CenterPoint Energy, a natural gas utility serving over 770,000 customers in Minnesota, filed a rate case on August 3, 2017, with the Minnesota Public Utilities Commission. In it, the company is asking to make its decoupling pilot permanent, but also to increase their residential customer charge from $9.50 to $11.
Decoupling and increased fixed charges both offer greater revenue stability for utilities, but decoupling does so without placing a burden on customers. As the rate case moves forward, Fresh Energy will be advocating for smaller monthly charges and greater focus on rate design that encourages efficiency without sacrificing stable revenues.
Customer charge 101
The customer charge is part of a natural gas customer’s bill that does not vary with consumption. Whether you run your furnace all day long, or stay in Florida for the winter, this portion of your bill will always stay the same. It is usually meant to cover the cost related to metering, infrastructure, customer service, etc. A higher monthly charge offers revenue stability for the utility. But it also reduces the ability for customers to save money by using less energy.
Under traditional rate design, selling more energy means making more money. In some ways, the system rewards inefficient energy use in the form of added revenue. Decoupling, also known as revenue regulation, is a mechanism by which the Public Utilities Commission determines the appropriate amount of sales and revenue based on the best available evidence. Then, if revenues exceed or underperform those projections in that given year, future projections are adjusted to account for that difference.
In 2015, CenterPoint asked the Commission to approve an increase of its customer charge from $9.50 to $11.75. The Commission ruled against it, favoring the company’s decoupling pilot mechanism as a preferred method of recovering costs of providing service. In this case, only two years later, CenterPoint is making the same ask, seeking the same revenue stability through two mechanisms.
Customer charges across the region
An analysis of a 2015 American Gas Association (AGA) report on customer charges for natural gas utilities in the region—used by CenterPoint in its rate case to justify its customer charge increase—shows one way that this petition by the company is unfounded.
In the report, the AGA, of which CenterPoint is a member, divides its member utilities into six regions. CenterPoint Minnesota belongs to the West North Central region, which consists of seven states—Minnesota, Nebraska, Iowa, Kansas, North Dakota, South Dakota, and Missouri.
Recovering fixed cost: According to the report, utilities generally recover about 46 percent of their fixed cost from the customer charge based on responses from utilities representing more than 62 rate jurisdictions—when considering the median value of all responders. However, for the West North it stands at 55 percent, higher than the national average. In other words, utilities in the West North generally charge a higher monthly fee than utilities in other regions.
Revenue regulation: Based on the AGA report, energy consumption represents 41 cents of every dollar of revenue received by the utility, hence utilities have a disincentive to encourage programs that might lead to the reduction in energy use, like energy efficiency and conservation. Decoupling eliminates these disincentives. Hence, utilities can go about certain activities that would benefit their customers and the environment and not have to worry about their revenue.
According to data collected by the Natural Resources Defense Council, only Minnesota has adopted decoupling in the West North Central region, with decoupling pending in Nebraska and Missouri.
Customer charges in Minnesota
As seen in the chart below, Minnesota—the only decoupled state in the West North Central—on an average, has the lowest residential customer charge compared to the other six states according to the AGA report.
Among the five Minnesota utilities mentioned in the report, CenterPoint has the highest residential customer charge at $9.50. Minnesota has a long track record of supporting rate design that encourages conservation and energy savings. Multiple utilities have now implemented decoupling programs and held the line on customer charge increases thanks to strong decisions at the Public Utilities Commission.
The best path forward
This data gives us some insight that increasing CenterPoint Energy’s customer charge is unjustified and duplicative from a revenue stability standpoint when decoupling is in place. Simply put, Fresh Energy will be advocating for the Commission to approve CenterPoint’s request to make its decoupling pilot permanent, and reject the company’s request to increase its residential customer charge.
This work was done by Tam Kemabonta as part of Fresh Energy’s Policy Research Fellowship Program.