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Otter Tail requests rate increase

ST. PAUL - Minnesota regulators will decide whether to grant Otter Tail Power Co. its first electric utility rate increase in more than two decades.

The Fergus Falls-based utility told regulators in a Tuesday hearing that it needs more revenue for the company to remain financially strong as it embarks on a new era of infrastructure upgrades, from wind-generated energy projects to new plant and transmission construction.

Otter Tail Power last year filed with the Minnesota Public Utilities Commission a request to boost its annual revenue by 11 percent, or $14.5 million. Company officials said Tuesday the net effect to their ratepayers would be an average annual rate hike of around 6.7 percent, after Otter Tail's revenue from the sale of electricity it generates but does not use is considered.

"Plainly stated, Otter Tail did not include any fluff in our rate request," Bruce Gerhardson of the utility told commissioners.

An administrative law judge recommended a smaller rate increase, as did state officials. An interim rate increase of about 5.4 percent has been in place since late last year, after the request was filed.

Otter Tail serves an estimated 129,300 customers, including more than 60,700 in western Minnesota. It also serves eastern North Dakota and a small area of South Dakota.

Commissioners took oral testimony Tuesday and are expected to reconvene Thursday to decide the rate case, Commissioner David Boyd said, but he did not know when ratepayers could see an increase.

Essentially, the commission must decide what Otter Tail Power's allowed profit will be and how it can be collected, Boyd said.

Proposed rate increases being considered fall between about 9.6 percent and 11 percent, but the commission could decide on a different rate.

While residential customers would notice only a small difference among the recommended rate increases, even the slightest change can result in significant costs to commercial and industrial customers that buy large amounts of electricity, Boyd said.

"There's a gap there," he said of the proposed rate increases.

Commissioners must set a new rate, but also decide how the utility handles its expenses as well as the sources of its revenue. That will require more than two dozen decisions on detailed utility transactions including how Otter Tail Power handles revenue from energy it generates and sells to other utilities, what level of fuel stocks is reasonable for the company to have and whether it can make ratepayers pay for its economic development projects.

The rate hearing occurred as two state offices await a response to their request that the commission conduct an independent investigation into whether Otter Tail Power properly distributed to its customers profits it made on wholesale energy sales. Boyd said that will be handled separate from the rate case decision, but should be decided soon.

Otter Tail Power's last electric utility rate case was decided in 1987.