Minnesota Commerce Department Challenges Otter Tail Power Rate Hike

by | Aug 24, 2016

The Minnesota Department of Commerce recommended a 70 percent reduction on August 19 to the $19.3 million rate increase proposed by Otter Tail Power for electric service.

Otter Tail Power (OTP) – an investor-owned electric utility that provides service to 61,100 residential, commercial, and industrial customers in Minnesota – filed a request (Docket No. E017/GR-15-1033) on February 16 with the Minnesota Public Utilities Commission (MPUC) for authority to increase retail electric rates in the amount of $19.3 million, or 9.8 percent.

The average monthly impact of the proposed rate increase for residential customers would be $9.53 per month, or $114.36 per year, according to the utility. General service business customers would see a bill increase of about $22 per month, or $264 annually.

Otter Tail noted, “The impact on individual customers will be higher or lower depending on each individual customer’s actual electric consumption.” The company said that the proposed increase reflects its investments in new environmental technologies and grid reliability, paired with overall rising costs.

However, the state’s Department of Commerce claims that the utility’s proposal greatly overstated costs – including an excessive rate of return on equity (capital costs), excessive costs assigned to the utility’s retail customers, and inappropriate accounting assumptions. What’s more, the department alleges, the utility’s proposal understated revenues.

The Commerce Department claims its analysis found Otter Tail Power’s proposed rate increase can be reduced by more than 70 percent, or $14 million – all while allowing the utility to maintain safe, reliable service and obtain a reasonable rate of return on equity.

The issues raised by the Minnesota Department of Commerce are typical discussion points in any rate case,” said Otter Tail Power Vice President Cris Oehler, during an interview with the local Fergus Falls, Minnesota, Daily Journal. “The Commerce Department’s responsibility is to evaluate and question whether our customers should pay for certain costs. We’ll file our rebuttal testimony September 12.”

In the interim, while the proposed rate increase is under review, the Public Utilities Commission granted the utility a temporary rate increase of $16.82 million, or about 9.56 percent, beginning last April 16. If the final rates approved by the commission are lower, the utility will refund customers the difference with interest.

Four public hearings on the utility’s rate proposal are set for this week in Bemidji, Crookston, Fergus Falls, and Morris, Minnesota.

After written testimony, public hearings and evidentiary hearings are completed Administrative Law Judge Eric L. Lipman will present his recommendations to the PUC, which is expected to issue a decision early next year.

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