Minnesota’s Princeton Public Utilities Launches Rate Study

by Paul Ciampoli
APPA News Director
January 31, 2022

Minnesota public power utility Princeton Public Utilities (PPU) has launched an electric rate study that is scheduled to be completed later this year.

In a Q&A with Public Power Current, Keith Butcher, General Manager of PPU, noted that PPU last conducted a rate study in 2015. 

“In 2019, PPU implemented a 4% rate reduction in large part due to a reduction in wholesale costs from our supplier, Southern Minnesota Municipal Power Agency (SMMPA),” he noted in an email.

“Like other electric utilities, recent changes at both the wholesale and retail level are challenging the original assumptions from that previous rate study.”

He said that important factors that are changing since 2015 is a growth in customer-owned renewables, increased penetration of electric vehicles and overall changes in the local economy. 

In addition, Butcher noted that PPU completed a conversion to AMI metering in the fall of 2021. “The increased data analytics that we can now perform knowing individual customer load shapes will help PPU more accurately track and predict future power delivery costs as well as our own revenue collections,” he said.

In 2021, PPU developed a 10-year capital improvement plan estimated at a cost of $11.7 million. The 10-year plan will be conducted in three phases. Goals of the plan include developing a new SCADA system for added system control and monitoring and completing the upgrade of the distribution network to a 12.47 kV system, among other things.

Financially, PPU has several electric bonds expiring in the next few years and has determined that the next few years will be a good time to invest in the system for the next generation, Butcher noted. 

“Developing a better understanding of our changing bond requirements will help ensure fiscal sustainability during the transition from our old financing requirements to our new financing needs,” he said.

PPU is also anticipating load growth due to planned construction activities within its service territory as well as through some service territory acquisitions as city limits expand.

PPU has contracted with DGR Engineering to do a comprehensive rate study analysis that will determine fiscal requirements for the next 10 years, including integration of the impact of planned capital improvements projects and associated financing.

The analysis will also propose appropriate fiscal policy guidelines to serve as targets for rate-setting in the study and to provide future benchmarking metrics on an ongoing basis and develop an estimate of future power supply costs.

In addition, the analysis will project system operating expenses and cash requirements, including capital expenditures, financing obligations, and transfers, determine whether the present level of revenue is adequate or if adjustments are needed.  Based on various scenarios, the analysis will develop a multi-year rate adjustment estimate and perform an analysis of customer class definitions, to determine if the current classes are appropriate.

It will also:

• Review the current rate structures, to determine if they align with the current utility cost structures and current industry practices;
• Perform a cost-of-service study, to allocate costs to the appropriate classes, and to the customers within the class;
• Assure fairness and equitability to all customers served;
• Develop proposed retail rates for implementation by PPU based on cost-of-service results;
• Evaluate the impact of the proposed rates on all customer classes; and
• Coordinate with PPU’s financial advisors to support issuance of debt required to fund capital projects.

The agreement with DGR Engineering was signed in December 2021 and work has begun, Butcher said. Results will be available by September for inclusion in PPU’s 2023 budget discussions.

PPU will use the findings to determine what, if any, rate modifications should be made. 

“In the interest of transparency, the rationale and impact of any rate modifications will be shared with our customers,” Butcher said. “PPU wants to ensure everyone that we are being deliberative and clear in our work and that PPU is committed to implementing industry best practices in order to preserve and protect the system for current and future ratepayers.”

Having an outside, third-party expert “evaluate our rate structures lends credibility and objectivity to rate determination and will provide assurances to the community at-large that rates are fair and equitable,” he noted.