UTILITIES

Battles over fixed charges proliferate across Midwest in wake of Wis. cases

MILWAUKEE -- Beer, cheese and Harleys. These are a few of the things for which Wisconsin is best-known among visitors.

For dozens of Midwest utility regulators who gathered here last week, the state is also increasingly recognized as ground zero for a fractious debate over rooftop solar and fixed charges on utility bills.

In the span of a few weeks last fall, the three-member Wisconsin Public Service Commission approved significant fixed charge increases for three investor-owned utilities and hinted that additional increases are justified (EnergyWire, Nov. 17, 2014).

The orders came over protests from consumer advocates, environmental groups and the solar industry, all of which argue that the fixed charge increases represented an unnecessary and disproportionate response to minimal penetration of customer-owned solar generation being installed in their service territories.

They also argued that if the Wisconsin commission granted the increases, other utilities within the state and region would likewise go in search of higher fixed charges in future rate cases.

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Indeed, within a matter of months, at least seven other investor-owned utilities across the Midwest have sought significant fixed charge increases. And some of the regulators, utility officials and other parties involved in those cases attended a panel session on the topic last week at the Mid-American Regulatory Conference.

Among the utilities seeking fixed charge increases is Wisconsin Public Service, which serves 400,000 customers in the northeast part of the state. It is asking to raise the residential "customer" charge by almost a third to $25 a month. It was just in November that the PSC approved the utility's request to boost the fixed charge to $19 from $11.

Other utilities seeking fixed charge increases include DTE Electric Co. in Michigan, Xcel Energy Inc. in Wisconsin, Kansas City Power & Light in Missouri and Kansas, Indianapolis Power & Light in Indiana, Empire District Electric Co. in Missouri and Westar Energy Inc. in Kansas.

In general, utilities say they want to better align fixed charges, sometimes known as customer charges, with their fixed costs -- such as poles, wires and power plants and vehicle fleets -- which are the same regardless of how much energy they sell.

Currently, a portion of fixed costs is recovered through variable rates. But demand has flattened out in recent years thanks to increased energy efficiency. At the same time, utilities say fixed costs are rising.

For instance, at Ameren Illinois, studies show 70 percent of the cost of providing service to residential customers is fixed, said Jim Blessing, senior director of power supply and infrastructure development for the utility, during a panel session on the topic at the Mid-American conference.

But through a residential customer charge of $15 a month, the utility recovers just more than a third of those fixed costs. The rest are recovered through variable rates.

Cost shifts 'come to the forefront'

Turbocharging the problem for some utilities is a growing interest in rooftop solar, which threatens to further erode kilowatt-hour sales and damage the ability to recover fixed costs.

Blessing said any revenue shortfall related to customer-owned solar energy systems is a short-term problem for the utility, which can seek to adjust revenues at the next rate case. The bigger issue, he said, is that solar penetration shifts those fixed costs from customers who can afford solar systems to those who can't.

"We think that's really an issue that needs to come to the forefront," he said.

It already is in many states.

"It is the topic du jour for a lot of us in the regulatory community," said Nancy Lange of the Minnesota Public Utilities Commission.

The Minnesota PUC earlier this year denied a request by Xcel, the state's largest utility, for an increase in fixed charges. For residential customers, the change would have meant a bump to $10.25 a month from $9.

In doing so, the commission noted that the utility's customer charge had increased four times in the past five years. Commissioners also cited concern about the effect on the poor and the effect on energy efficiency efforts.

Those are the same core arguments raised by the Citizens Utility Board of Wisconsin, an advocate for residential and small business customers.

Kira Loehr, the group's executive director, said raising fixed charges is a shortsighted answer to the challenges faced by utilities in an evolving industry.

"It just runs the risks of increasing costs in the long run to make the system more unsustainable," she said.

In Wisconsin, the debate over fixed charges has focused squarely on rooftop solar. In the case of We Energies, the state's largest utility, the commission also approved a monthly demand charge for solar customers and reduced credits for net metering.

Fewer than 500 of We Energies' 1.1 million customers in southeast Wisconsin generate a portion of their own energy. Another utility, Wisconsin Public Service Co., had fewer than 400 net metered customers.

Similarly, only 350 of Ameren Illinois' 1.2 million customers have net metering tariffs, Blessing said. And the utility hasn't forecast when distributed generation penetration will reach 1 percent of customers.

There's similarly low penetration of distributed solar across the Midwest -- hard data that demonstrate there's no immediate threat to utility revenues, said Robert Kelter, a senior attorney for the Chicago-based Environmental Law & Policy Center.

"This is nothing more than the utilities using solar and distributed energy as an excuse to lock in their revenue," said Kelter, who is representing ELPC in taking higher fixed costs in rate cases in Wisconsin and Michigan. "It's also going to kill solar before it gets off the ground in a meaningful way."

Taking a 'holistic' view

Environmental and consumer groups including ELPC and Wisconsin CUB unsuccessfully pushed for a generic docket in Wisconsin, where regulators, utilities and other parties could take a closer look at the issue of distributed generation and fixed cost recovery.

In approving fixed charge increases, then-Wisconsin PSC Chairman Phil Montgomery suggested that even larger fixed charge increases were justified, and that only the principle of "gradualism" prevented the PSC from giving utilities all they wanted.

Loehr of Wisconsin CUB continues to maintain that a "holistic" view of the issue -- analysis that can only be done outside the confines of a rate case -- is needed for a couple of reasons.

First, regulators can look at a broader menu of solutions to address any problem with unity fixed cost recovery, if one exists. Those might include demand charges, minimum bills or even time of use rates. The analysis must also look at not just the costs of distributed generation but also the benefits to the grid that can be provided by rooftop solar and other distributed energy resources, she said.

Just such a process has been underway in Minnesota, where a wide range of parties, including utilities Xcel and Minnesota Power, are studying utility-of-the-future issues as part of the e21 Initiative.

Started more than a year ago, e21 is being led by the St. Paul, Minn.-based Great Plains Institute. Earlier this year, participants released a first set of recommendations that aim to provide new options and services to customers while keeping utilities financially healthy.

Parties involved with e21 continue to meet to develop a second phase of recommendations.

In the meantime, regulators, utilities, consumer and environmental advocates will continue to spar over fixed-cost recovery.

"We're in this transitory period," Lange said. "And what I'm concerned about with making radical changes in our rate design is that you don't have enough good information to really get it right."

Twitter: @jefftomich | Email: jtomich@eenews.net

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