MGE s Rate Redesign Proposal. Summary and Analysis of MGE s Proposal to Restructure Electric Rates in 2015 and 2016

Transcription

1 MGE s Rate Redesign Proposal Summary and Analysis of MGE s Proposal to Restructure Electric Rates in 2015 and 2016

2 The first part of this presentation discusses how electric utility bills are structured. The second part addresses rate structures and price signals in a utility-style service. From there, the third part discusses the likely effects of MGE s proposal to restructure charges and rates on low energy users, energy efficiency and solar generating customers. The Public Service Commission will review MGE s proposal and will issue a ruling on it in December.

3 What s In Your Utility Bill? Two Principal Components Fixed daily or monthly customer charge Volumetric energy rate (measured in kwh)

4 Automobile Analogy Fixed costs License Registration Insurance Use-based costs Fuel Parking/Tolls Maintenance/repairs

5 MGE s Rate Proposal Residential Service Fixed Charge (monthly) 2014 (actual) 2015 (proposed) 2016 (in original proposal withdrawn for now) MGE $10.40 $19.00 ~$49.00 Volumetric energy rate (per kwh) 2014 (actual) 2015 (proposed) 2016 (in original proposal withdrawn for now) MGE 14.4 cents ~13.1 cents ~7.5 cents

6 Equivalent Pricing for Automobile Use 2014 Fixed costs Gasoline $1,000/yr $3.55/gallon 2015 Fixed costs Gasoline $1,900/yr $3.25/gallon 2016 (proposal withdrawn for now) Fixed costs $4,900/yr Gasoline $1.90/gallon

7 Car Analogy Question Q. Could you justify buying a very fuelefficient car if gas prices drop in half in two years? In fact, would you even care about how much driving you do?

8 Mass Transit Analogy Chicago is served by two rail networks, an elevated city rail service (CTA s the El ), and a commuter rail service (METRA). Network Billing Structure CTA METRA Same fare per ride, not distance-based Graduated fare based on distance

9 Of Price Signals and Social Impacts CTA Why only one fare? Keep billing costs low Low admin/billing costs low fares Price signal: We want more riders on the El Public policy justification: Increased ridership takes cars and motorists off the roads, reducing traffic congestion and air pollution, and provides a transportation option for people who don t own cars.

10 Is There Cost Shifting in CTA s One-Fare Structure? You bet! Cost shift favors: Long-distance, low-use riders Cost shift disadvantages: Short-distance frequent riders

11 What Will Lower kwh Rates Do? Impact on customers: Reduce customer sensitivity to the economic effects of electricity usage Price signal: We want our customers to use more of our electricity Environmental impact: Increasing demand for kwh from the grid will increase carbon emissions and other pollutants. Public policy justification:???

12 Preliminary Conclusions Cost-shifting in utility-style pricing is unavoidable Cost-shifting can advance public policy objectives (e.g., more efficient use of energy) Designing rates/charges to minimize costshifting can lead to undesirable results

13 Do the Math MGE s current rates Monthly Consumption (in kwh) Total Bill ($) Customer charge percentage 250 $ % 500 $ % 750 $ % 1,000 $ % Variable rate 14.4 cents/kwh Fixed charge - $10.40 per month

14 Do the Math Proposed Rates Monthly Consumption (in kwh) Total Bill ($) Customer charge percentage % % % 1, % Variable rate - 13 cents/kwh Fixed charge - $19 per month

15 Do the Math MGE s Proposed Rates 2016 (temporarily withdrawn) Monthly Consumption (in kwh) Total Bill ($) Customer charge percentage % % % 1, % Variable rate 7.5 cents/kwh Fixed charge - $49 per month

16 Bill Impacts to Residential and Small Commercial Customers Monthly Consumption (in kwh) Monthly Bill (2014) Monthly Bill (2015) 300 $53.64 $ $89.64 $ $ $ ,000 $ $ ,500 $ $ Source: Steven James, MGE

17 What About Cg-4 Commercial Customers? (demand-metered >20 kw >200 kw) Fixed customer charges increase more than fourfold Demand charges ratcheted up significantly Energy rates cut in half Overall rate increase in that class is 9% The economics of energy efficiency and solar would be crippled under these rates Many City of Madison accounts are CG-4

18 Cg4-A Commercial Customers (20-75 kw) Monthly customer charge Phase $48 $ Monthly grid charge Phase $0.00 $48.45 Monthly on-peak demand Winter $10.20/kW $18.55/kW Summer $12.50/kW $21.08/kW

19 Cg4-B Commercial Customers (75 kw kw) Monthly customer charge Phase $51.70 $ Monthly grid charge Phase $0.00 $48.45 Monthly on-peak demand Winter $10.20/kW $18.55/kW Summer $12.50/kW $21.08/kW

