Tell Your Electric Utility You Support an Equitable Rate Design
Starting in January 2024, most Minnesota Power customers will see an increase in their monthly electric bills and may not know the reason. Well, that increase, averaging about $8 per household, is part of Minnesota Power’s broader rate strategy, including rate increases and a long-term rate design restructure.
Beginning in 2021, Minnesota Power started the transition of its traditional rate design. It moved from an inverted block rate structure to a flat rate structure. Under an inverted block rate, there are separate rate blocks based on the amount of electricity used, and each block increases in unit price. In contrast, flat rates charge customers the same, no matter how much energy is used. The final phase of the transition, expected in 2027, will be a time-of-day rate structure, where electric rates differ depending on the time of the day.
Under the current flat rate system, residents are more susceptible to rate increases and there are few options for lowering costs. With all usage charged the same rate, those with significantly higher usage pay the same rates as those that do not, leaving little incentive for energy conservation. Here, already under-resourced households are met with greater energy bill challenges and according to a 2017 study from the American Council for an Energy-Efficient Economy (ACEEE), 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-day rate design, as they typically have less peaks in their electricity usage and less usage on average.
The time-of-day structure incentivizes energy use at times when the overall demand on the grid is lower, referred to as peak and off-peak demand. For example, the period from 3:00 p.m. to 8:00 p.m. on weekdays is considered peak demand, and charges the highest rate. Lower rates are available during the late evening, overnight, and weekends. Residents have the option to change their habits in return for lower energy bills.
Additionally, a time-of-day structure helps reduce stress on the energy grid by spreading out usage. Stress on the energy grid is a prevalent issue in the transition to renewable energy, as common renewables do not have the same ability to rapidly increase supply during peak demand periods as fossil fuels. So, even if residents are not as concerned about their energy bills, if they would like to support a smooth energy grid transition, the time-of-day structure is a great option. And while time-of-day will become the standard for all customers by 2027, there is the option to request early enrollment through Minnesota Power’s website.
Returning to the January increase in electric bills, this is because of the newest rate increase proposed by Minnesota Power. After a proposed 12% increase, the Minnesota Public Utilities Commission (PUC) approved a temporary rate increase of 8% for customers on December 7, 2023. The result is higher monthly bills (projected $8 increase/household).
Minnesota Power states the increase is necessary to pursue recruitment and workforce development in order to move away from fossil fuel production. However, the customer base is also a factor. The largest share of Minnesota Power’s customer base is industrial, including the surrounding mines and paper mills. According to Minnesota Power’s Vice President of Customer Experience and Engineering Services Frank Frederickson’s testimony to the PUC on November 1, 2023, Minnesota Power’s customer concentration is 73% industry and 13% residential. Frederickson stated that industry energy usage is typically “around-the-clock” and consistent but can heavily fluctuate through the years as operations slow and/or are shut off. Minnesota Power outlined in a Wells Fargo Symposium presentation in December 2023 that the 8% interim rate increase was drafted to fund $20 million in large power taconite production, which covers 31.25% of the proposed $64 million that Minnesota Power seeks from said rate increase. With Minnesota Power’s current flat rate infrastructure and interim rate increase, the expanding cost of industry burden is placed on residential customers. The Minnesota Attorney General’s office argues that this 2024 rate increase hurts residents that are already struggling with high costs of living. This is further exacerbated by the reality that Minnesota Power’s Customer Affordability of Residential Energy (CARE) program for low-income residents is currently unavailable due to lack of funding.
The Minnesota Public Utility Commission (PUC) has approved important discounts for low-income customers so that the flat rate structure doesn’t disadvantage them. The option to enroll early in time-of-day is one response from Minnesota Power. The utility also offers a usage-qualified discount to self-declared low-income households. Anyone who is income-eligible and uses less than 1000 kilowatt-hours per month can receive a discount on part of their bill. It is important to note, however, that this process was previously available to all residents that used under 1000 kilowatt-hours monthly. As of October 2022, households must self-declare at www.mnpower.com/RateDiscountForm.
When considering equity in rate design and affordability measures, Minnesota Power should continue and expand programmatic outreach to interested individuals, especially those that utilize the Energy Assistance Program (EAP) and are not automatically enrolled. As well, rate design should ensure that residential customers do not bear the costs of industry usage.
To complete this action, write to Minnesota Power leaders to ask for increased equity in their rate design.
Investor-Owned Utility Gas Distribution Capital Expenditures: A study on the potential bill impacts of business-as-usual investment in Minnesota
Time of Day enrollment (Minnesota Power)
2023 Wells Fargo 22nd Annual Midstream & Utilities Symposium (presentation)
Docket No. E015GR-23-155 (Minnesota Power Fredrickson Testimony) – Found via the MN Department of Commerce eDockets search.
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