PUC rules that co-ops must change way they calculate solar fees

State utility regulators Thursday concluded that Minnesota electricity co-ops' controversial solar energy fees are not calculated in compliance with the law.

A 2015 Minnesota law allowed co-ops to start charging fees so they could cover fixed costs from customers who produce their own power. Solar industry advocates claimed that given the fees' size, the co-ops were trying to recover lost revenue, not just cover fixed costs and that the high charges are a disincentive for residents to install solar.

In June 2016, after receiving complaints from co-op customers, the PUC initiated a fee review, an unusual move.

On a 5-0 vote Thursday, the Public Utilities Commission (PUC) ruled that the co-ops, which serve much of rural Minnesota, should use so-called "cost-of-service" studies instead of using revenue calculations in computing fees. Co-ops said revenue approximates the cost of services for them.

"I think the [PUC] approved an important consumer protection measure," said Allen Gleckner, director of energy markets at Fresh Energy, a renewable energy research and advocacy group in St. Paul. The PUC's decision should lead to lower fees, though the commission didn't go far enough in establishing a new methodology, he said.

But co-op representatives said the methodology mandated by the PUC won't necessarily lead to lower fees. The co-ops tested a solar fee based on "cost of service" rather than revenue, and "there wasn't a significant difference," said Jim Horan, an attorney with the Minnesota Rural Electric Association.

Horan said the co-ops would follow the PUC's ruling, and that refunds would be issued to customers if fees based on the new calculation turn out to be lower than those under the current methodology. Twenty-one of 45 electric distribution co-ops in Minnesota assess the solar fee, and while they all use the same methodology, the charges vary by co-op.

The Minnesota fee dispute is part of a national debate that has risen over residential solar. Essentially, electricity providers worry that lost revenue from residential solar will erode their business model. In Minnesota, the issue is acute with co-ops, since they cover sparsely populated areas with far fewer customers per mile than investor-owned utilities such as Xcel Energy.

The PUC has a limited purview over the state's electricity co-ops, which are owned by their members. Co-ops' rate hikes don't need PUC approval unlike investor-owned utilities. Still, the PUC did have the authority to settle certain disputes between co-ops and customers.

Bills were introduced during last year's legislative session to end that authority and kill the PUC's inquiry into the co-ops' solar fees. The legislation passed the House and Senate, but Gov. Mark Dayton vetoed it.

Dayton later signed omnibus jobs and energy legislation that included language stripping PUC authority over co-op related customer disputes. However, the legislation allowed the PUC to finish its inquiry into the solar fees.