20 Which Costs Are Fixed? MGE View Admin + billing Distribution Power plants Transmission Fuel Yes Yes Yes Yes No

21 Which Costs Are Fixed? RENEW View Admin + billing Distribution Power plants Transmission Fuel Yes Partially No No No Explanation: Investments in generation, transmission and distribution (in part) driven by consumption growth

22 Three Main Impacts If Adopted, MGE s Restructured Electric Rates Will: Penalize low-use customers Discourage energy efficiency across the board Cloud Madison s solar market

23 Rationale for Rate Restructuring Utility Argument A mismatch exists between system costs and rate design. Energy rates are variable in nature. Too much of the fixed costs associated with standard electrical service is captured through energy rates. High energy rates encourage customers to reduce kwh consumption, but these reductions do not always deliver demand-reduction benefits to the system, resulting in a cost shift.

24 Rationale for Rate Restructuring RENEW s Translation Today s electric rates provide customers with an economic rationale to conserve and/or self-generate with solar. Flattening the variable rate structure and upping the fixed charges will suppress that dynamic. Usage will increase.

25 Q. Are utilities of like mind in restructuring electric rates? A. No. The utilities are all over the map on whether fixed charges should be increased relative to variable energy rates.

26 WI Residential Customer Charges Today and 2015 Utility Customer Charge 2014 (actual) Customer Charge 2016 (proposed) WI Power & Light (Alliant) $7.56/month $7.56/month Northern States Power (Xcel) $8.00/month $8.00/month WEPCO (We Energies) $9.00/month $16.00/month Madison Gas & Electric $10.29/month $19.00/month WI Public Service $10.30/month $25.00/month

27 Effects on Customer-Sited Solar First, a Definition of Net Metering Net metering is the arrangement that allows customer solar-generators to draw electricity from the grid and export electricity to the grid using one meter. If the output from the solar generator exceeds the customer s usage at any given time, the meter runs in the opposite direction, and the exported electricity is credited to the customer at the customer s energy rate.

28 Rate Restructuring Undermines Economic Rationale for On-Site Solar On-site solar has no effect on fixed charges. As per-kwh rates decline, the value proposition for solar shrinks proportionately.

29 What impact has solar net metering had on MGE rates? There are fewer than 200 net metering customers with either current DG or completed applications and the net effect of the cost shift on MGE s other customers is relatively small. Direct-MGE-Bollom-23, lines 14-15

30 Q. How many electric meters does MGE have? A. 140,000 That means that MGE serves 1 net metered account per 700 meters (0.14%)

31 What About this Alleged Cost Shift? According to a 2013 study issued by the Vermont Public Service Dept., a net metered solar electric system installed today in Vermont does not shift costs onto other utility customers. On the strength of that finding, the Vermont Legislature passed a bill in 2014 to expand net metering there. The bill was championed by Green Mountain Power, the state s largest electric provider.

32 Comparing Madison Gas & Electric and Green Mountain Power Similarities: Investor-owned utilities Residential energy rates at ~14 cents/kwh Solar resource quality Differences: GMP policies and incentives have enabled the installation of nearly 30 MW of solar in its territory to date, much of it net metered. Solar is growing rapidly MGE has 2.6 MW of solar in its territory today. Its rate proposal has already sent a chill through the solar market here.

33 Summary (Part 1) Higher Bills for Low Use Customers Rate restructuring will flatten customer bills. Low users (~300 kwh/month) would see higher bills, while high users (~1,000 kwh/month) would see lower bills. The flattening will be more pronounced for commercial customers like the City of Madison. Apartment dwellers in general will see higher bills.

34 Summary (Part 2) Encourage Consumption; Discourage Energy Efficiency The price signals sent by this rate redesign will encourage customers to use more electricity from the grid while dampening the cost-effectiveness of energy efficiency.

35 Summary (Part 3) Clouds Madison s Solar Market While the rate filing would exempt existing solar electric systems from potentially inhospitable rates, solar installers face a very uncertain future, due to energy rate reductions in 2015, the likelihood of additional rate reductions in 2016, and diminished Focus on Energy incentives from the state. The proposed rate structure for commercial customers would effectively end net metering in that sector!

36 TAKE ACTION! MGE s rate restructuring proposal is on a fast track! The Public Service Commission has started its review, and will issue its decision in December. A public comment page has been set up on the Commission s web site. How to post a comment: Go to the PSC's web site ( and click on Public Comment, then search for MGE 2014 rate case (Docket No UR-120). The public comment page will stay open until October 1, 2014.

37 Where can I find this presentation on line?

38 Michael Vickerman Program and Policy Director