The Kentucky Solar Energy Society

Kentucky Solar Energy Society

AN EMERGING AND ONGOING PROBLEM - Utility Rate Structures That Discourage Efficiency and Renewables



Kentucky faces an ongoing problem - utilties are raising flat monthly service charges while minimizing or lowering kilowatt-hour (kWh) prices.  This practice:

  • lowers the returns of prior private investors in efficiency;
  • discourages future private investments in efficiency;
  • rewards wasteful users of energy;
  • most impacts most those who use energy sparingly (i.e. the elderly, the poor and the efficiency-minded); and,
  • slows the deployment of renewables and distributed generation.
In a nutshell, it's bad public policy.
    If you have come here to help address this problem as regards a particular utility, a discussion and relevant links are found just below.
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    Further below on this page are discussions of older rate case(s). We keep them around to further document / explain what the utilties have been and are doing.



Last Issue - Fleming-Mason Co-op, Case 2012-00369 

-  raise flat monthly service charge from $10.38 to $15.00 (44.5%) 
lower the kWh price from 8.832¢ / kWh to 8.431¢ / kWh ( - 4.54%)

THE PUBLIC SERVICE COMMISSION APPROVED FLEMING-MASON'S REQUESTED CHANGE. 
IT FOUND THE CHANGE "REASONABLE." IT DID NOT SAY THE CHANGE WAS "FAIR" OR "JUST."

Please note the comment period is closed.

Click here to download a comment letter in .pdf form (you must have Adobe to open)

Click here to download a comment letter in Word .doc form (you must have MS Word to open)


MORE DETAILED DISCUSSION OF ISSUES

Fleming-Mason Co-op seeks authorization from the PSC to change its rate structures. Fleming-Mason does not seek a rate increase – it only seeks to change its rate structures.

Fleming-Mason presently charges $10.38 per month service charge and $0.08832  per kWh. They seek to change this to $15 per month service charge and $0.08431  per kWh.  This new rate structure will be the "default" option for Fleming-Mason customers. "Average" residential customers (1039 kWh / month)  will see no change in their bill. 

Fleming-Mason is also offering a "time of day" rate option and an "inclining block rate" option. The rate schedules can be found in the link below.

When one examines the "time of day" and "inclining rate" options and considers seasonal and daily variations in usage patterns, neither option is attractive.  It would be very difficult to save money under either option, and it seems unlikely that many customers will choose the new rates.  If no choice is made, a customer is automatically billed according to the default rate schedule - $15 per month and $0.08431 per kWh.

Further, Fleming-Mason says that the new rate schedules will be "revenue neutral," meaning there will be no increase or decrease in overall revenues to the utility.  Fleming-Mason also says, however, that folks using more than the average (1039 kWh per month) will pay less, as shown in the chart below, as well as in testimony it presented to the PSC. 

If the rate structures are "revenue neutral" and customers using more than average are paying less, then customers using less than average have to pay more.

In a nutshell, high users are rewarded and low users are punished.  There is also a loss of incentive for efficiency measures and more incentive to waste.  It's bad public policy.

Please write the Public Service Commission about this issue.  Sample letter templates can be found above.  Thanks!

Click here to download a copy of the proposed rate schedules.


The table below shows the overall effects of the new default (used by vast
majority of FM customers) and inclining block rate structures. Remember that the
flat monthly charge is going up by 38.5% and the kWh price is going down by 4.54%

Users above 1000 kWh per month (those with the most opportunity
to conserve) see a drop in their bill.  Users below 1000 kWh per month see a rise.




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General across-the-board explanation of 
"monthly service charge vs kWh price increase" issue
   
   Utilities in Kentucky have begun seeking rate changes or increases for electrical service in which fixed monthly charges are increased a lot, and kWh prices are raised very little, or even lowered.  

   Increasing the unavoidable monthly service charge instead of the kWh price is bad public policy.  Such a rate structure discourages good action and is unfair because it:

- diminshes the returns of those who have already invested in efficiency;
- slows future investment in efficiency;

- slows the adoption of renewable energy and distributed generation;

- unfairly impacts the elderly and poor in favor of large users of energy;

- hinders
free market principles from encouraging the best use of resources. 

   Utilities must obtain approval from the Kentucky Public Service Commission for any rate change, by opening a "rate case."  Utilities regularly and periodically (every couple years or so) initiate "rate cases."  If these rate changes regularly and disproportionately raise flat monthly service charges, the negative effects build over time.  That's what is happening - the goals of promoting efficiency and renewables are suffering a form of "death by a thousand cuts."

