Tell Your Electric Utility You Support an Equitable Rate Design

Rate design refers to the pricing structure used by electric utilities to bill customers. Traditional rate designs typically charge a single rate per unit of consumption or even charge less per unit of consumption as a customer’s consumption increases, neither of which encourage energy conservation. Rate designs which reflect the variable cost of electricity generation due to peaks in electricity use, such as time-of-use, variable-peak pricing and real-time pricing, may encourage customers to reduce their energy use when energy is the most expensive to produce, thus resulting in energy conservation.

However, as ACEEE identified in a 2017 study on rate design, low-income customers are often the least able to financially absorb rate increases and respond to rate changes. ACEEE suggested that low-income customers might be financially better off than other customers under a time-of-use rate design, as they typically have a flatter load profile (less peaks in their electricity usage) and less electricity use on average. 

Our local electric utility, Minnesota Power, has a rate structure that depends on the type of customer that purchases power and an inverted block rate structure for residential customers. Minnesota Power sells the majority of their electrical power to large industries at high volumes and lower rates. In contrast, a typical residential customer, a renter and homeowner, pays on a graduated scale known as the inverted block rate, which charges a customer a higher rate for more energy consumed. This inverted block rate in part encourages energy conservation by charging less for less consumption and protects low-income households who often do not use a lot of electricity. Minnesota Power also has a Time-of-Day Rate pilot program that was offered to an eligible group of customers in the Duluth and Hermantown area, though enrollment is now closed. The pilot program offered a discounted rate for using electricity for off-peak hours (between 10pm-8am) and a higher rate for using electricity during on-peak hours (between 8am and 10pm).

As Minnesota Power moves from the Inverted Block Rate to a Time-of-Use rate, protections for low-income customers should be guaranteed, ensuring that they do not bear the brunt of cost increases.

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