What is the Decoupling Adjustment line item on my bill?

Revenue decoupling allows Minnesota Energy Resources to adjust its distribution charges up or down for residential and small commercial customers once a year to make up for any shortfall in distribution charge revenue or to return any excess in distribution charge revenue. These adjustments will be shown as separate charges and credits on your bill.

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What is Revenue Decoupling and why is it being implemented now?

Revenue decoupling separates the link between the amount of revenue Minnesota Energy Resources collects from its customers and changes in the amount of natural gas they use. Revenue decoupling allows Minnesota Energy Resources to automatically adjust its rates for residential and small commercial and industrial customers once each year. These rate adjustments allow Minnesota Energy Resources to adjust its rates up or down each year to make up for any short fall in distribution charge revenue or to return any excess in distribution charge revenue. The purpose of revenue decoupling is to reduce Minnesota Energy Resources disincentive to promote energy conservation and energy efficiency. This rate adjustment appears on customer bills monthly beginning April 1, 2014, and will be adjusted each April 1st until the Minnesota Public Utilities Commission makes a determination on the permanence of the Revenue Decoupling Program.

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How is the Revenue Decoupling Adjustment calculated?

The revenue decoupling adjustment is based on a comparison of actual usage per customer compared to the usage per customer that was approved by the Minnesota Public Utilities' Commission.

The calculation of the per therm RD rate adjustment is based on a formula that uses numbers from our most recent rate case and our customers actual consumption of natural gas in the current year.

The average residential customer used 886 therms of natural gas per year.

Scenarios

• No change in the number of residential customers, sales decrease by three percent
  If there are no changes in the number of residential customers and Minnesota Energy Resources sells three percent less natural gas than was forecasted in the most recent rate case, the per therm revenue decoupling adjustment will be $0.00550 per therm. The average residential customer who uses 886 therms of natural gas per year will be charged approximately $4.87 over the course of the year for revenue decoupling.
• No change in the number of residential customers, sales increase by five percent
  If there are no changes in the number of residential customers and Minnesota Energy Resources sells five percent more natural gas than was forecasted in the most recent rate case, the per therm revenue decoupling adjustment will be -$0.00910 per therm. The average residential customer who uses 886 therms of natural gas per year will be credited approximately -$8.06 over the course of the year for revenue decoupling.
• The number of residential customers increases by one percent with no change in total sales
  If the number of residential customers increases by one percent and Minnesota Energy Resources sells the same amount of natural gas that was forecasted in the most recent rate case, the per therm revenue decoupling adjustment will be $0.00180 per therm. The average residential customer who uses 886 therms of natural gas per year will be charged approximately $1.59 over the course of the year for revenue decoupling.
• The number of residential customers increases by one-and-half percent, sales decrease by five percent
  If the number of residential customers increases by one-and-a-half percent and Minnesota Energy Resources sells five percent less natural gas than was forecasted in the most recent rate case, the per therm revenue decoupling adjustment will be $0.01170 per therm. The average residential customer who uses 886 therms of natural gas per year will be charged approximately $10.37 over the course of the year for revenue decoupling.

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Why does the Revenue Decoupling amount change every 12 months?

The revenue decoupling adjustment can change up or down depending upon how much natural gas customers actually use compared to how much natural gas they were expected to use when Minnesota Energy Resources' rates were approved in its last rate case. Natural gas usage may vary due to actual weather being different from forecasted weather, economic conditions, and the customers' conservation efforts over the prior 12 months.

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Why is Minnesota Energy Resources implementing a Revenue Decoupling Adjustment?

The purpose of revenue decoupling is to reduce Minnesota Energy Resources incentive to sell more natural gas to recover its costs and to reduce its disincentive to promote energy conservation and energy efficiency.

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What has changed and why change things now?

The answer to this is two-fold. First, weather is unpredictable with customers using more or less gas than expected, and second, customers are conserving energy through mandated energy-efficiency programs such as higher energy efficiency standards for furnaces and water heaters and stricter building codes, and their own conservation efforts.

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What is driving energy efficiency?

For one, encouraging energy efficiency is the right thing for Minnesota Energy Resources to do. It minimizes the need for energy, therefore reducing costs for our customers and their carbon footprint. It also minimizes the need for new gas delivery systems. The Federal government is also driving energy efficiency by developing higher energy efficiency standards and by providing incentives designed to stimulate the economy. The state of Minnesota has also encouraged energy efficiency through legislation by increasing the energy efficiency goals Minnesota Energy Resources is expected to achieve.

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Who benefits from decoupling?

The short answer is everyone. Decoupling aligns the interests of utilities with customers and environmental leaders to encourage conservation so that we can focus on ensuring a safe, efficient and reliable delivery system rather than selling more energy. Under decoupling, instead of utilities passing on the costs of updating the delivery system to meet increased energy demand, consumers avoid the costs of a larger distribution system and benefit instead from decreased energy consumption. Also, when weather varies from what is expected, customers' bills will include the appropriate adjustment.

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If a customer uses less gas he will pay more under decoupling. Is this true?

No. If an individual customer reduces the amount of gas they use, even under decoupling, their bill will go down. They will save on the actual cost of gas they use, they will save on the variable piece of their delivery charge and they will save on taxes.

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How does decoupling encourage Minnesota Energy Resources to help me conserve?

Without decoupling, if you use more gas, Minnesota Energy Resources would earn more distribution charge revenue. If you used less gas, Minnesota Energy Resources would earn less distribution charge revenue. With decoupling, Minnesota Energy Resources will no longer have a financial incentive for you to use more gas or a disincentive for you to use less gas.

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Is it true that Minnesota Energy Resources gets to keep the money from new customers that are added to the system?

It is true that Minnesota Energy Resources will keep the additional revenues from a new customer. Keep in mind; it costs money to add a new customer. The cost of installing a connection from the building to our main, the cost of a meter, sometimes the cost of extending new main, as well as the cost to serve the customer. Even with the added revenue, on average, it does not cover all our costs in the first few years of a new customer.

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If there is so much natural gas, why do we need to conserve?

Nearly 25% of the energy used in the U.S. comes from natural gas, so it's a good idea to conserve both for the future, and to save money today. It is also good for the environment and reduces your carbon footprint. Although natural gas is the cleanest burning fossil fuel, it still releases carbon into the atmosphere when burned.

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Why is Minnesota Energy Resources getting involved in social issues?

Minnesota Energy Resources is required under Minnesota law to offer conservation improvement programs with a goal of achieving at least a one percent per year savings in overall natural gas use. Minnesota Energy Resources requested (and received authorization) for this Revenue Decoupling mechanism in its most recent rate case to stabilize the Company's revenue while it focuses on providing safe, efficient and reliable service and meeting state energy conservation goals. The mechanics of this pricing program is compliant with the state policy on conservation and environmental goals.

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