Minnesota Power asks state for 19 percent increase for residential customers

Minnesota Power has proposed increasing rates on average residential consumers by 19 percent, a plan coming soon after a separate, previously proposed 10 percent hike on residents to help pay for a special rate cut to the utility's struggling large industrial customers.

Duluth-based Minnesota Power, which serves more than 140,000 customers in northeastern and central Minnesota, filed a rate case Wednesday with the Minnesota Public Utilities Commission (PUC) that would increase its electricity rates by $55 million, or 9 percent overall. It's the first general rate case the company has filed since 2009.

Minnesota Power's residential customers, who currently have an average bill of $77 per month, would see a $6 increase if an interim rate hike takes effect Jan. 1, 2017. If the PUC approves Minnesota Power's entire proposal, residential customers would face an additional $9 monthly increase later in 2017 or in early 2018.

Some low-income residential customers who get a discounted rate would see their monthly bills rise by 22.5 percent under Minnesota Power's full proposal, from an average of $62 a month to an average $76 a month.

"We're very concerned about this," said Buddy Robinson, staff director of the Minnesota Citizens Federation Northeast, an advocacy group for consumers. "It would be a very large financial burden on tens of thousands of local residents with moderate to low incomes."

Under the full rate proposal, Minnesota Power's commercial, industrial and large power users would face increases of 7.6 percent to 11 percent.

The company said it needs the rate hike to cover investments in its electrical system, and that if the full increase is approved, its rates would still be comparable to other investor-owned utilities and electric co-ops in Minnesota.

The majority of Minnesota Power's rate request — $37 million — would cover such capital expenses as upgrades to transmission lines and power distribution infrastructure; measures to protect against extreme weather; and the integration of renewable energy generation into its grid. The rate hike also would help make up for lower sales revenue and help cover pension costs, the company said.

Minnesota Power, the major business of publicly traded Allete Inc., is facing stagnating demand, as are most U.S. electric utilities.

With the new rate case, Minnesota Power is saying that its business and nonresidential customers have been effectively subsidizing residential rates. The company said in a press statement that a "cost-of-service" study, which is required to be filed with a rate case, concluded that residential customers' rates need to rise 35 percent to cover the actual cost of producing and delivering power to them.

"When customers pay energy bills that don't reflect the true cost of the service, those price signals affect everything from the investments businesses make in their employees and the region and the willingness of homeowners to invest in conservation," David McMillan, executive vice president of Minnesota Power, said in a statement.

Robinson disputed that residential customers are subsidizing other rate classes, questioning Minnesota Power's methodology.

The rate case was filed about six weeks after the PUC approved the company's proposal to to cut rates by 5 percent on 11 very large power customers in the taconite and forest products industries. Compared to other utilities, Minnesota Power is far more dependent on large industrial customers.

The 5 percent rate reduction was made possible by a 2015 law that allowed for special rate reductions to Minnesota's large industrial customers, which have been hit hard by global competition in their industries.

To pay for that 5 percent cut, Minnesota Power has proposed raising residential rates by 10 percent. It "is really a separate docket about state energy policy to allow a competitive rate for those struggling industrial customers," said Amy Rutledge, a Minnesota Power spokeswoman.

The rate case filed Wednesday calls for a 7.6 percent final rate increase to Minnesota Power's large power customers, a class that includes some companies getting the 5 percent discount.

The 7.5 percent rate increase "wipes out" the 5 percent cut, said Kelsey Johnson, president of the Iron Mining Association of Minnesota. "We would be out of any potential opportunities for cost savings."

The PUC will make two separate decisions on Minnesota Power's general rate case filed Wednesday — a common arrangement — setting an interim rate that goes into effect while the commission considers the utility's full request.

Mike Hughlett • 612-673-7003