   Each rate increase utilities seek would disproportionately raise the flat monthly service charge, typically by four to eight dollars or so per month.  Those dollars add up.  If the flat rate increases continue with all the customers of all utilities in Kentucky and is not stopped, in no time there will be $500 million dollars or so each year going to the wrong side of the energy efficiency equation.  This will greatly and unconscionably delay the pressing and necessary task of making all of our structures more energy efficient. 

   On the other hand, if price increases are placed on the kWh price instead of the flat monthly service charge, the rate at which Kentuckians embrace and employ efficiency and renewables will increase exponentially over time.    


    If one pictures the alternate course of the two methods ten or fiteen years down the road - mostly flat rate increases granted every couple of years on the one hand, versus mostly kWh price increases granted  on the other - the difference would be immense.  Many more people will be motivated to insulate their homes, replace windows, seal cracks and deploy renewables if the kWh price is higher than if the flat monthly service charge is higher.  

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The utilties know this. They have a "throughput incentive" to sell as many kWhs as they can, for as long as they can. Utilities like to talk efficiency, yet walk to rate structures that discourage it.

One repeatedly hears that we must increase efficiency  Good citizens of Kentucky want to do so. Yet by seeking and allowing such rate structures, respectively, the utilties and the PSC undermine real progress.
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OLD CASE - December 2012 - LG&E / KU cases 2012-00221 and -00222

LG&E / KU proposed to increase rates by mostly increasing the monthly customer charge instead of the kWh price. Details are below. Many utilities are now trying to do this. Such price structures are bad social policy, if one considers "good" social policy to be that which encourages energy efficiency.

KySES filed comments and encouraged others to do so. Many folks did.

In response to the proposed increases, the parties reached a proposed settlement wherein the monthly flat customer charge would go up $2.25 (half of what had been sought), from $8.50 to $10.75, and the kWh price would go up less than proposed.

KySES still objected. We attended KY PSC's hearing on the settlement on November 27 and spoke in opposition to the settlement - we maintain that the best policy in the event of a necessary increase is that the kWh price goes up, not the flat monthly service charge. Increasing the kWh price is the easiest way to promote efficiency, and at the least cost to ratepayers. Further, raising the kWh price allows alternative energy sources to better compete.

The PSC approved the proposed settlement on December 20, 2012.

Thanks to all who helped!


>>>>>>>>>>OOO<<<<<<<<<<

EXPLANATION OF FACTS AND ISSUES - LG&E / KU:

LG & E and KU seek a 7% to 8.9% rate increase from the Kentucky Public Service Commission on residential electric and / or gas service. Any increase is bad enough. What makes these increases really bad is that LG&E and KU want to put most of the increase on the monthly flat customer service charge and very little on the unit of energy price ( i.e. - kilowatt hour or kWh). 

A big jump in the flat monthly service charge is a disturbing new trend in Kentucky utility rates.  The Public Service Commission should stop approving it. 

Raising the monthly service charge artificially lowers the kWh or CCF price and unreasonably, unfairly and unnecessarily discourages efficiency, renewables and distributed generation.


LG&E ELECTRIC RATE INCREASE

Per LG&E, the average LG&E residential electric customer uses 1,010 kWh of electricity per month.  The new rates will result in an 8.9% increase on the average residential electric bill.

LG&E wants to raise the monthly electric service charge by 53% - from $8.50 to $13.00. This follows a previous 70% rise in 2010 from $5.00 to 8.50.

LG&E wants to raise the kWh rate by only 3.5% - from 7.242 cents to 7.513 cents.

If the monthly service charge remained at $8.50 and all of the increase went to the unit price of energy, the resulting price would be 7.96 cents per kWh, still very low as compared to national averages. LG&E GAS RATE INCREASE

Per LG&E, the average LG&E gas customer uses 57 CCF (hundred cubic feet) per month. The new rates will result in a 7.6% rise on the average residential gas bill.

LG&E wants to raise the monthly gas service charge by 24% - from $12.50 to $15.50. This follows a previous 32% rise in 2010 from $9.50 to 12.50.

LG&E wants to lower the CCF (one hundred cubic feet) rate by 6.4% - from 62.023 cents to 58.0257 cents.

If the monthly service charge remained at $12.50 and all of the increase went instead to the unit price of energy, the resulting price would be 68.023 cents per CCF, still near historic lows. KU ELECTRIC RATE INCREASE

Per KU, the average KU residential electric customer uses 1,178 kWh of electricity per month. KU says the new rates will result in a 6.5% increase on the average residential electric bill.

