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Electric rules need consumer protections

While Senate Bill 221 – Ohio’s new electric policy – went into effect July 31, important proceedings are being held at the Public Utilities Commission of Ohio (PUCO) that will determine the rules to implement the policy. The outcome of the rulemaking process will have a significant impact on whether residential consumers pay the lowest costs possible for electricity as well as how renewable energy and energy efficiency portions of the law will be implemented.

A large, diverse group of Ohio Consumer and Environmental Advocates (OCEA) have been working together to recommend changes that are needed in rules that have been proposed by the PUCO staff. This broad consensus includes the Office of the Ohio Consumers’ Counsel (OCC) and many other groups from across the state.

In addition to the rulemaking proceedings, Ohio’s three largest electric utilities – American Electric Power, Duke Energy and FirstEnergy – have filed their proposed regulated rates to the PUCO. FirstEnergy also submitted a proposal to begin charging market-based rates.

The state’s electric policy requires the PUCO to compare an electric utility’s proposed regulated rate (known as an Electric Security Plan) with a market-based rate option. During the legislative process, the OCC was able to ensure that comparisons between proposed regulated rates and the market will be made to help achieve the lowest costs of the two options for consumers. Those ideas were not written into the PUCO staff’s draft rules, so the OCC and its allies have recommended rule changes that would make this portion of the law a reality.

Another important element in the rulemaking will set up how and when electric utilities will be able to increase customer rates based on increased costs for items such as fuel and environmental compliance. The joint consumer and environmental groups have advocated for rule changes to ensure that parties have the ability to present evidence and offer their own experts as to whether utilities’ proposed rate increases have been justified.

As during the legislative process, consumer advocates continue to be concerned about special contracts and other arrangements between the electric utilities and large users of electricity. Such agreements have previously been entered into to promote economic development, but could also help the utilities comply with new energy efficiency standards. Senate Bill 221 requires electric utilities to reduce the electric load in their service areas 22 percent by 2025.

The consumer and environmental advocates proposed rule changes that would set out how these special deals are evaluated – a feature absent from the proposed rules. Residential consumers are among the customer classes that may be asked to subsidize incentives and discounts provided to large users, so the OCC and other groups have stressed the need for accountability.

The potential for higher electric rates threatens the affordability of service for low- and middle-income households, especially with a less than robust economy. With many of Ohio’s major utilities already have distribution rate increase requests pending at the PUCO, consumers should not pay any more than what is reasonable and justified by the utilities.

Through its combined efforts, the OCC and approximately 20 other organizations are looking out for consumer interests as electric rules are designed that will impact residents’ monthly bills for years to come.

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Consumer action needed in natural gas rate cases

At the same time household budgets are being stretched thin by the cost of gasoline, the cost of another necessity – natural gas – will likely be high this winter. Some experts predict that natural gas prices will increase to levels that would have been unthinkable prior to the inflated costs that resulted from damage caused by Hurricane Katrina.

In addition to the higher prices consumers are likely to pay for the actual supply of natural gas, Ohio’s major natural gas utilities have requested to increase the base rate, or delivery portion of a customer’s bill. The base rate includes a flat-rate customer charge as well as a component that varies according to how much natural gas a customer uses.

The Office of the Ohio Consumers’ Counsel (OCC) is working to represent the customers of the four major natural gas companies in Ohio – Columbia Gas, Dominion East Ohio, Duke Energy and Vectren – and is challenging the rate increases as well as the new cost structures that could go into effect. While the Duke case has been decided by the Public Utilities Commission of Ohio (PUCO) and the higher fixed customer charges were approved, opportunities remain for customers of other utilities to speak out.

The OCC is urging residents throughout Ohio to voice their opinions to their local media outlets, newspapers, radio and television as well as at public hearings being conducted by the PUCO in each region.

Those who cannot attend a public hearing in person and have concerns about the rising cost of their natural gas bills are strongly urged to write letters to the PUCO, 180 East Broad Street, Columbus, OH 43215 addressed to the docket number of the specific case involving their natural gas company. The numbers are as follows:

Dominion East Ohio: 07-0829-GA-AIR
Columbia Gas of Ohio: 08-0072-GA-AIR
Vectren Energy Delivery: 07-1080-GA-AIR

What will happen to rates?

In the Duke Energy rate case, the PUCO approved an increase in the utility’s $6 customer charge to $15 through Sept. 2008. At that point, consumers will pay $20.25 per month through June 2009, and $25.33 every month after that. At the same time, the volumetric rate will go down.

Columbia Gas of Ohio has proposed that its fixed-rate customer charge increase from $6.50 to $12.97 during the first year of the new rates. Beginning in the second year, that fixed-rate customer charge would increase to $19.76.

For Dominion East Ohio customers, the PUCO staff has recommended that the utility’s customer charge, $5.70 in northeast Ohio and $4.38 in northwest Ohio, be increased to $17.50 per month.

Vectren has proposed that its current $7 customer charge be increased to $10 in the summer months and to $16.75 in the winter months, beginning in Nov. 2008.

In all of the rate cases, the volumetric rate will decrease as the customer charge is increased. In the case of Columbia Gas, this rate will be eliminated entirely in the second year.

