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A little-known item on home electricity bills in North Carolina could get a big increase as part of Duke Energy’s rate case – a move advocates say will hurt low-income communities and hamper clean energy.
At issue is the “basic customer charge,” a flat monthly fee for residential customers that Duke Energy Progress — one of two Duke utilities seeking an additional $1 billion combined annually — proposes to hike by 75 percent.
The fee’s fate is up to the state’s utilities commission, which held an initial round of hearings this month and will make a determination by early next year.
The $11.13 charge is unbeknownst to most; it doesn’t vary with electricity use, and isn’t itemized for customers unless they ask for a detailed bill. But it caught the attention of many ratepayers who packed the commission’s recent meeting in Raleigh.
Spiking the flat charge “defies common decency,” said Margaret Toman of Garner, who said she spoke on behalf of financially vulnerable elderly. “Duke’s willingness to inflict financial hardship on them … is felt as a sharp blade on their necks.”
Another speaker decried the “whopping 75 percent increase in the basic surcharge, for which I get nothing.”
Duke Energy Carolinas, whose rate case is on a later timeline, also proposes raising its “basic facilities charge” from $11.80 to $17.79.
Critics say the increased fees would disproportionately burden low and fixed-income ratepayers, discourage energy conservation and rooftop solar, and take power away from customers.
“Duke is looking to jack up a charge that you cannot control,” said Rusty Haynes with the Cary-based energy consulting firm EQ Research.
Advocates say less control is particularly problematic for the more than 1.4 million North Carolinians who must devote 6 percent or more of their gross income to energy bills. Already, the proportion they spend on electricity is unacceptably high, according to some experts.
“The increase in cost is simply unaffordable for low-income communities in North Carolina,” said Al Ripley, an attorney with the North Carolina Justice Center, an anti-poverty advocacy group
Ripley gives Duke credit for the assistance it has provided low-income ratepayers through programs like the Helping Home Fund, resourced as a condition of the company’s past mergers and rate increases.
But he says those initiatives need to be better tailored for those living paycheck to paycheck, who can ill afford the initial outlay necessary for a new energy-efficient appliance, even if they can get a rebate later.
And to the extent they discourage clean power and energy efficiency, anti-poverty advocates like Ripley say high mandatory fees hurt poor ratepayers in the long-term as well as the short-term.
“If we’re going to keep rates down, we need to do everything we can to avoid the construction of costly new fossil fuel and nuclear power plants,” Ripley said. “Anything that diminishes the benefit of renewable energy is harmful in that respect.”
‘Absolutely erodes value of renewables’
Most critics of Duke’s proposed rate hike so far have focused on coal ash: Ratepayers object to spending $530 million a year on remediation costs they believe shareholders should bear. Penalizing stockholders for mismanagement of coal waste, some say, could help hasten the development of clean energy.
But many experts believe a spike in the fixed monthly rate would also have a significant impact on the transition away from fossil fuels.
The fixed monthly charge doesn’t vary with electricity use — the higher it is, the less incentive customers have to conserve energy or invest in energy-saving appliances or light bulbs.
A high flat fee could also discourage renewable energy. Rooftop solar panel owners recoup their costs over time through their electricity bills. They’re credited for any net electrons they contribute to the grid each month at the retail, per-kilowatt-hour rate, but pay the basic charge no matter what.
“If you’re paying $19 instead of $11 per month,” said Peter Ledford with the North Carolina Sustainable Energy Association, “it’s going to totally change the calculation as to whether it’s worth it for you to adopt rooftop solar, or even LED light bulbs.”
“When utilities jack up fixed charges,” said Haynes with EQ Research, “that absolutely erodes the value of conservation and efficiency, not to mention renewables.”
A debate over recovering costs
Duke says the rate increases are necessary to cover its fixed costs — maintaining its meters, providing customer service and providing billing services. The utility argues it has long undercharged residents for these services, and Duke Energy Progress’s filings attest that they are just under $28 a month.
“The requested increase is an attempt to get closer to what that actual cost of serving the customer is,” said Duke spokesperson Jeff Brooks.
Brooks acknowledges high fixed costs can discourage energy conservation. That’s why, he said, “the bulk of the increase is on the portion of the rate that is consumption based, so the more efficient you are, the less the impact to your bill.”
The average household that uses 1,000 kilowatt hours of electricity each month, according to Duke, would face an overall increase of $17.80 per month, with $7.70, or 43 percent, coming from the flat fee increase.
But customers who’ve worked to curb their energy use below the monthly average are hit harder. And many say the utility can do much more to recoup its expenditures without hampering clean energy efforts or burdening low-income ratepayers.
“There are a lot of things Duke could do to be more innovative in terms of rate design, but it isn’t,” said Dave Rogers of the Sierra Club’s Beyond Coal campaign.
One such innovation is “time-of-use” rates, where the per kilowatt hour rate is higher when demand is greatest. By encouraging energy use when demand is lower, utilities avoid costly new power plants and can help customers save money.
Many utilities, including Duke, allow residential customers to opt-in to such rates — but few have meaningful participation. Most households aren’t aware of the option, or don’t have enough information to know if time-varying rates would make economic sense.
“Right now, Duke offers a [time-of-use] option, but because I don’t have a smart meter and any granular information about my own energy usage, I don’t know if I would save money or if it would cost me more,” said Autumn Proudlove, a researcher with the North Carolina Clean Energy Technology Center.
Short of adopting mandatory time-of-use rates, as California is doing, experts say aggressive public education campaigns and advanced metering technology can help solve this problem.
A handful of utilities, mostly in California, also offer tiered rates, in which the more energy the customer uses, the more each kilowatt hour of electricity costs. Such plans can also encourage energy conservation.
Finally, there’s the minimum bill, a concept that has gained traction in states wrestling with net metering policy. Customers would pay a minimum fee only if their electricity use falls beneath a certain level each month.
“That’s a way to ensure the utilities recover their costs while providing a greater incentive to efficiency,” said Proudlove.
‘Shocked’ if commission raised rates
Duke’s rate request does include plans for advanced meters and technological advancements that could help advance some of these design measures.
“We’re gradually moving toward smarter technology that will give [customers] a better understanding of how, day-to-day and hour-to-hour, they can adjust their energy use,” said Brooks.
And while few expect utility regulators to require any of these new rate designs, most are confident the commission won’t allow Duke’s rate hike in its full requested amount.
Four years ago, regulators approved a rate increase of about half what Duke wanted. At the end of last year, they rejected a bid by Dominion North Carolina, which serves a small portion of eastern North Carolina, to raise its flat fee at all.
In fact, more than a dozen utilities around the country proposed raising fixed charges in the fourth quarter of last year, according to EQ Research. None were approved at the level requested, and only one two utilities, in Wisconsin and New Jersey, got significant hikes.
As for Duke’s push for higher fixed fees, Haynes of EQ Research said, “I would be shocked if the commission here in North Carolina allowed that to happen.”