Swanson: Curtail interim rate hikes

Minnesota's attorney general on Monday called for sharp limits on interim rate increases by utilities, saying that over the past five years $177 million in temporary electric and gas hikes later had to be refunded to customers.

The proposal by Attorney General Lori Swanson and two legislators revives an unsuccessful 2010 measure to force utilities to prove they deserve a rate hike before getting one. It would affect Xcel Energy, Minnesota Power, CenterPoint Energy and four other utilities.

State law for decades has allowed utilities to obtain interim rate hikes while they present their economic justification to the state Public Utilities Commission, a process that can take months. If the approved rate hike is less than the interim one, customers get refunds with interest.

"Rate hikes should not be automatic, even temporarily," Swanson said.

The bill she proposed with Rep. Debra Hilstrom and Sen. Chris Eaton, both DFLers from Brooklyn Center, would turn the tables, allowing interim rate hikes only if utilities could prove a "compelling necessity" for them. Swanson said 18 other states operate that way.

Swanson said that since 2008, gas and electric utilities in Minnesota have collected about $525 million in temporary rate increases. In the end, about $348 million in permanent increases were approved, resulting in $177 million in refunds.

Swanson's renewed push for the measure comes as Minneapolis-based Xcel, the state's largest electric utility, begins imposing a 9 percent interim rate increase on Tuesday -- about $8 per month for a typical residence. Swanson said the announcement was timed to the opening of the 2013 legislative session next Monday, not the Xcel rate hike.

"The law as it stands today treats customers fairly," said Dave McMillan, executive vice president for Minnesota Power, which serves Duluth and north-central Minnesota. "It is not like we can cook up a rate increase, throw everything in but the kitchen sink and then expect customers to pay for it."

He said investments in pollution controls, new generators and transmission lines are closely scrutinized by regulators. If interim rate increases are barred, utilities could face higher borrowing costs because of investor uncertainty, McMillan said in an interview.

CenterPoint Energy spokeswoman Rebecca Virden said the gas utility also opposed the measure. "We work very hard to keep our rates as low as possible while providing safe and reliable natural gas service," she said in an e-mail.

Otter Tail Power Co. spokeswoman Cris Oehler said that Swanson's numbers show that utilities would have been out $348 million in costs ultimately found to be reasonable. "If these costs had gone unrecovered it obviously would have caused significant financial problems for the utilities," Oehler said in an e-mail.

Xcel, in a statement, said it invests more than $1 billion a year in Minnesota to upgrade generators and power lines. "These long-term investments are important to Minnesota's economy, providing jobs building this infrastructure now and ensuring we are prepared to meet energy needs in the future," Xcel said.

Interim rate increases are so automatic that officials could recall only one -- a 2009 Minnesota Power rate case -- in which the PUC reduced the utility's original interim rate hike. That decision has been appealed by the utility to the Minnesota Supreme Court.

Hilstrom, who is chairwoman of the House Judiciary Committee and lead sponsor of the 2010 bill, said that measure didn't make it out of committee because legislators wanted to study the proposed change. It would make interim rate increases the exception, allowing them for such things as a natural disaster or other emergencies, she said.

Swanson said under current law, Minnesota consumers essentially serve as "a bank for the utility" by paying interim rates and then having some of that money reimbursed after regulators decide how much of an increase is warranted.

"I think that is fundamentally unfair to the consumer," Swanson said in an interview. "What I think we should have is a law that assumes there is no rate increase, interim or otherwise, unless and until the utilities can prove their case."