Minnesota Power agrees to smaller bill increase for customers in settlement

Minnesota Power has agreed to significantly shrink its request for higher electric rates, leading to a smaller increase on customer bills should state regulators approve.

The Duluth-based utility said Friday it had struck a deal for a 4.9% rate increase for residential and small business customers, plus a roughly 4.4% hike for industrial and large commercial customers. Minnesota Power had originally asked for a 12% increase for all customers, worth $89.1 million.

The Minnesota Public Utilities Commission (PUC) still has to weigh in on the smaller $34 million rate increase. The company's settlement was with the Minnesota Department of Commerce, the state Attorney General's office and a coalition of large industrial customers including taconite mines and paper mills.

"This settlement still allows us to move forward on the three important goals that we had when we first filed this rate case, including transitioning to a carbon-free power supply, making those investments that preserve safety and reliability and balancing that with offering competitive rates for customers," said Jennifer Cady, vice president of regulatory and legislative affairs for Minnesota Power.

A smaller rate hike also means refunds for customers. The PUC approved a temporary 8.6% increase that began in January. That increase amounted to an extra $8 a month for the average residential customer compared to 2023 bills. But if the PUC passes these lower rates, customers will receive the difference with interest: roughly $3 per month for typical residential customers, per Minnesota Power.

The agreement would set a crucial profit measure known as return on equity at 9.78%, lower than Minnesota Power's plan for 10.3% but bigger than what Commerce and large power customers initially recommended.

The PUC previously granted a 9.5% rate increase for Minnesota Power in January 2023, also much smaller than the company had wanted.

Minnesota Power has 150,000 residential and commercial customers across northeastern Minnesota. It also serves energy-hungry iron mines, pipelines and the paper industry, all of which make up nearly 70% of the utility's retail sales.

In November, the company said it has the lowest total bills for residential customers in the state, plus electric rates for residential customers below the national average. At the same time, the utility has shifted its power mix from 95% coal in 2005 to nearly 60% renewable energy now as it works to meet a new state law requiring a carbon-free electric grid by 2040.

Cady said there is often a disagreement about which costs should fall on residential customers and Minnesota Power's large industrial customers. She said it was notable the company managed to strike a deal with those big customers and state officials who represent residential customers. This was also the first time Minnesota Power had reached a rate case settlement with every party who intervened.