The Fifth Annual Fixed Charge Findings Blog
Fewer proposals in 2019 overall, but regulators approved biggest fees in years
It’s that time of year again — when we take a look back at the previous year of regulatory commission decisions on utility proposals to raise fixed charges for residential electric bills.
Let’s start this time around with a quiz:
In which year did utilities get the green light from commissioners to collect a bigger total amount of money from residential customers through fixed charge increases?
A) In 2018, when utility commissions faced a significant number of proposals from power companies to increase residential monthly fixed charges, to the tune of about $1.6 billion.
- OR -
B) In 2019, when commissions saw far fewer fixed charge hike proposals from utilities than in 2018, seeking a total of about $637 million more a year.
The answer is a little surprising: Option B. Despite the fact that power companies pounded on far fewer commission doors for customer charge increases in 2019, those that did ended up coming away with more. The average approved charge in 2019 was the highest in years, commissions more frequently approved power company proposals in full, and the total annual revenue recovery allowed through fee hikes was nearly $100 million more than in 2018.
We’ll dig into these findings (and more) below in our yearly analysis of utility commission decisions on residential fixed charge proposals by investor-owned power companies. Along with other consumer and clean energy advocates, we’ve been tracking these cases for five years now. The charges we monitor are often called the “fixed charge” or “customer charge” — a mandatory monthly fee that utilities collect regardless of how much energy customers use, before they ever flip on a light switch. That fee sits on your energy bill alongside volumetric (per/kWh) charges that go up and down as you consume energy.
The monthly fixed charge is supposed to be small and recover only the minor costs of a home’s connection to the grid, meter and billing. However, in recent years we’ve seen a trend of utilities going for steep fixed charges, which is particularly unfair for households that use less energy, typically consisting of lower-income households and smaller homes. As depicted in this fun explainer video, it’s like a donut store charging someone the same steep fee to enter their store regardless of whether they want one donut or a dozen.
Fixed charge increases also create disincentives for consumers to invest in energy efficiency and distributed solar power, at the very time when those investments are most critical to address climate change and tackle energy affordability (click here for more on the negative impacts of fixed charges on clean energy).
A Turn for the Worse
The breathless pace of the last few years of utility proposals to hike fixed charges mercifully slowed in 2019. Unfortunately, the overall outcomes of cases that did see decisions last year took a turn in the wrong direction.
Commissions reached decisions (both through litigated dockets and approved settlements) on 22 fixed charge cases in 2019, far fewer than the 48 cases they decided in 2018 and 43 cases in 2017. Let’s be clear: fewer fixed charge hike proposals is good. However, last year’s average approved monthly fee hit the highest point we’ve seen in five years, jumping to $12 a month for the first time — about $2 more per month than the average approved monthly fixed charge in 2018. Even adjusting for inflation over the years, 2019’s average approved fee is still higher than that approved in 2017 (which would be $11.66 in 2019 dollars).
What’s more, for the first time since 2016, the number of fee hikes approved in full by commissions in 2019 were equal to the number of proposals fully rejected. As the chart below shows, the portion of fee hikes fully approved by commissions in 2019 (green line) rose considerably over years past.
These monthly charges add up to big bucks for utilities. Just looking at the 22 utilities with cases decided last year, their total final haul in revenue collection from their approved customer charges (which range from $5.70 to $21/month) is about $1.7 billion a year (assuming all their residential customers pay the charge every month). And it could have been a lot more if power companies were granted the full fee hikes they were after.
The graphic below shows that in 2019 the 22 power companies in our analysis proposed to increase annual revenues they collect from customers through fixed charges by a total of $637 million. Commissions dialed that back, but nonetheless approved fixed charge hikes for residential customers that netted utilities an estimated $230 million in added annual revenue through fee hikes on residents.
Note the big difference in how much more annual revenue recovery commissions allowed utilities to recover through their fixed charge hikes in 2019 than in 2018 (the green dollar sign pie slices). That means that commissions rose to the challenge more in 2018 to hold off fixed charge increases than they did in 2019. Ironically, in 2018 — when there was an onslaught of 48 power company proposals seeking an additional $1.6 billion revenue share “pie” from fee hikes — commissions actually did a better job of pushing back and protecting residents than they did in 2019 when facing less than half the number of proposals.
Let’s look now at some of the utilities proposing the biggest fixed charge hikes in 2019, proposals to increase fixed charges by more than 50%…
● Duke Energy Carolinas (SC): 238% proposed increase from $8.29 to $28/month
● Duke Energy Progress (SC): 220% proposed increase from $9.06 to $29/month
● Otter Tail Power Company (SD): 90% proposed increase from $8 to $15.23/month
● Georgia Power: 80% proposed increase from $10 to $17.95/month
● Oklahoma Gas & Electric: 69% proposed increase from $13 to $22/month
● Upper Peninsula Power Company (MI): 67% proposed increase from $15 to $25/month
Fortunately, commissioners in Michigan and Oklahoma fully rejected those utilities’ proposals. But elsewhere commissioners okayed a 44% hike for Duke Energy Carolina customers, a 30% increase for Duke Energy Progress customers, a 25% hike for Otter Tail Power Company customers, and 40% hike for Georgia Power customers.
Overall, commissioners approved fee increases in 16 of the 22 cases in 2019, with customers of six utilities (Georgia Power, Maui Electric Company, Northern Indiana Public Service, Kentucky Utilities Company, Duke Energy Carolinas and Appalachian Power/Wheeling Power) facing a $3 to $4 increase to their monthly fixed charge.
Some Silver Linings
It’s important to note that it wasn’t all bad news in 2019.
As we’ve seen, there were far fewer cases than in previous years, so there was lower activity overall from utilities trying to hike fixed charges. We also saw commissioners in New York ordering a reduction in Orange and Rockland Utilities’ customer charge from $20 to $19.50/month (the utility had requested an increase to $22/month). That reduction was small, but signals movement in the right direction.
Commissioners in Michigan kept fees in check for customers of DTE Energy and Consumers Energy, fully rejecting DTE’s bid to raise fixed charges from $7.50 to $9/month and only approving a slight bump to Consumers Energy’s fee, from $7 to $7.50/month. It’s important to note that 2019 saw the fourth year in a row of customer charge increase proposals from Michigan’s two largest investor-owned utilities — and the fourth year of regulators in that state largely holding the line and keeping charges at the minimal level they should be.
Montana commissioners also kept the lid on fee hikes by only approving a small increase for Montana-Dakota Utilities, from $5.17 to $5.78/month (the utility had requested $7.60). And commissioners in Maryland deserve mention for only allowing slight bumps in fixed charges for Potomac Electric Power (from $7.80 to $8.01/month) and Potomac Edison (from $5 to $5.70/month).
Now in the fifth year of compilation, these data demonstrate the ups and downs over the years of fixed charge proposals, but one clear message for advocates working to maintain affordable rates and incentives for consumer investment in clean energy — vigilance is key.
We will continue to monitor utility proposals and commission decisions on fixed charges, and bring the data to light to help consumers and advocates in the ongoing work to keep fixed charges small, as they should be. We hope the attention and analysis will also help commissions know when to say enough is enough.
See you next year!
