Power To The People: Eversource Is Not Costco

By DONALD M. KREIS, Power to the People, InDepth NH

Sixty-five bucks is what it costs to get through the door of Costco to buy your groceries there for a year. So why, oh why, does the Public Utilities Commission (PUC) think you should have to pay Eversource more than $500 a year just for the privilege of being a customer of the utility?

This, of course, is just a slightly more inflammatory way of restating a point in the previous edition of this column, under the headline “PUC to Eversource Customers: Drop Dead.” (Hopefully some readers recognized the allusion to the infamous “Ford to City: Drop Dead” headline in the New York Daily News that some consider the reason Gerald Ford was not elected president in 1976.)

In that previous column, I pointed out that the fixed monthly charge on everyone’s bill – less than $14 barely a year ago – is now going up to nearly $20 a month. I noted that the Commission also said it would be raising the charge yet further, to the tune of two dollars a year, until further notice, because the Commission was enamored of an opinion from one of Eversource’s witnesses that the right number is just shy of $43.

According to my law school math, 43 times 12 equals $516 a year.

Ordinarily I would not belabor this point. But a thoughtful reader of the previous column found my lament about the fixed monthly charge, and Eversource witness Amparo Nieto, to be unilluminating – even confusing.

“Nieto recommended a fixed monthly charge of nearly $43 using some formula which the article does not address,” complained the reader. “What are its variables and what is it otherwise based on?”

Since I would rather be demonstrably wrong than opaque and confusing, I’m giving it another shot here.

Let me start by conceding that Nieto, who works for Charles River Associates, is a respected economist and a genuine expert on cost allocation and rate design for electric utilities. Rather than trashing her, I secretly wish I could hire her to do work for the Office of the Consumer Advocate.

Nieto drafted, and Eversource submitted as evidence, a document entitled “Marginal Cost of Distribution Service Study and Implications for Rate Design.” The purpose of such a study is to figure out the marginal cost – i.e., the additional cost – each additional customer adds to the electric distribution system whose rates are at issue in the case.

Marginal cost pricing is one of the holy grails of utility regulation. Ideally, regulators would structure rates so that each customer pays all of the costs she imposes on the system and not a penny more.

Nieto got to her $42.90 figure by calculating a monthly marginal customer cost of $18.14 plus an additional $24.76 in monthly “facilities costs.” It’s the latter component that is especially problematic from a ratepayer perspective.

The “facilities costs” Nieto assigns to the fixed monthly charge cover “secondary lines, line transformers, and local primary taps,” which she considers “less extensively shared” than other components of the distribution grid (e.g., substations). Nieto claims that the marginal cost of these facilities are “strongly influenced by the connected customers’ ‘design demands,’ i.e., the maximum long-term load that customers may impose on the transformer and conductor.”

Let me try to translate this into plainer English.

We’re talking here about basic infrastructure – parts of the system that must be in place, to meet peak demand, regardless of how much electricity is being used at any time (or during any month) by customers served by this equipment.

So the issue isn’t whether these costs should be included in rates. They should.

The question, rather, is whether it is fair to assign these costs specifically to residential customers, as opposed to all customers, and if so whether to embed these costs in the fixed monthly distribution charge as opposed to the distribution charge that varies according to how much energy you actually use.

Ratepayer advocates like me hate the idea of assigning a bigger and bigger percentage of recoverable costs to fixed monthly charges. The reason is simple: It punishes those who use their electricity frugally by depriving them of opportunities to save money by consuming less.

Economists talk about “price signals.” This one – to use a technical term – sucks.

Also – and here’s hoping my friends at the Business and Industry Association of New Hampshire don’t read this paragraph – Nieto’s recommendation is an example of asking residential customers to pay costs that should really be allocated to commercial and industrial customers. That’s the reality lurking beneath her judgment about “facilities costs.”

Our expert – Caroline Palmer of Synapse Energy Economics – recommended a fundamentally different approach. She noted that a cost of service study is an “inherently imprecise tool in which cost analysts make numerous subjective determinations that may dramatically impact the study results.”

Palmer politely suggested that Nieto went awry by allocating costs according to the so-called “minimum system” method. This involves figuring out what the smallest system the utility could use to meet its load obligations and then define anything beyond that as a “customer-related cost” that is allocated based on the number of customers.

An allocation like that is bad for residential customers because they are the biggest group and tend to use less electricity than commercial and industrial customers.

Are you confused? Does this stuff seem arcane, imprecise, and vexatious?

If so, you’re getting the message – which is that cost allocation and rate design are totally subjective.

Notably, despite Nieto’s theoretical claim that $43 is the right number for the fixed customer charge, Eversource did not seek such a horrible outcome. It simply requested $19.81.

So, by declaring that the fixed customer charge will automatically increase by $2 a year until it hits $43, the PUC is essentially awarding the state’s biggest utility free money. The callousness reflected by such a determination, at a time when people are struggling to pay their electric bills, is staggering.

Electricity, like groceries, is an essential for human survival. Lots of people are willing to pay an admission fee to Costco because the prices on the items in the store are cheap. There are plenty of ways to describe the various per-kilowatt-hour charges on your monthly Eversource bill but “cheap” isn’t one of them.

In any event, your willingness to pay an admission fee to Eversource is immaterial because utility customers are captive. Jacking the admission fee up to an unconscionable amount, reaching a level even the utility did not dare to request, is not the way that government of the people, by the people, and for the people is supposed to work.

Power to the People is a column by Donald M. Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere.

This article first appeared on InDepthNH.org and is republished here under a Creative Commons license.