Sierra Club
In an order issued last week, the Missouri Public Service Commission took the important step of moving towards a residential rate design that supports energy efficiency and distributed generation investment. The Commission recognized that customers are charged for the energy they use is key to creating incentives for energy efficiency. If a customer won’t realize meaningful bill savings by making those investments, most simply won’t do it. Likewise, if a customer’s bill incorporates a rate design that sends an “all you can eat” signal, that customer has little to gain by making efforts to reduce her consumption. High fixed charges send such a signal, as do energy prices that require customers to pay less for higher levels of consumption. For many years, Kansas City Power & Light (“KCP&L”) has had declining block rates for most of the year; customers pay a certain prices for the first 600 kWh of usage, and then 4-5 cents less for all usage above that. The message to the customer is clear – you might as well use more electricity.
In KCP&L’s most recent rate case, the utility sought to increase their customer charge by almost $1.50 (after having increased it by nearly $3.00 several years ago). They also proposed to keep their same, outdated rate design that provided very little incentive for investment in innovate energy-saving technologies, despite direction from the Missouri legislature to implement rates that would push customers toward peak load reductions and overall energy savings. (Missouri Energy Efficiency Investment Act, Section 393.1075.4, RSMo).
Working together with Renew Missouri, Sierra Club intervened in the rate case to oppose the increase in the fixed charge and require KCP&L to implement inclining block rates in the summer, reduce the extent to which rates decline in the winter, and to get serious about implementing time-varying rates as soon as possible.
Specifically, Sierra Club and Renew Missouri supported the block rate proposal by the state’s Division of Energy. This proposal was designed to make gradual changes to the existing rate design to move towards efficiency-friendly rates, without creating rate shock for individual customers. Going beyond Division of Energy’s proposal, Sierra Club and Renew Missouri’s expert witness Douglas Jester also made the case for time-varying rates, which are critical to reducing peak load. Reducing peak load is one of the most important ways in which utilities can reduce costs for their customers. When a utility has a high peak load, it has to maintain the generating capacity to serve that load, even if much of that capacity sits around unused most of the year. Reducing peak load also minimizes the need to run the dirtiest, least efficient generating units on the hottest days of the year.
The Commission recognized that inclining block rates would create greater incentives for energy efficiency and benefit most low-income customers, all without much impact on the stability of the utility’s revenues. The Commission also agreed with the Sierra Club and Renew that KCP&L ought to propose time-varying rates for residential customers in its next rate case. KCP&L already has the metering infrastructure to enable these rates, and it is past time for the utility to bring the benefits of time-varying rates to their customers who have paid for those meters.
Unfortunately, the Commission allowed KCP&L to increase its fixed charge by almost a dollar, continuing a trend of allowing those charges to creep up and erode customers’ ability control their bills. However, the Commission’s move towards inclining block rates year-round somewhat counteracts that fixed charge increase. In particular, the inclining block rates structure lowers rates for the first 600 kWh used relative to what they would have been under KCP&L’s proposal. Those first 600 kWh are sometimes referred to as the “lifeline block,” because they represent the energy needed to run a refrigerator, lights and minimal heating and cooling. As a result, an inclining block rate actually helps low-income customers who limit their energy usage keep their household expenses in check.
Overall, the Missouri Commission’s move is a major step forward for the state and sets the stage for a boom in distributed renewable energy growth and innovative energy efficiency and load shifting technologies. Earlier this year, Sierra Club and Renew Missouri settled a rate case with Ameren Missouri that also called for inclining block rates and time-varying rates to be proposed in that utility’s next rate case. The Missouri Commission’s decision in the KCP&L case sends a clear signal to Ameren Missouri that the Commission will expect a robust, pro-efficiency rate design proposal in the coming years.