Minnesota's electricity-generation system is in transition. Coal-fired generators are being replaced with wind and solar technology backed up by natural gas-powered generation, one of many steps our utilities take to insure 24/7 reliability. These combinations beat coal on both environmental impact and cost. All our state's coal-fired plants should be gone by 2035.
The demise of the natural gas backup plants will follow with most closed or repowered by 2050 — 2040 if Gov. Tim Walz has his way. This transition began decades ago but climate change has made it more urgent and technological improvements have made it more feasible, both in terms of system reliability and cost.
This should be good news: reliable, cleaner electricity at lower cost. We are reducing carbon-dioxide emissions, but on average our business electric rates are getting less competitive. Our industrial rates are the 13th highest in the nation, according to the Minnesota Chamber of Commerce's 2021 Business Benchmarks Report. Greater MSP, the Twin Cities regional economic development organization, reports that only four of the dozen regions that we compete with for business growth have higher rates than us. Eight are lower.
Recent decisions by Great River Energy, the generator that supplies 28 Minnesota distribution co-ops, shows that renewable technologies can bring both environmental and rate benefits. Great River plans to close its large coal-fired generator near Underwood, N.D., and replace it with wind turbines backed up by natural gas. It will also likely need to buy some power from the grid. That will be a mix of fuels, including coal. Bottom line: Carbon-dioxide emissions will decrease and the co-ops that this plant supplied will get an estimated 13% rate cut. Some (all) of that should be passed on to customers, including business.
The co-ops serve only part of our state's businesses. Many, perhaps the majority, get their electricity from investor-owned utilities: Xcel Energy, Minnesota Power and Otter Tail Power. They, too, are converting to renewable technologies, but their commercial/industrial rates are rising. Xcel business customers will pay at least 10% more from April through March 2022. Last summer, the Minnesota Public Utilities Commission (PUC) approved a 4% overall increase in Minnesota Power rates, down from the company's original 10% request. Otter Tail Power filed for 6.77% rate hike in 2020. The PUC granted an interim increase of 3.23%.
How can the transition to renewable technologies deliver a rate reduction for Great River Energy customers while triggering rate increases at the three investor-owned utilities? The explanation might be that Great River's owners and customers are one and the same, local co-op utilities. That is not the case for Xcel, Minnesota Power and Otter Tail. Their owners (shareholders) are separate from their customers. Each utility's management must balance the shareholders' desire for return on their investment with business and residential customers' need for competitive and affordable rates, respectively. The rash of rate hikes as we transition to less costly renewable technologies suggest that investor-owned utilities need a wake-up call.
Xcel Energy's particular circumstances might offer an opportunity to put business rates on the path to being competitive. Last November, the utility filed with the PUC for a rate increase but it offered an alternative: It would delay its rate hike request for a year if the PUC allowed it to adjust rates to make up for declining sales to commercial-industrial and increasing sales to residential customers. Translation: a rate increase for business and cut for residences. Result: The company's bottom line and its shareholders were protected, even though its business customers were facing a pandemic-triggered recession.
The PUC pretty much went along with what Xcel recommended despite opposition from the state Commerce Department and business customers. It did get some shareholder skin in the game by requiring them to absorb losses from uncollectable bills. A nice gesture, but not very meaningful. Business customers ended up with a 10%-plus increase. Residential rates went down by about 4%.
Xcel will be back late this year with its general rate increase proposal. In anticipation, the PUC should instruct the company now to bring a proposal that reduces all rates. There are plenty of strategies that the company could use to meet this challenge. The most obvious might be to roll back its shareholder dividend. It has almost doubled since 2010. Current economic conditions and the pandemic along with the declining competitiveness of Xcel's business rates suggest it is time for the utility's shareholders to make a major investment in customer health. Financing a rate cut fits that bill.
The PUC could give similar instructions to Minnesota Power as it begins preparing a general rate case to be filed late this year. Otter Tail Power is in the middle of a general rate case. The PUC could use that as an occasion to explore and adopt rate reductions.
Our utilities' transition to renewable technologies should bring environmental and rate benefits. The utilities and PUC have not been shy about pursuing and promoting the former. Now business customers need them to be equally assertive about rate cuts.
That way, when the pandemic ends and economic opportunities grow, we will be on the path to both a healthier environment and more competitive electric rates.
Bill Blazar retired in 2018 as senior vice president, Minnesota Chamber of Commerce. The views expressed here are his own.