Fight is on over Minnesota Power's effort to raise electric rates

Consumer advocates -- including the state's attorney general -- threw down the gauntlet Friday to challenge Minnesota Power's proposal to increase home customers' electricity prices an average of 24 percent -- compared with 3.5 percent for big commercial users. But the utility and business groups defended the shift as a step toward fairness.

Attorney General Lori Swanson called the prospect "rate shock," and the Minnesota Citizens Federation Northeast called the cost distribution "lopsided and unfair," in news conferences and testimony filed with the Minnesota Public Utilities Commission. The PUC will decide the fate of the Duluth-based utility's first application since 1994 to raise its base rates.

"It's not fair, and we believe any rate increase should not be leveled primarily on the backs of residential customers and small businesses," Swanson said in an interview.

But the Minnesota Chamber of Commerce defended the redistribution of costs, saying the big commercial customers -- many of them taconite plants and paper mills on the Iron Range -- have long subsidized residential rates, something that they no longer can afford.

"To make them pay more than their costs is to ignore the realities of a world marketplace, now that these companies are finally a little competitive and they can create jobs," said William Blazar, a senior vice president at the chamber.

Minnesota Power filed its rate request in June, starting a 10-month PUC review process. The utility is asking for an annual rate increase of 9.5 percent overall, or $45 million; an interim increase of 7.5 percent started Aug. 1. An Allete company, Minnesota Power has about 141,000 retail customers and 16 municipal wholesale customers in northern Minnesota.

Executive Vice President David McMillan said the utility's need to meet state-mandated targets for renewable energy and conservation is one factor in the total dollar request. "You can't get there if you continue to price energy at 1970 and 1980 levels," McMillan said.

McMillan said he has no quarrel with the attorney general's numbers -- which also show an average 23 percent increase for small businesses. But he said those represent increases over three years, and that proposed assistance to an estimated 10,000 low-income residential customers would cut their increases to 15 percent.

"If you need it, we'll give you a discount and we won't argue about it," he said.

But Buddy Robinson, staff director at the citizens federation in Duluth, calculated even steeper price increases for home customers: 33 percent for an average household, using about 700 kilowatt hours a month, and 77 percent for those using half that. By his calculations, low-income customers will see a 23 percent hike, not McMillan's estimated 15 percent, he said.

He also said that the Iron Range has a lot of low-income senior citizens, a group particularly reluctant to use assistance even if they qualify.

Eugene Soderberg, a retired house painter, and his wife, Sharon, a retired preschool educator, qualify for assistance. But even a small increase will hit the Duluth couple hard. She's 68, he's 71, and they live on about $1,500 a month in Social Security income.

A central point of disagreement is a long-standing "lifeline discount," a lower rate on the first 350 kilowatt hours a month for every household. Minnesota Power's rate application would eliminate that. Robinson said the discount not only helps low-income customers, but it rewards conservation by encouraging customers to keep usage within that range. "It's also called an 'inverted rate,' as opposed to volume discounts, the more electricity you buy," he said. "It turns that on its head."

The utility's McMillan sees the opposite: Keeping the cost of energy low encourages people to use more of it. "We're saying now is the wrong time to be sending those kind of price signals to customers," he said.

Swanson has an issue with Minnesota Power's rate requests beyond its distribution of pricing. The total $45 million figure is too high, she said, and it's based not on historical data but on the utility's own projected revenue, "which, while that is not illegal, it's highly unusual."

McMillan called it standard practice.