‘Rate shock’ a proper consideration when setting electric rates, court rules

There’s no doubt the economic meltdown in 2008-09 caused terrible hardships on people, but is that a good enough reason to deny an electric company the rate increase it was seeking in Minnesota?

A divided Minnesota Supreme Court today said it is.

The Court ruled in the case of the 2009 rate hike request by Minnesota Power. The utility had sought a nearly 19 percent hike from the Public Utilities Commission — and asked to raise rates 17 percent while while its larger hike was under review.

The commission, at the urging of the Minnesota attorney general,  slashed the requested interim increase, citing the request’s large size and that it was filed one day after a previous rate increase went to effect.

The commission also acknowledged that people were hurting in the economic downtown.

Minnesota Power sued, saying those factors shouldn’t have been considered by the PUC while “abandoning” the technical methods for determining a rate increase spelled out in Minnesota law.  The rate increase did not cover Minnesota Power’s cost.

But the Supreme Court rejected the argument, with Justice Lori Gildea writing that “when the size and timing of the increase is considered against the backdrop of ‘the current adverse economic conditions,’ the requested increase ‘raises serious concerns about rate shock’ for Minnesota Power’s ratepayers.”

But rate shock is irrelevant, countered Justice G. Barry Anderson, who said in his dissent that state regulators failed “to properly account for Minnesota Power’s constitutional right to a reasonable return on its property.”

He didn’t argue that the economic meltdown hurt the ratepayers. But he said state regulators lacked the expertise to calculate its impact and courts shouldn’t shield state agencies by assuming they have the expertise.

Justice Anderson said the Public Utilities Commission was right to note that “‘households and businesses struggling under the current adverse economic conditions … may face economic deprivations, businesses losses, and even disconnections’ if subjected to an unduly large rate increase,” but he said that’s not a valid basis to grant a rate increase lower than the one the electric company was entitled to.

The company said it needed the rate increase to offset the cost of reducing emissions and also to pay for new transmission lines from North Dakota.

  • John Peschken

    If there are “technical methods for determining a rate increase spelled out in Minnesota law” we should stick with them or change the law.

    We do not do our society a favor by protecting people from the cost of their behavior. Maybe the rate increase would inspire conservation measures.

    On the other hand, this decision should inspire Minnesota Power to look hard at how they can lower their costs.

  • MrE85

    Good for the Supremes for standing with consumers this time. Some (not all) of MNs utilities have made some real questionable decisions lately, such as sticking with coal when natural gas is cleaner and cheap; or pouring more money into aging nuke plants.

  • KTFoley

    Looks like the comments counter is fixed. Thank you, tech team!

  • kevinfromminneapolis

    So would this extend to other things like tax increases, fee increases, etc? MNsure rates? The Court will now review the impact of all government-approved coast increases?

    • http://blogs.mprnews.org/newscut/ Bob Collins

      Yes, it applies to all agencies; that’s the effect of the ruling. It basically says in matters of regulation, an agency has expertise that the courts do not. Since this sets precedent, I presume it means an avenue of appeal has been closed.

      • kevinfromminneapolis

        I misinterpreted the ruling.