This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.Guest Blog | January 25, 2018
In what feels like the repeating plot line from the movie Groundhog Day, North Carolina’s biggest utility is headed back to regulators at the North Carolina Utility Commission asking to hike up customers’ energy bills yet again.
Last year it was Duke Energy Progress asking to raise rates, and this year, Duke Energy Carolinas wants to raise customer rates – this time by 17 percent! Less well known is this: as part of the overall rate increase, Duke Energy Carolinas is also seeking an increase in the mandatory fee residential customers will see on their bills – up to $17.79 per month. As recently as 2010, the mandatory fee was only $7.87 per month. If Duke Energy’s request is granted, the monthly charge will have more than doubled in just 7 years and you’ll owe nearly $18 each month before you even flip the switch!
In November, Duke Energy Progress agreed to reduce its mandatory fee request from $19.50 to $14.00 in a settlement agreement with some parties. SACE, and a number of other parties, opposed that provision of the the Duke Energy Progress settlement for a number of reasons. While we all await a decision by the North Carolina Utilities Commission, many of the same issues we saw in the Duke Energy Progress case will be revisited once again in this new Duke Energy Carolinas case.
North Carolina’s consumer advocate has come out strongly against the 17 percent rate hike, and is actually recommending an 8 percent rate decrease! Hundreds of Duke Energy Carolinas customers have attended the public hearings held this month or signed petitions against allowing Duke Energy to increase electric bills to cover its “coal ash mess.”
Duke Energy actually believes that its monthly charge should be higher than $17.79, recommending a “target” of $23.78. Duke is requesting a “smaller increase” to a monthly charge of $17.79 as a way of “slowly” migrating towards the target amount. Duke Energy hasn’t said when it would like to start tacking on the additional $5.99.
If the North Carolina Utilities Commission accepts Duke Energy’s proposal, what can you do to avoid this “Basic Customer Charge”?
It doesn’t matter how much electricity you save or how much solar power you generate, you would still have to pay this mandatory fee to Duke Energy every single month. Is this a fair fee?
Duke Energy’s monthly charge increase is being contested by at least three experts who have filed testimony in the rate case, including testimony filed by our attorneys at the Southern Environmental Law Center and sponsored by the North Carolina Justice Center, North Carolina Housing Coalition, Natural Resources Defense Council, and the Southern Alliance for Clean Energy. Nationwide, the trend in utility proposals to increase the fixed charge rate is leading to many rejections (see in-depth chart on fixed charge rate trends at end of blog), one notable example was the withdrawal of the Gulf Power fixed charge proposal that SACE contested in 2017.
A High Mandatory Fee Harms Low Income Customers
The National Association of State Utility Consumer Advocates opposed this kind of rate structure in a formal 2015 resolution because they “disproportionately and inequitably increased the rates of low usage customers, a group that often includes low-income, elderly and minority customers.” The resolution explains that elderly people, lower-income households, and non-white people tend to use less electricity, and goes on to say:
Increasing the fixed, customer charge through the imposition of … high customer charge structures creates disproportionate impacts on low-volume consumers within a rate class, such that the lowest users of gas and electric service shoulder the highest percentage of rate increases, and the highest users of utility service experience lower-than-average rate increases, and even rate decreases…. Given these documented usage patterns, the imposition of high customer charge … rates unjustly shifts costs and disproportionately harms low-income, elderly, and minority ratepayers, in addition to low-users of gas and electric utility service in general.
A High Mandatory Fee Discourages Energy Efficiency and Renewable Energy
As Duke Energy shifts its billing from a metered rate (per kWh) toward higher mandatory fees, customers have less of a financial incentive to save energy. If Duke collects $17.79 per month regardless of energy use, a typical household cutting energy use by 20 percent (with efficiency or by producing its own power from rooftop solar) would see only about 15 percent savings in its bills. In other words, Duke Energy wants to take greater control over its customers bills, and give customers less freedom to manage their spending on electricity.
The reduced incentive to save energy can translate into a significant increase in customer demand: over time, about 1.7 percent. For comparison, currently Duke Energy Carolinas is spending millions of dollars to help customers reduce energy bills, and achieving an annual reduction of 0.97 percent in energy demand. In the residential sector, however, the savings rate is only about 0.4%. The new rates would thus wipe out about four years worth of residential energy efficiency program accomplishments.
Duke Energy Carolinas profits on both ends of the equation since it earns money on both its energy efficiency programs and on its power plants. Customers who save energy thanks to the energy efficiency programs help Duke Energy earn profits and Duke Energy also profits from selling more power thanks to its new rate structure… and might profit even more if the new demand results in building more power plants.
Duke’s Mandatory Fee Target is Justified with Faulty Reasoning
Duke Energy’s mandatory fee target of $23.78 per month is justified by a faulty “minimum system” method. The analysis places usage-related system costs equally on those who use relatively little power and those who use a lot of it.
The “minimum system” charge is in contrast to a “minimum connection” charge, which is simply based on the wire to your home, a meter, as well as services like meter-reading, billing, and responding to customer inquiries. As our expert explains, these are the actual costs to connect a customer to the utility system. According to data supplied to our expert by Duke Energy Carolinas, the current average cost to connect a customer to the utility system is $11.08 per month. The current mandatory fee of $11.80 represents a 6.5% overcharge for this service.
Duke Energy’s charge is too high because it takes a kitchen sink approach to totaling up its minimum system cost estimate. NCSEA’s witness Justin Barnes explains, “the flawed premise underlying the Minimum System Method effectively assumes that any distribution cost not proven to fall into another category must be customer-related.” Basically, Duke throws a lot of stuff in the “minimum system” sink, and then cleans up when you pay your bill!
An example I like to use is if a single-family home with a mother-in-law apartment is converted into a duplex. The only thing that is changed is that a new meter is installed and a new bill is being issued. Occupancy, appliances, and square footage remain unchanged. Under the minimum system method, Duke Energy is entitled to collect additional charges for the poles, conduits, wires, and transformers – even though those costs do not increase. Duke Energy should charge for those services using its existing metered rate (per kWh), not a mandatory fee.
Furthermore, the Duke Energy Carolina’s minimum system method study is rife with errors. As Barnes describes, one reason that Duke’s hypothetical “minimum” system evaluated in the study is actually larger than the existing system is that the “minimum” system includes 858,040 transformers, but the actual system includes only 692,233 transformers. These are small, in-the-weeds errors that most customers can’t be aware of. What this means is that regardless of whether you live in a two-bedroom apartment or a large McMansion, you will pay the same $17.79 monthly charge.
So next time you look at your utility bill and see the amount to pay, remember that it is designed to affect your behavior, and maximize profits for the power company.
Several public hearings on the proposed change are scheduled throughout the state in January with a final hearing in Raleigh on
February 19 (changed to) February 27 to hear expert testimony. Will Duke Energy be allowed to gradually erode the incentive to save energy and reduce power plant pollution, or will it move gradually towards a system that discourages waste and gives you more control over your bill?