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Utilities brace for 2013 energy-policy battles

Charley Shaw//January 4, 2013

Utilities brace for 2013 energy-policy battles

Charley Shaw//January 4, 2013

Incoming House Energy Policy Committee Chair Melissa Hortman, DFL-Brooklyn Park, says the approach to renewable energy known as distributed generation will get careful consideration. (Photo: MN House of Representatives)
Rate-setting rules, distributed generation on the agenda

The outlook for energy policy is quite different as DFLers get set to take control of both the House and Senate in the 2013 legislative session. Business groups that had pursued an aggressive agenda in the last two years of GOP control will likely adopt a more defensive posture. Environmental groups, conversely, will hope to revive stalled-out renewable energy policies this winter in St. Paul.

A week ago, Minnesota’s utilities saw their first public challenge of the new DFL regime when Attorney General Lori Swanson and two DFL legislators announced their intention to put the brakes on a state policy that allows energy providers to increase rates during the months-long period in which the state Public Utilities Commission is deciding on proposed rate increases.

Swanson said that of the $525 million in interim rate increases since 2008, $177 million weren’t approved and had to be refunded to ratepayers.

“Minnesota consumers should not be a bank for utilities. Rate hikes should not be automatic, even temporarily,” Swanson said in a news release.

Swanson’s lined up Rep. Deb Hilstrom and Sen. Chris Eaton, both DFLers from Brooklyn Center, to carry the legislation in the 2013 legislative session. Hilstrom sponsored a similar bill in 2010 that would have allowed interim rate increases only if the PUC finds that an “immediate and compelling necessity exists” for the increase. The provision was eventually dropped from the 2010 bill.

Utilities from around Minnesota have objected to the proposal. Rick Evans, director of regional government affairs for Xcel Energy, said interim rates are preferable to other ways of covering costs before the PUC’s final decision, such as bank loans or retroactive collection.

“It’s really a critical part of our regulatory scheme in Minnesota, from our point of view,” Evans said. “We’ll be weighing in on that.”

Net-metering issue lingers

Most lobbyists and legislators who work on utilities issues believe solar power will be a major factor in 2013. State policies related to renewable energy had already been the subject of growing agitation before DFLers won their legislative majorities in November. Now the approach to renewable energy known as distributed generation will get careful consideration, said incoming House Energy Policy Committee Chair Melissa Hortman, DFL-Brooklyn Park.

“One of the hot topics in energy is distributed generation and how the utilities deal with distributed generation,” Hortman said.

Simply put, distributed generation involved home owners and small businesses creating their own energy, often by installing solar panels. Minnesota has a law that seeks to incentivize this sort of energy production by requiring utilities to buy any excess power from a home at a favorable rate. The practice, which was pioneered by Minnesota lawmakers in 1983 and is called net metering, requires utilities to buy excess renewable power generation at the retail rate, up to 40 kilowatt-hours. Renewable energy advocates say the 40 kwh cap is too low and dampens the potential for increased renewable power generation.
“We have a dated law on the books providing for 40 kilowatt-hour cap on net metering,” Hortman said. “We’ll be looking at what is the appropriate size for that and what other directions the utilities want to go.”

Net metering is the subject of controversy. Utilities, especially rural electrical co-operatives, complain that the law is structured in a way that is unfair to the rest of electrical customers and is becoming financially unsustainable. Because utilities are required to buy a home’s unused power at the retail rate, said Joel Johnson, director of government affairs for the Minnesota Rural Electric Association, customers who do net metering essentially aren’t paying for things like capital costs and maintenance of the electrical system. That means that other electrical customers wind up subsidizing the people with solar panels on their roofs.

“From our perspective, we would like to see the retail payments eliminated,” Johnson said. “That’s not sustainable. I think most people would understand that if you’re asking businesses to sell a product at the same price you buy it, it just doesn’t work.”

Hortman, however, said the expansion of distributed generation could produce a financial benefit if it were to reach a sizeable amount of output.

“It’s an emerging question that we have to solve,” Hortman said. “The utility will say it’s not really fair that we pay you more for that energy we’re buying from you than you are paying. In a way, their argument is other rate payers are subsidizing those solar panels on top of your house. However, in some states and countries, there are enough people with solar panels on their house that the utility doesn’t have to build additional mass generation like another coal plant or another nuclear plant. In that way, your neighbor is benefiting.”

Utility rate-setting push

Although DFLers are in control of the Legislature and the governor’s office, business groups still plan to push for some energy-related priorities. The Minnesota Chamber of Commerce came away from the 2012 session disappointed by the failure of a bill concerning how utility rates are set. The statewide business group plans to push in 2013 for the so-called cost-based energy rate policy. Ben Gerber, the chamber’s manager of energy and labor policy, noted that it’s often less capital-intensive to supply power to a business plant than it is to supply power to a neighborhood. The group would like lawmakers to require the PUC to set rates based on the cost of serving the customer.

“Generally, we think this is a way to push forward economic development without subsidies,” Gerber said. “Instead of saying we’re going to help lower your rates and other people are going to pay for it, this says everyone should be responsible for the cost of service.”

The issue in part traces its genesis back to 2008, when the PUC turned down northern Minnesota utility Minnesota Power’s request to increase its rates for residences more than businesses. Paper mills and mining plants in northern Minnesota have since argued that the PUC’s decision made the electrical rate more than the cost of providing the service.

Hortman said her committee will look at the issue. But she said she wants to be cautious about getting entangled with the PUC’s rate-setting role.

“You can argue that you’re less responsible for the total cost than the residential system,” Hortman said. “But it’s kind of like saying a business uses roads less. Well, except for that’s how their customers get there. We’ll definitely hear the issue and look at the merits of it. But we will not be micro-managing rate cases for the Public Utilities Commission.”

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