Protect Consumers and Savings –Don’t Raise Fixed Charges

At legislatures and regulatory bodies across the country a debate rages on over consumers’ control of their electricity bills. The debate centers on fixed charges, a monthly fee to obtain access to electricity that applies regardless of how much electricity a consumer actually uses.

Utilities are in favor of increasing fixed charges because it would increase certainty: the utility knows that it will collect a certain amount of revenue from all of its customers each month, regardless of the amount of electricity consumed. Consumers and their advocacy allies, on the other hand, are pushing to prevent these increases because they would reduce consumer control over energy bills, undermine the clean energy future, and reduce economic incentives for consumers to invest in energy efficiency and distributed generation.

Acadia Center recently analyzed the impact of increasing fixed charges in Rhode Island in a revenue-neutral scenario. In this scenario the utility is not allowed to increase the total amount of revenue it collects, just redistribute the total between fixed charges and the variable charges based on consumer’s energy use. National Grid will be proposing revenue-neutral changes to the fixed and variable charges in July, as required by Rhode Island Renewable Energy Growth program law. The analysis determined that if the fixed portion of the bill is increased, then the per-kilowatt-hour charge will be lowered because less revenue will need to be collected in that way (see table below). This essentially means that any effort consumers make to lower their energy usage and become more efficient will be less valuable because the majority of their bill is fixed.

Percent Change in Variable Rates Compared to the Current $5 Fixed Customer Charge and Revenue Requirement for Residential Customers in Rhode Island

The analysis also showed that a significant number of Rhode Island customers—those using less electricity than the monthly average — would see an increase in their electricity bill if fixed charges were increased above the current $5/month; higher usage customers’ bills would go down due to the lower variable rate. These results show that high fixed charges are regressive: low-use customers see their bills increase, while higher-use customers see their bills decrease.

Impact of Higher Fixed Charges by Monthly Usage Level Compared to the Current $5 Customer Charge and Revenue Requirement for Residential Customers in Rhode Island

Acadia Center recommends that policymakers and regulators avoid reliance on fixed charges. Instead, policymakers should consider the following recommendations for short-term reforms that protect consumers and maintain incentives to use energy wisely:

• Adopt a narrow definition of fixed charges. Limit fixed charges to the cost of keeping a customer connected to the grid, such as metering, billing, and the service drop. The impact of public policy considerations should be factored in as well.
• Increase transparency. The components of a cost of service study that are included in the fixed customer charge, and the data, process, and methodology used to determine the components, should be publicly available and easily accessible.