Utility Business Model Tug of War: Mandatory Fixed Fees

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Getting it Right on Electricity Rate Design

4 min readOct 2, 2015

Utility Business Model Tug of War: Mandatory Fixed Fees

In Wisconsin, a fight between two utilities and their customers over mandatory fixed fees is providing a compelling glimpse into the nationwide tug-of-war over the future of energy and the utility business model.

Many electric utilities across the country are in the midst of an aggressive push to dramatically increase the mandatory monthly “fixed” fees they charge consumers. But consumers, advocates and consumer protection officials are fighting back, arguing that increasing mandatory fixed fees forces higher costs disproportionately onto those who use the least electricity and can least afford higher bills; removes incentives to conserve energy; and results in consumers losing control over their energy costs and options.

For the most part, utility commissioners are listening, looking at the facts and rejecting the proposals in individual rate cases (see below). But the utilities proposing higher mandatory fixed fees are unrelenting in their efforts to shield an outdated business model from the realities of 21st century energy technology and markets.

For the past three weeks, there has been a flurry of public activity in Wisconsin, where two utilities — Xcel and Wisconsin Public Service Corporation — are seeking to hike customers’ mandatory monthly fees, regardless of the amount of energy they use. Xcel is trying to hike its fee from $8-$18/mo, and WPS is trying to hike theirs from $19-$25. These two proposals are representative of the approach many utilities are taking across the U.S. Click here for a map of pending rate cases of where utilities are proposing or considering mandatory fixed fee increases.

Led by AARP, NAACP, National Consumer Law Center, National Association of State Utility Consumer Advocates (NASUCA), and a wide range of renewable energy and energy efficiency advocates, the opposition to increasing mandatory fixed fees has been strong, loud and growing across the country. In Wisconsin, some of the local coverage of recent public hearings convened by the Wisconsin Public Service Commission can be found here, here, and here. Of note, at a September 16th hearing on the Xcel proposal, the Chippewa Herald reported, “Everyone who testified urged the PSC to deny Xcel Energy’s request.”

Last year, the Wisconsin PSC approved three large mandatory fee hikes: one for WE Energies from $9-$16 per month and one each for Wisconsin Public Service Corp. and Madison Gas & Electric, from $10-$19 per month. Initial proposals were as high as $69 per month. It remains to be seen how the PSC will decide the current cases, with decisions pending by the end of this year.

So far in 2015, the trend in utility commission decision-making has been to reject or severely limit mandatory fixed fee increase proposals. Of the 35 decisions on rate cases that have gone into effect this year where mandatory fixed fee increases were proposed:

· 16 proposals had no increases approved.

· 10 approved limited increases of less than 25%, with an average size of $2.10 per customer per month.

· Nine approved larger increases of more than 25%, with an average size of $4.05 per customer per month.

Click here for a partial summary of decisions on mandatory fixed fee increases at utility commissions across the country in 2015.

While some advocates question utilities’ claims that there is a revenue problem that needs fixing, others are willing to engage and explore new rate design approaches that protect consumers by limiting or eliminating mandatory fixed fees. But no matter where opponents sit on that spectrum, they share the same bottom line: hiking the mandatory fixed fees is bad for consumers because it gives them less control over their bill, is poor public policy since it discourages conservation, and is a barrier to innovation on renewables and efficiency.

There are a wide range of stakeholders and thought leaders across the U.S. offering forward-looking ideas for how America’s electricity system can evolve. They are inviting the utility sector to embrace the opportunity that modernization presents, instead of battling their own customers to maintain the status quo.

· Regulatory Assistance Project: Smart Rate Design for a Smart Future

· Advanced Energy Economy: 21st Century Electric Systems

· Rocky Mountain Institute: eLab: New Business Model for the Distribution Edge

· America’s Power Plan: Utility and Regulatory Models for the Modern Era

· Ceres: The 21st Century Electric Utility: Positioning for a Low Carbon Future

· ACEEE: The Future of the Utility Industry and the Role of Energy Efficiency

· NEW report published on Midwest Energy News, Empowered: A Tale of 3 Cities Taking Charge of Their Energy Future.

· Resolution opposing mandatory fixed fee hikes passed in June by the National Association of State Utility Consumer Advocates.

· Blogs & statements from diverse voices opposing fixed charges, including AARP, NAACP, Christian Coalition, and NRDC.

Samantha Williams

Staff Attorney, Policy Advocate

Natural Resources Defense Council