Utility Players
Meet the AGO's Residential Utility Division
“Most people don’t know what a ratepayer is,” says Katherine Hinderlie. “And most people don’t know that it is often themselves.”
Hinderlie, the Division Manager for Residential Utilities at the Minnesota Attorney General’s Office, is describing one of the central challenges her team faces.
Ratepayers, in Hinderlie’s work, are customers of the investor-owned utilities in Minnesota – Xcel Energy, CenterPoint Energy, and others. The Residential Utilities Division (RUD) represents residential and small businesses ratepayers in proceedings that affect what they pay for utilities. Minnesota law requires the Attorney General’s Office to do this work on their behalf.
These proceedings usually play out in front of the Public Utilities Commission (PUC), the lead regulator for energy and telephone utilities in Minnesota.
“We try to be a voice in these proceedings for residential and small business ratepayers,” says Hinderlie. It’s an important role, particularly because it’s one few others play.
“The very largest ratepayers – the refineries, the mines – they have their own attorneys,” says Hinderlie. “But for residential ratepayers and small businesses, we are a big part of what they have.”
FAIR USE
Utility finance functions a little differently than in most businesses. Utility companies build and maintain capital assets – everything from an electricity distribution line to a St. Paul apartment building, to a windfarm in Nobles County, or even the servers Xcel uses for billing. As long as those assets are deemed “used and useful,” the utility has a right to a reasonable financial return on those investments.
But the weeds of that seemingly simple equation get very deep, very quickly when a utility proposes a rate increase on its customers. How big should that increased return be, and who exactly should pay for it?
“There are a lot of fairness issues that we discuss in excruciating economic detail that would put most people to sleep instantly,” says Hinderlie.
The “how big” part of the question is a judicial determination, says Hinderlie. “We’re going to argue about whether the utility needs this extra money in order to be able to make a return on their investment.”
The “who pays” question is a policy determination, and like any policy argument, there’s a lot of jockeying for advantage. Ratepayers are divided into “classes” made up of similar customers – residential, industrial, and commercial or small business. At the end of a rate case, the PUC has to decide how the rate increase will be shared between those classes.
“The utilities and the industrial customer advocates try to get more costs shoved onto the residential class,” says Peter Scholtz, Assistant Attorney General in the Residential Utilities Division. “We’re always pulling in the opposite direction – for the share allocated to residential customers to be as small as possible.”
Scholtz and Hinderlie advocate so firmly for residential customers in part because, unlike commercial ratepayers, these customers can’t pass increased utility costs on to anyone else. “Industrial ratepayers and even small businesses can raise their prices a little bit to cover those increases,” says Hinderlie. “Rate shock and ability to pay are real concerns for the Commission.”
POWER IN NUMBERS
The Residential Utilities Division isn’t alone in their advocacy. Other organizations, including the Department of Commerce – which is represented by another arm of the Attorney General’s Office in PUC proceedings – all share overlapping goals in keeping utility policy fair for Minnesotans.
“We also all have limited resources,” says Hinderlie. “So we’re all trying to work together to balance out who is taking what issue, and who is more appropriate to raise an issue.”
Still, cooperation is the name of the game. “We try to stay in close communication with stakeholders in other organizations,” says Hinderlie. “Sometimes there’s benefit to having testimony from three different witnesses from three different organizations who all see a request from a utility as a problem. That can be effective.”
In 2023, Xcel asked for a rate hike of $678 million, in part to pad its profit margin and speed up its recovery of investments in coal-fired power plants. The Residential Utilities Division worked with the Department of Commerce and other advocates to cut that hike by more than 50% and win a reduction in the basic monthly service charge for most residents and small businesses.
“That’s the reason it succeeded – because so many groups were on board,” says Scholtz.
Utilities present a host of reasons why they need a rate increase. Sometimes they’re attempting to balance reductions to overall electricity sales by increasing the per-unit cost of electricity. Sometimes, like other businesses, they’re grappling with inflation. The RUD digs into the numbers, and along with the Department of Commerce and other ratepayer organizations, makes a case for what’s fair for the utilities to pass on to ratepayers.
“Sometimes they want an increase to pay their executives more, and that’s a problem from our perspective,” says Hinderlie. “We try to get the PUC to say the utility can’t cover those costs from ratepayers. Shareholders can pay those costs, but residential and other ratepayers shouldn’t have to.”
THE LONG GAME
Looking forward, one of Hinderlie’s goals is to encourage residential ratepayers to join RUD and its allies as advocates. The PUC values public input and holds public hearings in rate cases, but attendance is typically low.
“The first time I observed the Commission taking up a rate case, I was just trying to follow along and look up acronyms,” says Hinderlie. “It is really complicated, but it is really effective when people show up and say their piece – it’s something the Commission listens to.” Hinderlie notes that people have the option to submit their public comments online if they can’t attend a hearing in person.
Hinderlie also wants to increase her division’s focus on small businesses. “Utilities like to lump the small business in with the big businesses,” says Hinderlie. “But it’s not one size fits all – what a bookstore needs isn’t the same as a small-scale manufacturer.” Hinderlie looks forward to doing more outreach to small businesses and learning how RUD can help.
“Our division has a really big opportunity,” she says. “Not only are there big rate cases coming up this year, but RUD can also play the long game and be strategic in ways others can’t.”
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