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 the American Council for an Energy-Efficient Economy (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 varies depending on the type of customer that purchases power.  Minnesota Power sells the majority of its electrical power to large industries at high volumes and lower rates. In contrast, a typical residential customer, a renter or homeowner, has been paying on a graduated scale known as an inverted block rate, which charges a customer a higher rate for more energy consumed. This inverted block rate 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 is now phasing in a flat rate structure to replace the inverted rate structure. And, it plans to expand its time-of-use rate pilot program that offered a discounted rate for electricity used during off-peak hours (10pm-8am) and a higher rate used peak hours (8am-10pm). 

The Minnesota Public Utility Commission has approved important discounts for low-income customers so that the flat rate structure change doesn’t disadvantage them. These discount protections need to be continued and supported, to ensure that low-income customers do not bear an inequitable brunt of cost increases. An ongoing issue, however, is that the low-income discount applies to people enrolled in the government’s Energy Assistance program, but most people who qualify are not actually enrolled.

Meanwhile, in its latest rate hike request filed in November 2021, Minnesota Power is proposing a new mechanism, by which a drop in power usage by large industry—and the resulting loss in the utility’s revenue —would be automatically made up by increasing the rates for residential and commercial customers, without the scrutiny of a rate case proceeding. The taconite mines and paper mills use almost three times the amount of electricity used by residential and commercial customers. Therefore, for example, a 10% drop in big industry usage would cause a 30% increase in other customers’ rates.

As Minnesota Power moves from the inverted block rate to a flat rate structure, protections for low-income customers should be continued and the low-income discount made easier to obtain. And, residential customers should not bear the costs of loss in industry energy usage.

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