KU wants to raise the monthly electric service charge by 53% - from $8.50 to $13.00. This follows a previous 70% rise in 2010 from $5.00 to 8.50.

KU wants to raise the kWh rate by only 3.5% - from 6.987 cents to 7.235 cents.

If the monthly service charge remained at $8.50 and all of the increase went to the unit price of energy, the resulting price would be 7.616 cents per kWh, still very low as compared to national averages. SUMMARY

Increasing the unit price of energy (what economists call "volumetric pricing") as opposed to a large rise in the monthly service charge:

- rewards those who have invested in efficiency;

- encourages more people to invest in efificency, especially high quantity users;

- promotes the devleopment of renewable energy and distributed generation;

- less negatively impacts those who use less energy, such as the elderly and poor;

- keeps these utilities in line with national standards, and;

- employs free market principles to encourage the best use of society's resources.

LG&E and KU already have a monopoly and a guarantee of profit.  They don't need to bind their customers to unavoidable and high monthly base service charges.


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Templates for letters - LG&E / KU case

LG&E Customers
KU Customers

TO: Commissioners

Kentucky Public Service Commission

211 Sower Blvd.

Frankfort, KY 40601

Fax 502-564-3460


RE: Case No. 2012-00222


Dear Commissioners:


I am a residential customer of LG&E. I write to oppose LG&E's rate increases on electric and gas service. Present rates are fair, just and reasonable. In these difficult times, LG&E already enjoys a secure and generous rate of return on its capital.


If any increase is due, I oppose allocating the increase to monthly service charges. LG&E wants to raise the monthly electric service charge by 53% (from $8.50 to $13.00) and the kWh rate by only 3.7% (from 7.242 cents to 7.513 cents). It seeks to raise the monthly gas service charge by 24% (from $12.50 to $15.50) and to lower the CCF price by 6.4% (from $.62023 to $.58025).


This proposed rate system violates fundamental rules of free market economics. Any rate increase should be allocated to the unit of energy (volumetric pricing), not to the monthly service charge. LG&E already enjoys a monopoly and guaranteed profits.  It doesn't need a higher monthly service charge.   Allocating this (or any) rate increase to the monthly service charge:


  • Unfairly and unjustly diminishes the returns of prior investors in efficiency;

  • Unreasonably discourages future private investments in efficiency;

  • Unreasonably rewards wasteful users of energy;

  • Unjustly and unfairly impacts those who use energy sparingly (i.e. the elderly and the efficiency-minded), and;

  • Unreasonably impairs deployment of renewables and distributed generation.


In short, LG&E's proposed structure is terrible public policy. A public utility with a grant of monopoly should not employ such a pricing structure. I ask that the Commission not allow it, either after hearing or in any proposed settlement.


Very truly yours,




Signature __________________________


Name __________________________

Address __________________________

__________________________

TO: Commissioners

Kentucky Public Service Commission

211 Sower Blvd.

Frankfort, KY 40601


Fax 502-564-3460


RE: Case No. 2012-00221


Dear Commissioners:


I am a residential customer of KU. I write to oppose KU's rate increases on electric service. Present rates are fair, just and reasonable. In these difficult times, KU already enjoys a secure and generous rate of return on its capital.

If any increase is due, I oppose the allocation of the increase to the monthly service charges. KU wants to raise the monthly electric service charge by 53% (from $8.50 to $13.00) and the kWh rate by only 3.5% (from 6.987 cents to 7.253 cents).

This proposed rate structure violates fundamental rules of free market economics. Any rate increase should be allocated to the unit of energy ("volumetric pricing"), not to the monthly service charge. KU already enjoys a monopoly and guaranteed profits. It doesn't need a higher monthly service charge.  Increasing the monthly service charge insted of the kWh price:


  • Unfairly and unjustly diminishes the returns of prior investors in efficiency;

  • Unreasonably discourages future investments in efficiency;

  • Unreasonably rewards wasteful users of energy;

  • Unjustly and unfairly impacts those who use energy sparingly (i.e. - the poor, the elderly and the efficiency-minded), and;

  • Unreasonably impairs deployment of renewables and distributed generation;


In short, KU's proposed structure is terrible public policy. A public utility with a grant of monopoly should not employ such a pricing structure. I ask that the Commission not allow it, either after hearing or in any proposed settlement.


Very truly yours,




Signature __________________________


(Please print clearly) Name __________________________

Address __________________________

__________________________


 
 
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