The Utility Push to Increase Customer Charge: What’s Wrong With It and How to Respond to It

NASUCA Midyear Meeting Philadelphia, PA June 7-9, 2015

Kira Loehr, Citizens Utility Board of Wisconsin

Company TY 2014 Customer Charge (per month)

TY 2015 Proposed Customer Charge (per month)

TY 2015 Approved Customer Charge (per month)

WPSC $10.40 $25.00 $19.00

WEPCO $9.125 $16.00 $16.00

MGE $10.44 $19.00* $19.00*

*Includes $14.97/month customer charge & $4.03/month grid connection charge. The grid connection charge did not exist in TY 2014.

Wisconsin Customer Charges in 2014 Rate Cases

2014 2015 Proposed 2016 Proposed 2017*

Total Fixed $10.44/month $21.83/month $48.65/month $68.37/month

Total Avg. Variable

$0.144/kWh $0.127/kWh $0.074/kWh $0.037/kWh

Total Avg. Res. Bill Using 300 kWh/month

$53.64/month $59.93/month $70.85/month $79.47/month

Total Avg. Res. Bill Using 600 kWh/month

$96.84/month $98.03/month $93.05/month $90.57/month

Total Avg. Res. Bill Using 1,000 kWh/month

$154.44/month $148.88/month $122.65/month $105.37/month

MGE’s Original Rate Design Proposal

*The proceeding was for TY 2015 & 2016; however, TY 2017 proposals were previewed in the filing.Source: Data from Ex.-MGE-James-1 in Docket No. 3270-UR-120

MGE’s Original Proposal – Avg. Monthly Bills

2014 2015 2016 2017$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

600 kWh/mo. Avg. usage

300 kWh/mo. Avg. usage

1,000 kWh/mo. Avg. usage

Two general themes1. Match fixed costs and fixed charges2. Fairness

Regarding the relationship between fixed costs and fixed charge :• According to WPSC, “Aligning rates closer to the cost of service would provide

customers with more sensible price signals and more stable utility bills, and the utility with more stable cost recovery.”

• From WEPCO, “The cost of using energy is overstated, which distorts customer decisions. This observation does not ‘declare war’ on particular sources of energy, nor does it pit consuming energy against conserving it. […] Rather, it pits clarity against cloudiness, favoring the fair shake over the loaded dice.”

WEPCO’s take on “fairness”:• “When fixed costs are embedded in volumetric rates, those costs will be under-

recovered from lower-use customers, and it falls to higher-use customers to make up the difference.” While that may fit a social agenda, there is no “compelling justification for charging customers more – or less– than the costs they cause.”

Themes From Fixed Charge Proposals

Counter-Arguments

• Distorts prices signals, leads to cost increases– If you recover “fixed” costs that are avoidable in the long run, you’re

never going to avoid them• Inequitably burdens low use and low income• Frustrates EE investments

– Encourages consumption over conservation• Utility COSS over-states “fixed” costs

– Use of minimum system method over-allocates costs to residential customers

– Demand costs are not fixed• No evidence of a problem in need of fixing• Violates principle of gradualism

On matching fixed costs and fixed charges

• “The Commission agrees with WEPCO that the analysis of an appropriate facilities charge in this case should begin with attempting to better align the charge with the fixed costs of providing service, regardless of the amount of energy used.”

• “WEPCO provides a compelling case that its facilities charge is not sufficient to recover its fixed costs. As a result, the variable energy charge is correspondingly too high. The result is a price signal that tells customers that the economic benefit of conservation is higher than it actually is.”

• “It is not pragmatic nor necessary at this time to further define fixed costs.”

• “The Commission finds that the most equitable result is to better align facilities charges with the fixed costs to serve a customer so that, as best as can be determined in a reasonable regulatory environment, members in a class pay for their fair share of the cost of service.”

Source: Final Decision, WPSC Docket No. 05-UR-107

Public Service Commission of Wisconsin Decisions

On broader effect of increasing fixed charges

• “The primary purpose of rate design is not its effect on the payback of energy efficiency measures or renewable energy.”

• “Other substantial state and federal programs are designed specifically to support the development and implementation of conservation and renewable energy resources. The Commission is not required to use rate design as a hidden subsidy for these resources.”

Source: Final Decision, WPSC Docket No. 05-UR-107

Public Service Commission of Wisconsin Decisions

The Good News

• Numerous jurisdictions have recently rejected fixed charge increase proposals

– Minnesota– Washington– Virginia– Maryland– Kentucky

Fixed Charge Developments in Other JurisdictionsMinnesota

Xcel proposed a $1.25 increase for the residential customer charge: $9.25 for overhead service, and $11.25 for underground (12-15% increases)

• Company COSS estimated fixed monthly cost of serving a residential customer at $15.86

• MN PUC retained the existing residential customer charges

• “The Commission concludes that raising the Residential and Small General Service customer charges, even by the smaller amount the Department [of Commerce] recommends, would give too much weight to the fixed customer cost calculated in Xcel’s class-cost-of-service study and not enough weight to affordability and energy conservation.”

• “The Commission also concludes that a customer-charge increase for these classes would place too little emphasis on the need to set rates to encourage conservation.”

Source: Findings of Fact, Conclusions, and Order, Minnesota PUC Docket No. E-002/GR-13-8868

Fixed Charge Developments in Other JurisdictionsWashington

Pacific Power proposed increasing the residential basic charge from $7.75/month to $14.00/month (an 80% increase)

• Company COSS supported a $28.00/month basic charge without including transmission and generation

• WA UTC rejected an increase in the basic charge • “The Commission is not prepared to move away from the long-

accepted principle that basic charges should reflect only ‘direct customer costs’ such as meter reading and billing. Including distribution costs in the basic charge and increasing it 81 percent, as the Company proposes in this case, does not promote, and may be antithetical to, the realization of conservation goals. “

Source: Final Order Rejecting Tariff Sheets; Resolving Contested Issues; Authorizing and Requiring Compliance Filings, WA UTC Docket UE-140762