Philadelphia Gas Works’ announcement last week of a rate increase request left out a critical piece of information:
Most of that increase would be achieved by a 50 percent boost in the fixed monthly charge that all customers pay, regardless of how much energy they consume.
In its filing with the Pennsylvania Public Utility Commission, PGW disclosed that most of its proposed $70 million rate increase would be derived from a steep boost in the monthly customer charge. For residential customers, it would go from $12 a month to $18, more than any Pennsylvania gas utility charges.
The request, included in PGW’s 2,174-page filing with the PUC, follows a pattern set by other utilities: reconfiguring their rates to gain more revenue from fixed fees, to combat an erosion in sales caused by declining consumption. PGW says that it needs a rate increase because its costs are rising but that its sales are falling because of warmer weather.
Consumer advocates and conservationists have opposed the trend for utilities to rely more on fixed rates, which they say reduce the incentive for customers to cut back on consumption of gas, electricity or water.
“Raising the unavoidable fixed customer charges of residential customers sends exactly the wrong signal to those customers because it reduces their ability to save money by reducing their usage,” Ray Landis, AARP’s Pennsylvania advocacy manager, said in testimony last year before the PUC.
In a 2015 electrical-rate filing, Peco Energy Co. sought a 68 percent increase in its fixed charge for residential electric customers, from $7.13 a month to $12. The PUC approved an increase of 18.5 percent, to $8.45.
PGW’s strategy follows a path blazed by other Pennsylvania gas utilities. UGI Penn Natural Gas, which serves 660,000 customers across Pennsylvania, filed in January to increase its monthly customer charge from $13.17 to $18.50. Columbia Gas in Western Pennsylvania has the highest monthly charge, $16.75, which the PUC approved in October.
Barry O'Sullivan, PGW's spokesman, said the city-owned utility's proposed monthly customer-service charge is fair, and based on actual costs the utility incurs for each customer regardless of how much energy is used. “Nobody is being penalized here,” he said.
PGW filed its request Feb. 27 amid an ongoing yearlong inquiry by the PUC into “alternative rate-making methodologies,” which aim to wean utilities from a dependence on rates that reward them for selling more energy or water in an era in which public policies encourage customers to consume less.
With the issue still unsettled, the PUC last week renewed its examination with a call for more public comments on rate-making.
Gas and electric customers’ bills typically include three components: A fixed monthly charge to cover costs such as billing and customer service; a distribution cost that varies according to the volume of usage; and a commodity charge that pays for the actual cost of the energy consumed.
While utilities' costs keep rising with the need to replace aging infrastructure, they have been offset by the declining price of energy since 2009. The net result is that customers' out-of-pocket costs have been mostly flat.
PGW says its proposed $18 monthly fee recovers only a portion of the $51 in “direct customer costs” the utility incurs for each customer. Most of those costs are paid through the variable rate, which customers can control by curtailing usage.
The utility's current rate structure is “inefficient and distorts price signals to customers,” Kenneth S. Dybalski, PGW's vice president for energy planning and technical compliance, testified in the rate filing. Charging a higher fixed fee “more properly aligns rates with costs and provides for more revenue stability,” he said.
The filing was PGW's first base rate increase since 2009, but the PUC has approved five surcharges on PGW customers since 2013 to pay for infrastructure improvements, energy-conservation measures, and postretirement employee benefits.
PGW’s request would increase its revenue by $70 million, or 11.6 percent. It would increase the cost for a typical residential customer using 76 thousand cubic feet (Mcf) a year to $104.65 a month, from $94.06, or about 11.3 percent.
The utility said it has cut expenses as best as it could, noting that it reduced payroll by 36 employees in seven years, to 1,650.
PGW said it also has tried to expand moneymaking ventures to nonresidential customers, such as boosting sales for natural-gas vehicles and on-site power generation, as well as to buyers of liquefied natural gas produced at its Port Richmond plant.
Residential gas consumption has declined 15.4 percent since 2010, however, from 91 Mcf for a typical household to 77 Mcf last year. The reduction is partly due to more-efficient furnaces and appliances, but PGW said it mainly reflects warming weather trends, which reduce the need for heat.
Without a rate increase, PGW said, its improved bond rating might be imperiled, causing borrowing costs to increase and ultimately costing customers even more.
Yet some experts say that allowing utilities to charge ever-higher fixed fees reduces pressure on them to behave like competitive businesses.
“It is not proper to recover so-called fixed costs in ‘fixed charges,’ ” said Jim Lazar, a senior adviser to the Regulatory Assistance Project, a Vermont nonprofit that provides training and technical assistance to utility regulators.
“You don't make a ‘fixed cost contribution’ to a supermarket, an airline, or a hotel, all of which have many ‘fixed costs,’ ” Lazar said. “You pay for each item you buy, and they make money by selling enough to cover their costs."