The Year in Utility Rate Cases: Mandatory Fee Hikes Retreat as Consumer Voices Pick up Steam

Part of NRDC's Year-End Series Reviewing 2015 Energy Developments

This was a banner year for public push-back on utility proposals across the country that sought to dramatically change how customers are billed for their electricity.

Had the dozens of proposals this year succeeded, many homeowners and businesses would have been shackled with higher upfront fees, before they even turned on the lights. Thankfully, this was also a banner year for prudent, forward-thinking utility commissioners; nearly three-quarters of the orders issued in 2015 either rejected outright higher fixed fees or modified them to be smaller, incremental increases.

But what do these fees mean for consumers and the environment, and why should we build on the success of 2015 and continue to fight in 2016?

Imagine you're an average single family homeowner. Over the past few years, you've tried to "go green" and save money by participating in energy efficiency programs available through your utility. You had new insulation blown into your attic, you caulked your windows and doors, you upgraded to a more efficient refrigerator and washer and dryer.

The savings have started to roll in every month as you see your energy use go down. You're wasting less energy, cutting your bills, and doing your part to help the environment by conserving energy and lowering emissions.

You're happy you made these decisions.

Until one day you get a notice in the mail that your utility is increasing the "customer" or "fixed" portion of your bill. This increase is significant, from a current $10 per month to $20. And you notice the difference right away once the fees go into effect: the savings you previously enjoyed from your efficiency investments are seriously diminished, your bills noticeably higher. It's getting to the point where you're having a hard time even affording them.

You talk to your neighbor, who has a much larger house that consumes far more energy and you learn that she hasn't made any of the improvements you have. Yet, somehow, with the new rates in effect, your neighbor is now paying less than she used to, while you are paying more.

How can this be?!?

Mandatory Fixed Fees: The Impacts

It's really a question of control, costs, and conservation.

Control - When a utility increases its fixed costs, at the same time it typically decreases the variable per/kWh charge that goes up and down as customers change their energy use. This variable charge is the only portion of the bill that customers have the ability to control. Removing this ability disempowers customers, leaving them with fewer options to cut their bills.

Costs - Higher mandatory fees also force higher costs disproportionately onto the people who use the least electricity. The result? Those who consume less energy end up paying more, while the energy hogs get a break on their electric bills.

Conservation - As if this wasn't enough, these proposals are like kryptonite for clean energy. They remove the incentive for people to conserve energy, lengthening payback periods on energy efficient appliances and solar panels alike. Adding to this dynamic, lower per/kWh charges implicitly tell consumers: We'll reward you for using more energy, and penalize you for using less.

The Fixed Fee Trend: Waxing and Waning

One of the main drivers of these proposals is the utility desire to shore up their ability to cover costs in the face of a rapidly changing national energy landscape.

This desire is not surprising. Utilities provide a valuable service of ensuring that people have access to reliable electric services, and as we work to modernize the grid and move away from the polluting fossil sources of the last century, it will be critical that--just like any other business--they can recover their reasonable costs of incorporating cleaner energy into the system.

But what is surprising is just how aggressively the industry has pursued the fixed charge approach in particular. Unfortunately, these kinds of rate restructuring proposals have been commonplace over the last few years. In 2015 alone, requests were pending in at least 24 states.

2015 was notable for another reason, though: the unprecedented degree of public opposition to these proposals. Coordinated campaigns waged by the consumer, local government, environmental and solar communities have truly shifted the conversation. NRDC is proud to stand alongside AARP, National Consumer Law Center, NAACP, Vote Solar and many others in this battle.

Thankfully, just as the unfortunate fixed charge "trend" started to gain attention, regulators began responding to the public outcry by holding the line. The industry also appears to be reconsidering, in some states seeking other options to address the rapidly changing energy landscape.

The advocacy community doesn't always win, but this year--more often than not--we did.

The starting gun for this now-highly visible national effort went off in Wisconsin in the fall of 2014, when the state's three major investor-owned utilities proposed dramatic rate restructuring, including doubling of fixed charges to the tune of $20 per month. That amount remains--to this day--an outlier for residential fixed charges for regulated electric utilities nationwide. And people were certainly paying attention. Hundreds of customers packed hearing rooms from Milwaukee to Madison. Meanwhile, a diverse group of interveners--including homeowners, clean energy advocates, environmental groups, elected officials, local businesses, local and national consumer groups, along with local sports figures and representatives of the "green Tea Party" movement--demanded the utility go back to the drawing board.

This trend of public engagement caught on in 2015, from New York to California, Missouri to Kentucky.

And while the commissioners in the 2014 Wisconsin cases unfortunately declined to answer the call of hundreds of local voices, they were largely alone. In 2015 far more recognized the detrimental impact of fixed fee increases on homeowners in their states. In Minnesota, for example, the commission rejected Xcel's fixed fee proposal because that it would "place too little emphasis on the need to set rates to encourage conservation." In the Ameren Missouri case, the commission left the monthly charge unchanged, making clear that customers "should have as much control over the amount of their bills as possible so that they can reduce their monthly expenses by using less power, either for economic reasons or because of a general desire to conserve energy." The list of prudent commission decisions goes on and on.

The national media also took notice. Consumer Reports prominently covered fixed fee proposals from the perspective of rates and affordability, as did the Wall Street Journal.

The growing visibility of the issue came to a head at this year's annual meeting of the National Association of Regulatory Utility Commissioners (NARUC). Compared with the 2014 meeting (which had only one panel on the issue, relegated to a Sunday subcommittee), in 2015 rate design, fixed charges, and the pressing need for smarter, more inclusive approaches dominated the conversation. A provocative new report was also released at the meeting that put an additional nail in the fixed fee coffin. The sustainable business group, Ceres, released "Pathways to a 21st Century Utility" authored by Peter Kind who had previously recommended in a 2013 Edison Electric Institute (EEI) paper ("Disruptive Challenges") that utilities address revenue erosion with fixed fee hikes. But now, two years later, Mr. Kind has profoundly reversed course and recommends that utilities shift away from this approach and toward innovative rate designs that accommodate the changing electric grid.

As Utility Dive quipped, "as quickly as fixed charges came into vogue, they now appear to be on the way out."

As we near the end of 2015, more signs abound that the fixed fee trend is losing ground. Even the Wisconsin commission, the outlier in this discussion, is taking notice. In a relative shift from their 2014 decisions, just a few weeks ago commissioners scaled back a fixed fee request from Wisconsin Public Service Corporation and ordered a study on their impacts on consumers. Building on a foundation that includes a joint statement between NRDC and EEI last year, the utility trade organization has also expressed interest in working with the environmental and consumer communities and discussing alternative rate designs that can command broad agreement. NRDC and others are exploring decoupling (which as of this year is being implemented in over half the states), minimum bills, and well-designed time of use rates with appropriate customer protections.

What Comes Next? 2016 and Beyond

There can be no doubt: 2015 was a wildly successful year for pushback on these regressive rate proposals.

But our work isn't done.

While the national conversation is shifting away from fixed fees to other rate structures, state-level utility proposals to increase these fees are still coming. We'll continue to fight in 2016 to ensure they don't gain traction and to encourage commissioners to demand more innovative solutions from the utilities they regulate.

As for utilities, we challenge the industry to choose a better path. There are smarter ways to modernize and keep pace with transitions in the energy marketplace. Let's work together to design 21st century electric rates that focus on affordability, efficiency and expanding access to the kinds of clean, renewable energy that people are demanding.

We think 2016 will be another banner year.

About the Authors

Samantha Williams

Staff Attorney, Midwest program

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