As a high-profile hearing over Duke Energy’s proposed rate hike in North Carolina logged its seventh day, an expert witness for anti-poverty and environmental groups said the utility’s own data prove it should lower – not raise – the flat monthly fee it levies on residential customers.
In a case centered on whether ratepayers should foot $200 million of Duke’s coal-ash cleanup costs, the proposed $3 increase in the ‘Basic Customer Charge’ has grabbed relatively little attention. The charge is hidden to most customers – adding to its obscurity.
But advocates say setting the fee too high has big implications: disproportionately burdening low and fixed-income ratepayers, discouraging energy conservation and rooftop solar, and giving customers less control over their monthly bill.
The flat charge is now just over $11 for Duke Energy Progress, one of two Duke utilities that provide electric service in the state. Though it does not vary with electricity use, it is lumped in with charges that do – unless customers ask for a detailed bill.
A fact sheet on Duke’s website says the charge covers “maintaining your electric meter to your home or business as well as maintaining customer records, billing and other transactions affecting the account.”
Yet energy consultant Johnathan Wallach said Tuesday that the utility’s data show that covering those expenses, along with the initial connection to the grid, only costs each residential customer $8.54.
“Costs are being inappropriately recovered,” said Wallach, who argued the flat charge to residential customers should include costs associated with connecting customers and servicing them regardless of electricity use. “No more, no less,” he said.
A difference over poles and wires
Attorneys for Duke declined to cross-examine Wallach, who appeared on behalf of the North Carolina Justice Center, the North Carolina Housing Coalition, Southern Alliance for Clean Energy, and the Natural Resources Defense Council.
Duke spokesman Jeff Brooks said later they did not dispute the calculations — but reiterated the company’s position that the current fee was well short of residents’ portion of “fixed” distribution costs of almost $28.
The $20 difference comes down to poles and wires. Despite a claim on its website that “power lines and poles” are included in the per-kilowatt-hour rate, Brooks says the utility believes the basic customer charge should include a minimum amount of distribution infrastructure — a portion derived through the “minimum system technique.”
Thus, the utility has proposed increasing the charge in past rate cases, and will continue to do so. Each increase “gets us incrementally toward that objective” of recovering the “full” $28, Brooks said.
Advocates object to that approach. They say any fixed costs associating with electricity use – including poles, wires, and transformers – should be recovered through per-kilowatt-hour charges. That way, high electricity users bear more costs than low-usage customers, creating an incentive to save energy.
Duke’s proposal to raise the fixed charge, Wallach testified, would “disproportionately and inequitably increase bills for low-usage customers – by shifting load-related costs inappropriately from high-usage to low-usage customers.”
Therefore, Wallach said repeatedly, the basic fee should be lowered to $8.54 — not increased.
Backing up that recommendation, Gudrun Thompson of the Southern Environmental Law Center — which represents the groups that called Wallach as a witness — noted a 1987 case in which utility commissioners rejected adding a minimum amount of poles, wires, and transformers to the basic customer charge.
“The Commission has never approved residential customers charges approaching the levels indicated by the minimum system technique,” commissioners wrote.
‘Sending the wrong price signals?’
Though commissioners and the North Carolina Public Staff — the state-sanctioned ratepayer advocate — may have once agreed with Wallach’s logic, they don’t appear to any longer.
Testifying on behalf of the Public Staff, Jack Floyd told commissioners he believed the true flat monthly charge should fall somewhere between the $8.54 floor that includes no distribution infrastructure and the $28 ceiling that factors in as much as possible.
“It’s up to us determine where that charge should land,” Floyd told one cross-examiner. He told another that the charge should factor in both the cost to the utility and the need to encourage efficiency. “It’s a balance,” he said.
Floyd defended his group’s decision to support a hike of the fixed monthly charge to $14 — even when presented with a resolution adopted by the National Association of State Utility Consumer Advocates that oppose such increases.
The members of the North Carolina Utilities Commission — who have ultimate say over the basic customer charge — did little to show their hand during the hearing. But a question from James Patterson indicated he viewed the debate as inconsequential.
“Let’s say I live in a mobile home and I’m paying $500 or $600 a month for an electric bill,” he said to Wallach. “How does any of this help me?”
Advocates reinforced Wallach’s answer: that those customers can be helped — at least partially — if energy efficiency is encouraged. A disproportionately high monthly charge, they say, does the opposite.
“You’re not going to solve all problems with ratemaking,” said David Neal of the Southern Environmental Law Center, “but it doesn’t help that customer to send the wrong price signals.”