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Rebecca Stanfield’s Blog

Missouri PSC Should Reject Ameren's Bid for Higher Fixed Charges

Rebecca Stanfield

Posted August 14, 2012

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Today, NRDC is filing testimony in a proceeding before the Missouri Public Service Commission opposing Ameren Missouri’s request to raise fixed charges it bills customers each month.  NRDC’s expert witness, Pamela Morgan, who has more than twenty years of experience in the electric utility industry, explains that raising fixed charges will undermine the effectiveness of the energy efficiency programs that were approved by the Commission in a landmark agreement less than a month ago.  The following post was co-written with NRDC’s Bruce Ho and the testimony will be linked here as soon as it is posted on the Commission’s electronic website. 

Last month, when the Missouri Public Service Commission (MPSC) recently approved Ameren Missouri’s first-ever energy efficiency plan under the Missouri Energy Efficiency Investment Act (MEEIA), environmental groups, state regulators, consumer advocates, and the utility itself hailed the plan as a milestone in Missouri’s effort to capture energy savings and lower bills for customers. This plan, reached by unanimous agreement, aligns the interests of the utility and its customers by providing significant new incentives that will enable Ameren Missouri to achieve energy savings benefits on the order of $350 million, the majority of which will accrue to bill payers.

So why is Ameren Missouri proposing to undermine this plan just as its new MEEIA energy efficiency programs are scheduled to start?

In the rate case now before the Commission, Ameren Missouri has asked for permission to increase the fixed charge on customers’ bills.  Essentially, they would shift more of the costs that customers currently pay in variable rates – those parts of the electricity bill that correspond to a customer’s monthly electricity use – to fixed charges – those parts of the bill that all customers must pay regardless of the amount of electricity they use. Residential customers would see their current $8 fixed monthly charge increase by 50%, to $12 a month.

Ameren Missouri’s proposed hike in fixed customer charges would undermine two of the most important drivers of energy efficiency: (1) the ability of customers to see immediate benefits from lower electricity bills when they invest in new efficient technologies, and (2) the ability of customers to recover – as quickly as possible – any investments they make in efficiency through these bill savings. Think, for example, of a customer switching out old light bulbs for highly efficient but initially more expensive LEDs. For the customer to save money on her investment, there must be a clear link between her use of the LEDs and the amount she spends each month on her electricity bill. Substantial research shows that when this link is weak, i.e., when bill savings are small relative to upfront costs, customers are much less likely to invest in energy saving technologies.

Ameren Missouri’s proposal would weaken the link between efficiency investments and customer bill savings, and will discourage customer participation in the Ameren Missouri MEEIA programs that the Commission approved not even one month ago. Moreover, forcing all customers to pay a new, higher fixed monthly charge, regardless of their actual energy use, will shift costs from, and result in a new subsidy to, the utility’s highest energy users, to be paid for on the backs of customers who do invest in efficiency and do reduce their energy use.

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Environ EngineerAug 16 2012 09:22 AM

On a related issue, inefficient use of wind farms to generate electricity: Returning to Kansas City last month from a western trip, I drove through a 20+ mile stretch of wind turbines along I-70 west of Salina KS. The ambient temperature was about 103, indicating the power requirements should be very high, yet less than one turbine in ten was turning and generating power for the grid. Don't know if Ameren Missouri obtains any power from this particular wind farm, but it may be indicative of how utilities don't use their available sources efficiently so they can justify higher rates due to artificially increasing their generating costs.

Robert BorlickAug 16 2012 11:58 AM

While I admit to not being familiar with the details of Ameren's retail tariff design, NRDC's argument appears to ignore the fact that retail rates typically recover a portion of the utility's fixed transmission and distribution costs as a variable charge. In such a case energy efficiency programs cause the utility to lose some of its fixed cost recovery.

The way to fix (or at least ameliorate) this problem is to recover most or all of those costs through a fixed customer charge that is unaffected by energy usage. This is called "decoupling" and has a pro-efficiency impact because it removes the utility's disincentive to implement energy efficiency programs.

If, in fact Ameren's retail tariffs do recover only some of their fixed costs through their existing customer charge then it is appropriate to increase that charge and NRDC has no rational basis for opposing it.

NRDC's argument sounds disingenuous to me. If so, NRDC will not be taken seriously.

Rebecca StanfieldAug 16 2012 02:36 PM

Thanks for the comment, Robert. NRDC has advocate for years for decoupling in Missouri and other states. It is one of the most essential policies for promiting efficiency that a commission could adopt. However, if your goal is to promote efficiency, then making the payback period for efficiency investments longer is not a good move, and it isn't necessary. You can maintain or increase the extent to which costs are recovered in variable charges, and decouple through a periodic true up, to maintain both the customer and the utiltiy incentive to invest in energy saving measures. In this case, Ameren has just recently secured a very generous lost revenue recovery mechanism that ensures that all of its fixed costs will be recovered, so there is literally no rationale for increasing fixed charges.

A NonymousAug 24 2012 12:16 AM

People will be faced with the economic decision to implement efficiency measures, or not, regardless of consumer energy prices.

Raising energy prices faced by consumers would actually shorten the time period required for consumers to recoup the incremental costs associated with an energy efficiency measure. Very low energy prices indeed make it more difficult to market energy efficiency. This intuitively makes sense, and makes sense in any economic analytic framework.

That said, I do not advocate needlessly raising energy prices to consumers. I think that doing so would impede economic development. But I do not think the reason cited in the article above is, in itself, a reason to oppose price increases if otherwise necessitated to maintain system reliability.

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