Minnesota Power residential electric rates to rise 4.9% under deal approved by state regulators

State utility regulators on Thursday approved a 4.9% increase in electric bills for Minnesota Power residential customers, which will result in an extra $5 per month for a typical household.

The Duluth-based power company initially asked for a 12% rate increase, worth $89.1 million. But in May, Minnesota Power struck a deal to collect less money after negotiating with the Minnesota Department of Commerce, Attorney General Keith Ellison’s office and a coalition of large industrial customers including taconite mines and paper mills.

The Minnesota Public Utilities Commission voted 3-0 to approve that settlement, which will also raise rates by 4.4% for industrial and large commercial customers.

The average Minnesota Power residential customer will get a one-time refund of roughly $36 because of the deal approved Thursday. The PUC had approved a temporary 8.6% rate increase that began in January, which amounted to an extra $8 a month for the average residential customer compared to 2023 bills.

Katie Sieben, who chairs the commission, said it will be good for customers to get a refund. At the same time, she said temporary rates were “pretty high compared to what the final rate agreement is.”

Minnesota Power said the rate increase would help pay for several things, including recruiting and retaining its workforce during the transition from fossil fuels, along with spending on infrastructure for that work, extra money to address inflation and supply chain issues.

The deal negotiated by the company and approved by the PUC caps how much money Minnesota Power can collect from customers to pay salaries for its ten highest-paid executives at $1.5 million per year. Anything above that must come from shareholders. In Xcel Energy’s last electric rate case, the PUC also set a similar executive compensation limit, which Xcel has challenged in court.

Minnesota Power initially asked to increase rates for all of its customers at the same rate. But large industrial customers have long argued that they subsidize others when paying the same rate because they use less power distribution infrastructure. The final deal includes a lower rate for those huge customers.

This is the second rate increase granted to Minnesota Power in two years. In January 2023, the PUC granted a 9.5% increase. That was also much smaller than what the company wanted, though higher than what some consumer advocates asked for.

More than 650 people wrote to the PUC about the rate increase, most in opposition. Many were dated before or just after the settlement was announced publicly. Matthew Laveau of Wrenshall said “these added costs are not sustainable to their customers.”

Gretchen Matuszak of Esko wrote that she is retired and can hardly keep up with her electric bill as it is now. “You sure make it tough for us old timers! Give us a break!”

Minnesota Power has about 150,000 customers across northeastern Minnesota. It serves energy-hungry iron mines, pipelines and the paper industry, all of which make up nearly 70% of the utility’s energy sales.

The company has the lowest monthly bills for the average residential customer of Minnesota’s three investor-owned utilities, and its electric rates for those customers are below the national average, according to 2022 data, the latest reported by the PUC. Its prices for commercial and industrial customers are higher than neighboring states, however, and 95% of the national average.

The utility has shifted its power mix from 95% coal in 2005 to nearly 60% renewable energy now as it works to meet a state law requiring a carbon-free electric grid by 2040.

The rate case comes at a pivotal moment for Minnesota Power. The PUC is scrutinizing a major proposed $6.2 billion sale of Minnesota Power parent company Allete. If approved, the deal would make Duluth’s only publicly-traded company private.