MDU and AARP reach settlement on North Dakota natural gas rates; PSC to rule later on 6% hike
Montana Dakota Utilities and AARP North Dakota have agreed to a settlement which, if approved, would result in a lower natural gas rate hike than what the utility had originally proposed last year.
The North Dakota Public Service Commission on Monday heard the utility's request to increase natural gas rates by just over 6% or about $3.55 more a month for the average customer. This would allow MDU to recover an additional $9.4 million, annually.
That is down from MDU's original proposal, submitted in November, which would have resulted in an increase of 7.45% for the average customer - or $11.6 million, annually.
In May, AARP North Dakota, which is a group representing people over the age of 50, intervened in the case, seeking to lower the fixed charges as part of the proposed hike which the nonprofit argued did not allow for enough flexibility for its members to lower their costs by adjusting usage. The advocacy group, which has a membership of over 84,000 in the state, argued that the proposed rate would leave its members - more often low users of gas - potentially subsidizing larger users.
MDU has 117,700 residential and commercial natural gas customers in North Dakota - 84% of MDU's natural gas customers in the state are residential, while 16% are commercial and industrial, according to filings.
Company officials on Monday testified that the rate hike was needed to recover costs related to $35 million of investments in its gas systems since the last rate increase in 2021. The cash would also help cover increased expenses related to infrastructure depreciation, property taxes, labor and other inflationary factors.
Some of the projects included a 60-mile natural gas pipeline expansion to the city of Wahpeton in eastern North Dakota, upgrades to facilities used for local gas distribution and replacement for decades-old pipes.
The proposed refund also includes coverage for employee benefits that incentivize good customer service, low operations and maintenance costs, and solid security. Information related to customer service incentives that the utility pays out are evaluated by a third party. Low operations costs and good security ultimately benefit consumers and keep costs lower, said Nicole Kivisto, CEO of MDU Resources Group. Refunds for these incentive payouts were cut in half as part of the settlement.
During public input sessions this summer, there was a complaint about rising utility costs relative to company profits and executive pay. According to the company's annual report , former CEO David Goodin, who retired at the end of last year, had a target compensation of $5.6 million in 2023. Kivisto, in her previous role had a target compensation of $1.89 million in 2023, including base salary, incentives, and stocks.
Kivisto said her pay is approved by the board of directors - she sits on the board, but does not play a role in the decision, she said. According to Kivisto, her compensation is on par with executives of similarly sized utilities based on company market studies. MDU Resources Group, the broader company that runs MDU, operates numerous gas and electric utility companies out of multiple states, not just North Dakota.
The now-proposed rates would allow the company to receive a 9.9% return on equity. The original rates would have allowed for a return of 10.5%.
The settlement removes increases to the basic service charges for most of MDU's North Dakota customers. The charge is a fee that all customers pay regardless of use.
Wahpeton-area customers will see a larger bump in the basic service charge. With the new pipeline, the area is moving from having "interruptible" natural gas service to "firm" natural gas service - meaning it will be available at all times. Those customers are served by Great Plains Natural Gas Co., a subsidiary of MDU Resources Group.
The parent company is seeking to integrate MDU and Great Plains Natural Gas Co. rates. Wahpeton-area customers still have rates that are about $15 cheaper than the average MDU customer. It could take a decade to integrate the two, according to company testimony.
Customers have already been paying for the bump. The PSC approved an interim rate of 6.5% last December, which allows the company to collect about $10 million annually.
Most of the utility's North Dakota customers are set to see a slight refund if the PSC approves the settlement between AARP and MDU because the now-proposed rates are lower than the interim rates.
The PSC could go a different route than what the utility and nonprofit proposed.
One area that commissioners expressed concerns about was a $400,000 charge in the rates related to losses from housing investments that MDU made in northwest North Dakota.
The company made these investments during the oil boom and has since sold many of the houses, said Stephanie Bosch, head of regulatory affairs for MDU Resources. Some investments netted profits, but others were sold at a loss.
She said that without the investments, there would not have been available housing for the employees the company hired to work in the region.
Robert Frank, who was one of the PSC staff members involved in the settlement, testified that staff took issue with the charge, but since similar charges related to housing investments had been allowed in previous rate cases, staff opted to not press the issue due to other aspects of the settlement.
By use or by user?
Natural gas utility companies are coming in for rate increases more frequently than in the past, according to the PSC. These have been requested in response to increased demands for gas, an aging system in need of upgrades, and inflation.
MDU and PSC officials both said Monday that the trend is expected to continue. Though electric and gas utility rates are separate concerns, rising electricity demands are leading to more demands for gas-powered electric generation, a phenomenon that has impacts on gas-specific utilities, said Kivisto - MDU operates both. The company's electric rates have been rising as well, a trend other utilities are also facing.
As the expansion of gas moves forward, questions of how different classes of consumers pay are likely to keep coming up. This was a topic of extensive discussion at the Monday hearing.
AARP North Dakota, in this case, pushed for charges to be based more by use than by simply being an MDU consumer. Bradley Cebulko, an energy consultant working on behalf of AARP, testified that MDU's basic service charge was among the highest in the country.
Putting more emphasis on by use - or volumetric - charges is a practice that the PSC staff expressed some skepticism on.
Frank said that volumetric charges make sense at times, but can add complexity, especially because much of what gets charged affects the whole system.
"There's a fixation on the basic service charge not going up, I think there's a balance that needs to be achieved," Frank said.
Still, Commissioner Sheri Haugen-Hoffart said she recognized some benefits from the approach.
"Those with big houses, multiple fireplaces, whatever, they're going to flip it on, they're going to continue to use the gas," she said. "It's the customers that, I feel, are on some tight budgets (for whom) that could have some impact."
Relying on use-based rates in this case has slowed down bringing Great Plains Natural Gas Co. customers to parity with MDU customers, said Kivisto, who did not rule out basic service rate increases for MDU customers going forward.
If approved, the rates would take effect in December, allowing for the Wahpeton-area pipeline to go into full service before they do. According to Kivisto, doing that is a necessary step for the incorporation of the two MDU Resources subsidiaries.
Kivisto said there had been a delay on the line's construction due to weather and some issues with landowners. She did not elaborate on the latter beyond telling the PSC, "I believe for the most part, the landowner issues have been resolved."
The PSC will rule later.
Reach Joey Harris at 701-250-8252 or .
Energy/Environment Reporter
