MGE’s Rate Redesign Proposal
Summary and Analysis of MGE’s
Proposal to Restructure Electric Rates
in 2015 and 2016
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.
What’s In Your Utility Bill?
Two Principal Components
 Fixed daily or monthly customer charge
 Volumetric energy rate (measured in kWh)
Automobile Analogy
Fixed costs
Use-based costs
License
Registration
Insurance
Fuel
Parking/Tolls
Maintenance/repairs
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proposal – withdrawn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proposal –withdrawn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
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2016 (proposal withdrawn for now)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
 Gasoline
$4,900/yr
$1.90/gallon
Car Analogy – Question
Q. Could you justify buying a very fuelefficient car if gas prices drop in half in
two years? In fact, would you even
care about how much driving you do?
Mass Transit Analogy
Chicago is served by two rail networks, an
elevated city rail service (CTA’s “the El”), and a
commuter rail service (METRA).
Network
Billing Structure
CTA
Same fare per ride, not distance-based
METRA
Graduated fare based on distance
Of Price Signals and Social Impacts
CTA
 Why only one fare? Keep billing costs low
 Low admin/billing costs  low fares
Price signal: We want more riders on the “El”
Public policy justification: Increased ridership takes
cars and motorists off the roads, reducing traffic
congestion and air pollution, and provides a
transportation option for people who don’t own cars.
Is There Cost Shifting in CTA’s One-Fare
Structure?
You bet!
Cost shift favors:
Long-distance, low-use riders
Cost shift disadvantages:
Short-distance frequent riders
What Will Lower kWh Rates Do?
Impact on customers: Reduce customer sensitivity to the
economic effects of electricity usage
Price signal: We want our customers to use more of our
electricity
Environmental impact: Increasing demand for kWh from the
grid will increase carbon emissions and other pollutants.
Public policy justification: ???
Preliminary Conclusions
 Cost-shifting in utility-style pricing is
unavoidable
 Cost-shifting can advance public policy
objectives (e.g., more efficient use of
energy)
 Designing rates/charges to minimize costshifting can lead to undesirable results
Do the Math – MGE’s current rates
Monthly
Consumption
(in kWh)
Total Bill
($)
Customer
charge
percentage
250
$46.40
22%
500
$82.40
12%
750
$118.40
9%
1,000
$154.40
7%
Variable rate – 14.4 cents/kWh
Fixed charge - $10.40 per month
Do the Math – Proposed Rates -2015
Monthly
Consumption
(in kWh)
Total Bill
($)
Customer
charge
percentage
250
51.50
37%
500
89
23%
750
116.50
16%
1,000
149
13%
Variable rate - 13 cents/kWh
Fixed charge - $19 per month
Do the Math – MGE’s Proposed Rates – 2016
(temporarily withdrawn)
Monthly
Consumption
(in kWh)
Total Bill
($)
Customer
charge
percentage
250
68.75
73%
500
87.50
57%
750
106.25
47%
1,000
125
40%
Variable rate – 7.5 cents/kWh
Fixed charge - $49 per month
Bill Impacts to Residential and Small
Commercial Customers
Monthly
Consumption
(in kWh)
Monthly Bill Monthly Bill
(2014)
(2015)
300
$53.64
$58.75
550
$89.64
$91.98
750
$118.45
$116.50
1,000
$154.40
$151.69
2,500
$370.48
$350.71
Source: Steven James, MGE
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
Cg4-A Commercial Customers
(20-75 kW)
Monthly customer charge
2014
2015
3-Phase
$48
$184.33
Monthly grid charge
2014
2015
3-Phase
$0.00
$48.45
Monthly on-peak demand
2014
2015
Winter
Summer
$10.20/kW
$12.50/kW
$18.55/kW
$21.08/kW
Cg4-B Commercial Customers
(75 kW - 200 kW)
Monthly customer charge
2014
2015
3-Phase
$51.70
$188.22
Monthly grid charge
2014
2015
3-Phase
$0.00
$48.45
Monthly on-peak demand
2014
2015
Winter
Summer
$10.20/kW
$12.50/kW
$18.55/kW
$21.08/kW
Which Costs Are Fixed?
MGE View
Admin + billing
Distribution
Power plants
Transmission
Fuel
Yes
Yes
Yes
Yes
No
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
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
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.
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.
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.
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
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.
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.
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
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%)
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.
http://www.leg.state.vt.us/reports/2013ExternalReports/285580.pdf
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.
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.
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.
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!
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
(http://psc.wi.gov), and click on Public Comment, then search
for MGE 2014 rate case (Docket No. 3270-UR-120). The public
comment page will stay open until October 1, 2014.
Where can I find this presentation on line?
http://www.renewwisconsin.org/ppt/MGERateRestructuringSummary.pdf
Michael Vickerman
Program and Policy Director
608.255.4044
[email protected]
www.renewwisconsin.org
http://renewwisconsin-blog.org/