Consumer and environmental groups on Thursday proposed a new billing method for Xcel Energy to encourage its Minnesota residential electric customers to conserve energy.
The plan, similar to one in place at Duluth-based Minnesota Power, would offer lower rates for those who use average or below-average kilowatt hours. Big power users would end up paying more — unless they find ways to cut their energy use.
“It rewards customers who have already invested in energy efficiency or engage in other conservation measures,” said Will Nissen, a policy associate at Fresh Energy, a St. Paul nonprofit group that joined with others to propose the plan to the Minnesota Public Utilities Commission.
Advocates said it’s long overdue because a 1983 Minnesota law requires the commission to set reasonable rates that encourage conservation. Environmental groups support the plan as another step to reduce greenhouse gases and other smokestack pollution from power plants.
Xcel spokeswoman Mary Sandok said the Minneapolis-based utility is reviewing the proposal and had no immediate comment. Xcel already offers such rates in Colorado.
Conservation rates would affect about 1 million residential electric customers, but it’s up to the PUC whether and when the rates would take effect. Commercial and industrial customers are not included in the proposal.
It is being proposed now because Xcel has pending before the commission a request for a 10.4 percent, or $291 million, electric rate increase over two years. An interim 4.6-percent rate hike, subject to refund, took effect in January, but the final rate won’t be set until next year. Public meetings on the rate case are scheduled later this month.
Conservation-based electric prices are called “inclining block rates” or “tiered rates” because the charge for power increases with each additional block of energy used. The plan proposed Thursday has four blocks, or tiers, with summer kilowatt-hour pricing that starts at a low 6.1 cents and rises to a pricey 12.7 cents. A kilowatt is 1,000 watts.
The pricing is hard to compare with existing rates because they are in the process of going up. But Nissen said most of Xcel’s residential customers in Minnesota would fall into the two lower-priced blocks, saving them money regardless of the overall rate increase approved for Xcel.
Pam Marshall, executive director of the Energy CENTS Coalition, has long championed block rates as a benefit to low- and fixed-income people who are served by her St. Paul nonprofit organization.
“The inclining block rates benefit low- and fixed-income people because they are overwhelmingly the lowest users of electricity,” Marshall said.
In 2012, after less than a two-year trial, CenterPoint Energy ended its experiment with tiered natural gas rates in Minnesota after a customer backlash over its fairness.
Marshall and Nissen said they learned from that experiment, and their plan protects from rate shock such groups as electric heating customers, users of medical devices and renters who share an electric meter.
“That was gas, this is electric,” said Marshall. “It is very different, and we have a successful program at Minnesota Power.”
People who use a lot of power could pay significantly more. This could include people with large homes, swimming pools, multiple refrigerators or lots of power-hungry gadgets.
The goal is to send a “price signal” to such consumers, Nissen said. Customers whose bills go up would have an incentive to cut energy usage, possibly taking advantage of utility conservation programs.
Minnesota Power, which serves northern and central parts of the state, has billed customers under two pricing tiers for decades. In 2011, it went to a five-block program at the urging of consumer advocates.
“Now that it’s in place, it seems to be working fine,” said Marcia Podratz, the utility’s director of rates.
There’s been no customer backlash, she said, but the verdict is still out on whether the rate structure or the utility’s other conservation programs are causing people to cut back their power usage. In 2013, Minnesota Power shaved 2.5 percent off its customers’ power usage, beating the 1.5 percent annual energy conservation mandate under state law.
Since 2010, Xcel has billed its residential electric customers in Colorado under tiered rates to encourage conservation. In a report to regulators about the first three years, the company said the rates cut summer energy consumption by 1.9 percent to 4.3 percent a year.
The other groups advocating for the Minnesota rate change are the Sierra Club, Minnesota Center for Environmental Advocacy, the Natural Resources Defense Council and the Izaak Walton League Midwest Office.