Policy
The Minnesota energy policy-making and regulatory process does not include any specific function that gives business customers the basic information they need, nor does it allow them to meaningfully participate without considerable expense. Our current process requires participants to navigate a complicated statutory framework and a lengthy regulatory process. All too often the current process makes it more difficult for Minnesota’s energy costs to be more competitive. To make it easier for business customers to participate in this process, the Minnesota Chamber suggests the following changes:
More timely and customer-focused information for regulators and policy-makers regarding the impact of significant regulatory and legislative decisions.
- 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.
- Designate a utility ratepayer analyst, financed by ratepayers, within the PUC. The 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 cost impact on customers of proposed changes. This analyst also could do this analysis for legislation (see next recommendation).
- Legislative proposals: Require a statewide economic impact statement – a customers’ “fiscal note” – for all proposed legislation and rule-making that would require utilities and/or customers to make significant investment and/or changes in current practices. At the start of each session of the Legislature, the committees that will review energy-related legislation should agree on the assumptions to be used that session for estimating the rate impact of relevant legislation. If for any reason this analysis cannot be completed, then the legislation should be held over for the next session when, presumably, the research is complete and an estimate of rate impact is available to policy-makers.
- Deemed approved: Enforce the statutory timeline on the process for obtaining approvals for new generation and transmission facilities. Requests should be deemed approved if established deadlines are not met.
Increase the Likelihood that the Regulated System Approximates a Free Market
The PUC serves an important role for customers in the absence of a free market for energy purchases. The PUC also implements legislative directives and therefore must balance the interpretations of various stakeholders. The recommendations below speak to the role of the PUC, and all of its policies that can be implemented without new legislation.
- Change rate case scheduling and procedural requirements to ensure these cases are completed within the 10 months specified in current law. When a rate case exceeds 10 months and final rates are less than interim rates, it not only means that customer resources are unnecessarily held by utilities, but also that refunds are more complicated and costly to administer.
- Require that all rate riders be allocated and structured based on the utility’s most recent general rate case.
- Re-examine the Fuel Clause Adjustment rider to ensure that utilities are managing these costs to get the best deal for the customer.
- Reform the Integrated Resource Plan (IRP) process to do the following:
- Make the IRP “advisory” regarding future utility requests to acquire future resources.
- Require regulators to accept an IRP within six months of receiving a complete document.
- Letters of acceptance may include a “to do” list for the utility, describing and discussing issues the PUC will want to see addressed in future resource-related filings.
The current approval process is costly and takes up to two years. Furthermore, IRPs are seldom used to reduce the time or expense necessary to make specific decisions in a rate case, even when those decisions are based directly on the content of an approved IRP.
- Institute an incentive system for utility capital improvements. 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, a penalty should be assessed.
- End cross-subsidies among customer classes. All classes should be subject to similar price signals relative to their energy usage. Rates for each customer need to reflect the cost of serving that class.
- Customers should be able to request an itemized bill that provides detailed information on utilities’ customer charges – i.e., fuel clause, state and federal mandates, and other operating costs.
- Any credits – i.e. emissions reduction, renewable energy production, conservation – generated by customer action and/or by utility assets that customers finance should benefit the customer directly.
Business Impact
The regulatory process needs to evolve to better meet the demands of 21st century customers, legislators and utilities. Competitiveness of Minnesota’s electricity costs must be a key factor in reforms, and cost-focused analysis of proposed significant policy changes should be required.
The role of the PUC has become more complicated in recent years, given four important developments:
- New nonprice requirements that the PUC must consider – i.e., environmental impact and renewable energy technology.
- Dramatic changes in the fuel adjustment clause – its volatility, its share of the customers’ bill and what it includes.
- Growing significance and complexity of resource planning in a period of investment.
- The growing volume of its work load fueled by new rate rider authority and frequent requests from utilities for general rate increases, especially when compared with the period of 1990-2005.
Electricity is a major and growing expense for Minnesota businesses. Minnesota’s competitive advantage of low-cost, reliable power may be in jeopardy. Some customers already report that Minnesota’s rates are less competitive than other states and countries, and are heading in the wrong direction.
As such, a more effective regulatory process is needed so customers are assured that prices and quality approximate what a market would have done. The PUC is a quasijudicial body that makes decisions based on many factors, some of which have little to do with the cost of serving a customer or what’s best for the development and growth of the state’s economy and more to do with its determination of the “public interest,” subject to parameters established by the Minnesota Legislature. The current situation places much more responsibility on customers to advocate for the solution that best represents what a market would otherwise do. Our policy would encourage a more market-based approach to setting rates and service standards for customer groups. Our policy also is designed to cause regulatory bodies and agencies to improve procedures as well as better allocate resources and staffing to meet the times and challenges of an increasingly competitive business environment.
