By Hudson Kingston, MCEA Staff Attorney
Far from the runways of Milan, New York, Des Moines and Paris another "model showdown" has been going on in Minnesota this spring at the Public Utilities Commission. Unlike those fashion model shows, this one is for keeps and hundreds of millions of dollars (not to mention air pollution and climate change) hang in the balance. But like many important and significant issues, this debate can have the captivating intensity of a Macro Economics II midterm exam, so I will attempt to liven it up a bit.
How much should you pay a power company per month regardless of how much energy you use? This is a simple question, but it might surprise you to know that parties who participated in Xcel Energy’s recent rate case came out with very different answers to a straightforward question. Part of this big difference is because they started with totally different economic models, with different built in assumptions that lead to different outcomes. These outcomes have an impact on you, in what is called your “fixed customer charge.” Xcel Energy announced they wanted to raise it, and we joined the company’s rate case to fight that potential increase.
In MCEA’s corner was the Basic Customer model. Our economic expert started with the assumption that a residential customer should only pay for what it costs Xcel to add that customer. This means Basic Customer says: “I only should have to pay for Xcel’s costs to send me a bill, give me a meter and connect it, and provide me other services like answering the phone when I call with questions.” These bills don’t vary with where you live or how much energy you consume, they are the same whether you’re rich or poor. With the Basic Customer as a starting point, our expert used Xcel’s own facts and figures to determine that its costs are a little under six dollars for each new residential customer. For comparison: Xcel customers are paying about eight dollars a month today, already above what the Basic Customer method says they really should owe.
In the company’s corner were the Minimum System and Zero Intercept models. These models are a little harder to wrap your head around, but they attempt to represent a version of the existing Xcel system (i.e. the wires, poles, transformers, power stations, etc.) that is “minimum sized” and then divide that up to say how much each person owes for that imaginary power delivery system.
As our expert summarized in testimony:
"Minimum System analyses attempt to estimate the cost to install the same number of units (e.g., poles, conductor-feet) as are currently on the distribution system, assuming that each of those units are the smallest size currently used on the system. The Minimum System approach attempts to estimate the cost to exactly replicate the configuration of the existing distribution system using the smallest-size equipment currently used on the system. . . . the Zero Intercept method attempts to estimate the cost to replicate the configuration of the existing distribution system, assuming the same number of poles, conductor-feet, transformers, and services. However, where the Minimum System approach estimates minimum cost based on equipment cost for the smallest-size equipment actually in use, the Zero Intercept method derives minimum cost based on an estimate of what the equipment would cost in theory if it did not have to carry any load."
So, parties who adopted these models assumed that each Xcel customer should be held responsible for a part of an imaginary power system that either carries the least electricity possible or no electricity. That modeling assumption, according to Xcel’s expert, means that each of us owe more like eighteen dollars per month, just to keep the imaginary poles and wires up. Obvious right?
No, not obvious at all! In fact, last week the Public Utilities Commission decided that the fixed customer charge—what we pay each month no matter how much electricity we get from Xcel — should stay at eight dollars. This rejection of the company’s proposed increase is a big victory for the Basic Customer, and for those of us advocating for energy conservation and renewable energy use.
Why is a low customer charge so important? Xcel still gets its money from customers, but it has to recoup it in the “energy charge” you pay for your usage. So you can save money by saving energy, and if someone with the means wants to put solar panels on the roof a low customer charge makes that more feasible too. Other parties in the rate case made the good point that a lower customer charge is likewise better for low-income customers (the majority of whom are low-use), elderly customers on fixed incomes, and… the majority of all Xcel residential customers. This is a win-win-win-win for the environment, consumer advocates, advocates for the elderly, and the common sense truth that you should only have to pay a utility a fair price for what you’re getting.
So as more Minnesotans work on keeping their energy consumption low and adopt more renewable energy they have the Basic Customer to thank for the push in the right direction. Next time you get your electricity bill remember that tough customer and how it helped us to convince the Public Utilities Commission to make the right choice on your electric rates.