St. Paul—Soaring energy costs and volatile rates have prompted some lawmakers to rethink the way Minnesota allows energy companies to price their product.
A bill sponsored by Sen. Michelle Benson (R-Ham Lake) seeks to tie energy rates more closely to the cost of service and scrap a controversial five-tiered natural gas pricing system that has some customers outraged.
Speaking at a hearing before the Senate Committee on Energy, Utilities, and Telecommunications on Tuesday, leaders from the state’s business community said the current system gives the state too much discretion in how customers are charged for energy usage.
Vague statutory language, which says costs must be “just and reasonable,” allows the state to shift costs on to high-energy users, which drives up operating costs on large businesses.
“We have no remedy,” said Andrew Moratzka, an energy attorney representing several businesses.
Under current law, the Public Utilities Commission (PUC) is allowed to consider numerous factors in addition to energy costs to determine customer rates, such as ability to pay, public need and investment returns.
The proposed legislation would make cost the primary factor in determining what customers are charged.
“It makes sense to charge customers on the cost they incur to the system,” said Bride Seifert, an energy policy specialist with the Minnesota Chamber of Commerce.
The pricing system, which has had the effect of large companies subsidizing residential property owners and small businesses, has prompted several lawsuits in recent years, many of which failed because of the broad language in the statute.
State business leaders urged lawmakers to support a revision to existing law that would increase equity in rates, saying that the current statute increases operational costs on businesses and allows little recourse for businesses that feel unjustly treated.
The bill would also ditch a natural gas pilot program that uses an “inverted block rate” system to charge higher rates to customers who use more energy.
The five-tier program, passed at the urging of environmental groups as part of a three-year pilot program, charges customers at discount rates for the first 30 “therms” of energy consumed and at cost in the second tier. The remaining three tiers are charged at increasingly higher rates per therm.
The policy has sparked headlines recently as outraged customers wrote to the PUC, complaining about their staggering energy bills. Benson said the policy should be stripped from the rest of the pilot program, arguing it places an undue burden on families.
“This is really pinching ordinary middle class families,” said Benson, noting the program does not consider size of household or income status in its formula.
The Benson bill passed on a party-line vote, with DFL lawmakers dissenting.