"It's really meant to set the stage for the grid of the future and bring our customers along," said Tina Koecher, Minnesota Power's manager of customer experience operations. "This is really recognizing those shifts in our energy mix and when it is best to use energy — when renewables are most abundant on the grid."

On-peak pricing — weekdays from 3 to 8 p.m. — will be about twice as expensive as super-off-peak rates that run from 11 p.m. to 5 a.m. The rate for all other hours will roughly split the difference between the two.

The transition will take until 2027 to complete and begins this fall with a switch to flat rates; Minnesota Power currently uses block rates, in which energy gets progressively more expensive as more is used.

Starting in fall 2022, new customers and those who opt in will move to time-of-day rates. More customers will be added in groups over the next several years.

The Public Utilities Commission approved the company's transition plan last week.

Minnesota Power spokeswoman Amy Rutledge said the change will "reward customers who are using that energy when it is most abundant, most available. That helps keep costs down for all of us."

All customers will be able to opt out of the time-of-day rates entirely. Low-income customers will continue to receive discounted rates.

"They will likely not see a rate increase out of this shift, which is something we really appreciate," said Brian Edstrom, with the customer advocacy nonprofit Citizens Utility Board of Minnesota. "No rate design is perfect for everyone 100% of the time, but I think Minnesota Power did well engaging a lot of stakeholders in this process and thinking through ways to make this a thoughtful transition that has opportunity for refinement."

Consumer advocates are largely in favor of the change, though some would like to see a bigger differential between the super-off-peak rates and peak pricing. As the rates are offered to more customers, the company expects to re-evaluate the rates and whether they are effective at altering usage.

The rates can "send price signals to encourage behavioral changes that lower cost and advance public policy goals," clean-energy nonprofit Fresh Energy wrote in a regulatory filing. "[Time-of-day] rates should shift electricity usage and peak demand to times of day with lower costs and higher renewable energy generation, more accurately reflecting the costs of service and increasing system flexibility."

The Minnesota Attorney General's Office wrote that the rates "empower customers by giving them more control over their electricity bills and, in the long run, reduce system costs for all customers." The office proposed a "stronger price signal" that state regulators eventually rejected.

Koecher said the majority of customers can expect to save $1.50 on their monthly bills.

Minnesota Power first offered the rates in 2014 through a pilot program tied to a federal grant for smart metering. The utility expects all its customers to have the advanced meters installed by 2023.

Xcel Energy piloted time-of-day rates last year. An Xcel spokesman said that for the 10,000 customers in the pilot, "from what we have seen so far, on average, our customers are saving money relative to our standard residential rate."

Brooks Johnson • 218-491-6496