Understanding the Straight-Fixed Variable Rate

These proposed changes to the customer charges are based on a new rate design called the "straight-fixed variable." Major utilities would raise the fixed rate charged to consumers regardless of the amount of natural gas they use. This will remove part of the incentive that residential customers have to conserve natural gas. In addition, low-usage customers will be paying the same fixed rate for their natural gas as heavy-volume users.

If these cases establish higher fixed rate charges, the new structure could cause residents living in small homes to subsidize those in large luxury homes for the delivery portion of their bill. The OCC believes that is not fair and has opposed efforts to adopt these rates.

What Can You Do?

Decision-makers need to hear from those who will be impacted by higher natural gas bills. The OCC encourages participation by anyone who can attend a public hearing in their area. If you are in a situation where the high cost of heating during the winter can create a potential health risk to you or your family, PUCO Commissioners need to hear from you. Testimony will become part of the official record of the case and be considered as the PUCO makes its decision.

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Vectren natural gas customers face rate increase

The OCC has become involved in a rate case filed by Vectren Energy Delivery of Ohio which has proposed to increase delivery rates by $27 million per year. Vectren has also asked to restructure its rates by raising the fixed customer charge and lowering the portion of delivery rates based on the amount of natural gas used.

The increase in the fixed portion of the customer charge has been proposed to increase from $7 per month to $16.75 per month from Nov. 2008-April 2009 and to $10 per month from May-Oct. 2009. In Nov. 2010, the winter customer charge would be $20.14, while the May 2010 summer customer charge would be $11.96.

The OCC believes that Vectren’s proposal is not reasonable and any increase should be limited to $3 million. The company has overstated its costs and investments, used a flawed system of budgeting and is asking customers to pay for equipment that is not in use or has never been in use. In addition, the restructured rates would have an adverse effect on lower-usage, lower-income customers and create disincentives to use less natural gas through energy efficiency efforts.

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Natural gas costs defined: Understanding your monthly bill

With the price of natural gas regularly in the news and the cost of home heating expected to increase dramatically next winter, the Office of the Ohio Consumers’ Counsel (OCC) is urging consumers to take action now. While the price of gas is based on a national market, public hearings being held across the state by the Public Utilities Commission of Ohio (PUCO) will determine whether Ohio’s major natural gas utilities are able to impose rate increases to the delivery portion of customers’ bills.

The delivery charge, which is approximately 30 to 40 percent of the total bill, is the cost assessed for delivering the gas to homes as well as other taxes and surcharges that may be assessed.

In order to have a better knowledge of the issues before the PUCO and terminology used during the hearings, it is critical that customers have an understanding of the definitions and abbreviations they see in news articles and on their monthly gas bill.

Natural gas usage is shown in either hundred cubic feet (Ccf) or thousand cubic feet (Mcf).

GCR – The Gas Cost Recovery portion of the bill is the actual cost of the natural gas bought by the company and billed to the consumer. For most utilities, this rate changes monthly based on the changing costs of natural gas, estimates of what it will cost in the near future, and adjustments to “true-up” previous gas cost estimates based upon actual results.

SSO – The Standard Service Offer is a rate for some companies that replaces the GCR. The SSO is determined by using the wholesale price of natural gas and adding a price determined through an auction among competitive suppliers.

Base Rate – The charge to deliver the gas to customers as well as other taxes and surcharges.

Monthly Service Charge – Also referred to as the “Customer Charge,” this is a fee within the base rate that stays the same each month. It has historically covered the cost of maintaining and reading gas meters, billing and record keeping. It is primarily the fixed monthly charge that could or is already going up significantly as a result of rate cases for Dominion East Ohio, Columbia Gas of Ohio, Duke Energy Ohio and Vectren Energy Delivery of Ohio.

Usage Charge – This charge varies depending upon the amount of gas the customer uses in a given month. Generally, these costs are elevated during the winter months. In current rate cases, this charge has been proposed to be lowered.

The rate hikes being requested at this time are being implemented by reducing the usage charge and shifting the utility’s costs of doing business into a much greater monthly service charge. This is defined by industry insiders as the “straight-fixed variable” rate design.

The OCC strongly opposes this concept reasoning that this billing structure will penalize low-use/low-income users and also reduce consumers’ incentive to conserve gas. At a time when energy efficiency is being promoted at all levels of government and in the media as the best way to support a cleaner environment and lower the overall cost of energy, consumers should have every opportunity to control their bills through usage-based charges.

Natural Gas Choice

Many consumers have chosen to purchase their gas through a certified alternative supplier in an effort to mitigate the rise in the cost of gas. Regardless of who supplies the consumer with their natural gas, the delivery will continue to be made by their local gas utility through its pipelines. Natural gas choice enables customers to comparison shop for their supply and select the rate package that is most attractive to them. All four major gas utilities in Ohio offer natural gas choice to their customers.

There are several types of rate structures made available by alternative suppliers. Gas is sold at a:

Fixed rate – A price per unit of gas that is guaranteed not to change for the life of the contract. Contract periods range in length from six months to three years.

Variable rate – A price per unit of gas that may change based on various factors. This may be lower than a fixed rate to start but the customer is advised to ask the supplier upon entering into such a contract, how often the rate is subject to change and what factors would bring about any change.

Supplier offers also may include discounts or incentives that may affect the rate per unit.

Of course, customers also have the choice of continuing to pay for their gas through the GCR or SSO, which are provided by the local natural gas utility and regulated by the PUCO.

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