PUC hearing will address alternative ratemaking issues

The nation's energy-distribution networks are undergoing dramatic changes as more power is produced from sources such as residential-rooftop solar systems and customers embrace more energy-efficient practices.

But many utilities are still heavily dependent on rates that reward them for selling more energy, a system that collides with public policies encouraging energy conservation and cutting greenhouse-gas emissions.

On Thursday, the Pennsylvania Public Utility Commission will hold a half-day hearing in Harrisburg on "alternative rate-making methodologies," a topic with greater impact on environmental and economic policy than its dull title may imply.

"The key question being explored in Pennsylvania, and in many other states, is how to best maintain safe and reliable energy infrastructure while also encouraging utilities to push forward with more aggressive energy efficiency and conservation programs," said Nils Hagen-Frederiksen, the PUC's spokesman.

Nine witnesses are scheduled to testify, including rate experts and representatives of utilities, environmental groups, industrial users, and residential consumers. The PUC also is accepting written testimony through March 16.

There is general agreement that regulators should consider "decoupling" rates, a broad concept in which prices are set to guarantee enough income for utilities to cover their costs and make a reasonable profit, regardless of sales volumes.

But ideological differences emerge on how rates should be specifically decoupled. One of the more divisive issues is whether utilities should be allowed to collect more revenue from fixed monthly fees, a system called "straight fixed-variable rate design."

Utilities tend to favor SFV rate design, in which virtually all their costs are recovered through a flat monthly fee and only actual energy costs are recovered through a variable fee.

Customers who use cellphones, Internet service, and residential trash collection are accustomed to paying fixed monthly rates, Paula A. Strauss, director of rates and regulatory services for the parent company of Columbia Gas, said in testimony filed with the PUC.

"Thus, adopting a fixed charge for residential distribution services should not be considered as outside the norm," she said.

But consumer advocates and environmental groups are concerned that shifting costs to fixed rates will put more of a burden on low-income customers, senior citizens, and customers who have invested in renewable power or energy-conservation measures.

"SFV can present serious social-justice concerns, whereby low-usage low-income customers actually end up subsidizing those customers with the highest electricity usage," Eric D. Miller, policy counsel for the Keystone Energy Efficiency Alliance, said in testimony prepared for the hearing.

Miller said his group supports adoption of "performance incentive mechanisms" that reward utilities that voluntarily exceed energy-conservation mandates. Those incentives would be recovered in higher rates.

There will be some discussion Thursday of whether decoupled rates would make utilities less eager to restore service after storms, because their revenue would be independent of any sales volumes lost to outages. Most experts say there are enough regulatory and legal pressures on utilities to provide reliable service to maintain performance.

"A regulatory structure that disconnects sales from net income allows utilities to focus on other matters, such as service, reliability and innovation," Richard Sedano, a director of the Regulatory Assistance Project in Vermont, said in written testimony.

Rate decoupling is not a completely novel concept in the region. Several utilities here, including Philadelphia Gas Works, have weather-normalization adjustments that allow them to shift up or down in response to reduced or increased consumption caused by abnormal weather.

And since 2013, Pennsylvania electric and gas utilities have been able to immediately recover construction costs through a "distribution system improvement charge," a customer fee to repay utilities for investing in pre-approved system upgrades without having to seek formal rate increases.

The hearing will be live-streamed starting at 9 a.m. at www.puc.pa.gov.

amaykuth@phillynews.com

215-854-2947@maykuth