Regulatory Reform

Issue

How can we make sure that the Minnesota regulatory process puts the customer’s needs first and better simulates what markets would otherwise do?

Policy

The Minnesota energy policy-making and regulatory process does not include any specific function to give business customers the most basic information they need, nor does it allow them to meaningfully participate without considerable expense. Our current process rewards those who can successfully navigate the legislative and regulatory process. To make it easier for business customers to participate in this process, the Minnesota Chamber suggests the following changes:

Make it Easier and Less Expensive for Ratepayers and “Non-insiders” to Participate

Consolidate the energy regulatory functions of the Public Utilities Commission (PUC), Department of Commerce and Office of the Attorney General into a “Ratepayers’ Advocate Office” that answers to the Minnesota Public Utilities Commission. The office should have three parts – commercial, industrial and residential.
Create a utility ratepayer analyst (financed by ratepayers) within the Public Utilities Commission. The ratepayer analyst will be qualified to analyze and/or forecast the ratepayer impact of parties’ filings at the PUC as well as perform independent analysis.

Require the analyst to prepare a rate chart for every PUC filing that estimates the rate impact on customers before and after a proposed change is made. This also could be performed (upon request) for legislation.

Legislative Proposals: Require the PUC to develop an economic impact statement (a customers’ “fiscal note”) for all proposed, legislation and rulemaking regarding resource planning, and require utilities to estimate the impact on customer costs.

The Commission should use objective information received from the ratepayer analyst.
Verifiable quantitative data must be identified and auditable.

Existing Mandates: Report to customers on the economic and environmental benefits Minnesota customers have experienced as a result of their mandated investment in renewable technologies and environmental improvements. The report should include the number of jobs created in Minnesota, as well as their nature (i.e., full-time manufacturing, full-time technical, part-time construction).
Impose a strict timeline on the process for obtaining approvals for new generation and transmission facilities. Requests should be deemed approved as proposed if established deadlines are not met.

Increase the Likelihood that the Regulated System Approximates a Free Market

The Public Utilities Commission (PUC) serves an important role for customers in the absence of a free market for energy purchases. The PUC also implements legislative directives and must therefore balance the demands of customers with the demands of the Legislature. The recommendations below speak to the role of the PUC, and all of the policies can be implemented without new legislation.

Customers support the most cost-effective way to meet utilities’ Renewable Energy Standard (RES). To the extent that their plans represent the least-cost way to meet utilities’ mandates, they should be allowed to own and maintain renewable energy generation. Other parties must demonstrate that their delivered energy costs are lower than utilities’ proposals, without jeopardizing reliability, to be considered in the public interest.
Re-examine the Fuel Clause Adjustment rider to ensure that utilities are managing these costs to get the best deal for the customer.
Institute an incentive system. Utilities that deliver planned resource improvements below cost and on time should be rewarded for their performance, perhaps via an increase in their rate of return. For projects that are late or exceed cost, there should be a penalty.
End cross-subsidies between customer classes. All classes should be subject to similar price signals relative to their energy usage.
Customers should be able to request an itemized bill that provides detailed information on utilities’ customer costs (i.e., fuel clause, state and federal mandates, and other operating costs).
Any credits (i.e., emissions reduction, renewable energy production, conservation credits) generated by utility customers’ actions and/or by utility assets they finance should benefit them directly.
“Decoupling” pilot projects should be limited to correcting utilities’ revenues for adjustments related to weather or as a mechanism to reward utilities that exceed the state’s conservation goals.

Business Impact

The regulatory process was designed to represent/replace elements of the competitive market. Its main function was historically to produce service and price comparable to market forces.

That process has been reshaped, given three important developments:

a. New nonprice requirements that the PUC must consider; i.e., environmental impact and renewable energy technology.
b. Dramatic changes in the fuel adjustment clause – its volatility, its share of the customers’ bill and what it includes.
c. Growing significance and complexity of resource planning in a period of investment.

Electricity is a major and growing expense of Minnesota businesses. As such, we need a regulatory process that is efficient so customers are assured that prices and quality approximate what a market would have done. The PUC is evolving away from being an advocate for the customer into a quasi-judicial body that makes decisions based on many factors, some of which have little to do with what’s best for the customer. This “evolution” places much more responsibility on customers to advocate for the solution that best represents what a market would otherwise do. Understanding that change in our role, we also believe that the procedures, resources and staffing in the agencies should evolve to meet the times so that the system is accessible to customers.

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