Minnesota ends regulatory oversight of fixed fees for small, rural utilities

The Minnesota Public Utilities Commission will no longer oversee disputes over fixed charges on solar and small wind customers living largely in rural areas.

Gov. Mark Dayton recently signed a jobs and energy omnibus bill that removes regulatory review of cases involving fixed charges administered by cooperative and municipal electric utilities, as well as taking away a requirement that they participate in a state-mandated conservation program.

The issue of fixed charges arose after the PUC two years ago allowed them to be applied to rural distributed energy customers.

A handful of co-ops charged monthly fees that clean energy advocates saw as excessive, as much as $83 a month in one instance.

Customers will now have to plead their case before the co-op’s board of directors and then if agreement is reached they can appeal their cases to a third-party mediator. The co-op will pay 90 percent of the cost of that process, the complainant 10 percent.

Dayton had vetoed bills offering the same approach to co-ops twice earlier in the session. With the session having ended and the threat of a government shutdown looming he signed the bill under duress, writing in his letter to legislators the following: “I noted in my previous veto letter on this topic that perhaps the most egregious policy provisions in this bill focus on energy.”

The legislation also dramatically changes the state’s 23-year-old Renewable Development Fund, closes two biomass plants and lobs an annual fee on electric vehicles.

The rural utilities’ view on fixed charges

Removing regulatory oversight of fixed charges had been a priority of the Minnesota Rural Electric Association.

The association’s director of government affairs and general counsel, Jim Horan, noted only 21 rural distribution co-ops and munis out of 45 in his organization apply fixed charges to distributed energy customers, and he does not expect more will add them despite the new law.

“I don’t see a flood of co-ops adding charges,” Horan said. “It’s just a tool and every co-op will need to figure out what they need to recover their fixed costs.”

The MREA arrived at a formula – with input from many stakeholder organization and national experts – that coo-ps and munis can use for fixed charges, he said.

That work came late in 2015, the same year the legislature gave rural munis and co-ops the ability to charge fixed costs, he said.

It is appropriate for the co-op boards to determine the charges because they know the cost of the serving those customers, Horan said. Many utilities which have applied the fixed charges have few customers per mile of territory and have to recover costs of serving them.

Solar and wind, he says, add a burden to transmission costs that must has to be recovered for co-ops to stay financially sound. “It’s one of a handful of options to equitably and fairly recover costs.”

Rep. Pat Garofalo, the Republican chair of the House energy committee, argues cooperatives and municipal-owned utilities are non-profit organizations and therefore should not be subjected entirely to regulatory oversight.

Slowing solar’s rural growth?

The Institute for Local Self-Reliance’s John Farrell says the policy reinforces “a troubling trend” in reducing regulatory oversight of rural co-ops and reinforces their “anti-solar” tendencies.

He believes the policy will limit adoption of rooftop solar in rural areas and fails to take into account the environmental, health and economic benefits of solar beyond a co-op’s immediate territory.

Most co-op boards are elected by fewer than 10 percent of members who vote in their elections, he said, citing research from the ILSR.

“We should be working on the next phase of the energy system and moving it forward,” he said. “This legislation takes us backward.”

Slipping out of CIP

The omnibus jobs and energy bill also exempts small cooperatives and municipal power companies from compiling with the state’s Conservation Improvement Program.

Those include munis with fewer than 1,000 customers and co-ops with fewer than 5,000 members.

The effort requires utilities to reduce their retail energy use by 1.5 percent annually through incentives and rebates to customers. Horan testified against the bill.

Annie Levenson Falk, executive director of the Citizens Utility Board, said the conservation programs are popular and save customers and utilities money while reducing their environmental impact.

“The bottom line is that, no matter where you live, conservation is the cheapest and cleanest energy option,” she said. “People in small towns should have access to conservation programs, just like people in the cities.”

Garofalo, on the other hand, sees the conservation program as “pretty successful” and points out the legislation only eliminates the mandate for small utilities.

To force small utilities to fill out a great deal of paperwork to show they are complying with the law “just doesn’t make sense,” he said.

Those munis and co-ops can and likely will continue to offer conservation programs if customers demand them, Garofalo said.

Horan wanted the Legislature to discuss expanding CIP to cover more areas than just energy efficiency. Rural electric munis and co-ops believe the program should focus on reducing carbon emissions and end costs for members while improving grid efficiency and reliability, he said.

“We been doing energy efficiency for a long time,” he said. “We’d like a broader discussion on what else should be included other than just saving kilowatt hours…to saving costs for members.”

One thought on “Minnesota ends regulatory oversight of fixed fees for small, rural utilities

  1. A good move in the right direction. True solar costs , i.e. grid cost were previously ignored and subsidized by the other customers of the utility. Until the subsidies stop true costs and benefits remain hidden. Don’t get me wrong, I am for all energy generation platforms … I just do not believe in government financial support.