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Otter Tail wins first rate boost in 20 years
But the increase is less than the utility had sought. And an investigation continues.
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Otter Tail Power Company's Minnesota customers will get their first rate increase in more than 20 years, following approval Thursday by the state's Public Utilities Commission.
The average customer will see a 2.9 percent increase, not quite half the 6.7 percent increase Otter Tail requested, the company said Thursday. The increase will total $3.8 million.
Ratepayers got one boon Thursday: The commission told Otter Tail to pass along an estimated $5.41 million a year from wholesale energy sales it expects to make to outside purchasers, effectively lowering its customers' rates.
All these figures, however, depend on an investigation of an anonymous letter sent to the Minnesota attorney general in April. It claims the utility keeps two sets of books, an allegation that caused regulators in several state agencies to question all the data Otter Tail supplied for the rate request.
About half of Otter Tail's 130,000 customers are in western Minnesota, with the rest in North Dakota and South Dakota.
The letter generated the most controversy during the commission's five-hour meeting. The commission's staff had recommended stipulating that the rate increase is subject to change if the investigation uncovers irregularities.
Otter Tail general counsel Bruce Gerhardson argued that such a provision, around unproven allegations, would imply "continuing regulatory risks" and frighten financial markets when the utility goes to them for money.
But Kate O'Connell, at the Minnesota Office of Energy Security, urged commissioners to retain the stipulation "to ensure ratepayers have protection." The attorney general's office previously requested an independent forensic audit, based on the letter.
The commissioners removed the stipulation from their Thursday decision but reserved the right to reconsider the rates if the investigation warrants.
The $5.41 million in wholesale revenue is a big jump for ratepayers. This "asset-based wholesale margin" is a payment that the commission always sets as a dollar figure, using the utility's recent annual sales; Otter Tail still was using a $739,000 figure set in 1986. That meant the balance was going to the company and its shareholders instead of ratepayers, whose bills build the power lines. Otter Tail had supported an increase almost as large -- $5.2 million -- in recognition of its growing wholesale business, said vice president of administration Tom Brause.
The utility calculates its new customer rates based on the return on equity the commission approves. Otter Tail had asked for 11.25 percent. The commission approved 10.43 percent, based on comparisons with other utilities.
Otter Tail had been granted an interim 5.41 percent increase when it filed its rate case in November. Because the approved increase is less, the company will refund customers the difference plus interest.
H.J. Cummins • 612-673-4671
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