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Consumer Advocate Fighting Duke Fixed-Rate Hike in Ohio

June 30, 2008
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The Public Utilities Commission of Ohio (PUCO) should reconsider its decision last month that restructured Duke Energy Ohio's (DEO) gas delivery rates, increasing the fixed charge for service by more than 300% over the next year while lowering the volumetric service charge, said the Office of the Ohio Consumers' Counsel (OCC) last week.

In its PUCO filing the OCC said the PUCO has gone in the wrong direction by essentially charging low-usage customers the same amount as large users for the delivery of natural gas.

"By increasing the flat-rate customer charge from $6 to more than $25 after a year's time, harm will come to those residential customers who try to conserve energy. Every dollar that is shifted to the flat-rate charge is another dollar that cannot be avoided through energy efficiency measures," said Consumers' Counsel Janine Migden-Ostrander. "There are better means to ensure that Duke receives its revenues without disproportionately and negatively impacting many residential consumers."

At the time the new distribution rate was approved, the PUCO touted its ability to levelize consumer rates across seasons. The levelized residential distribution rate structure better reflects the fixed-cost nature of delivering natural gas, commissioners said. The new rate structure breaks the link between DEO's earnings and customer consumption by moving a greater portion of the rate into a fixed monthly charge. Customer bills will balance out between the summer and winter, allowing customers to better predict and budget for bills from month to month (see NGI, June 2).

The OCC said it does not dispute DEO receiving the revenues it negotiated in its rate case, but it does oppose the mechanism the PUCO has chosen for achieving that goal. The consumer advocate said it would be more fair for the PUCO to institute a decoupling mechanism that would allow DEO to adjust its rates if not enough money is collected due to lower than expected usage. Decoupling also provides for a credit to customers if the utility collects too much money due to higher-than-expected usage, a feature that is missing in the rate design approved by the PUCO, the OCC said.

The PUCO has violated its own principle to spread costs over time by ordering an unprecedented quadrupling of DEO's flat-rate customer charge, the OCC said. "A more gradual approach is necessary to prevent sharp increases for customers who do not use a lot of natural gas and have never experienced a $20 or $25 flat-rate customer charge," said Migden-Ostrander. "In today's economy, consumers need stability and tools to manage the size of their bill. The PUCO's decision takes these away."

However, decoupling has been contested by some consumer advocates, notably the Illinois attorney general (see NGI, April 28). Across the nation residential gas consumption has been in decline for a number of reasons, including improved appliance efficiency and increased conservation efforts by consumers in response to higher commodity prices. Utilities have responded by seeking to reduce the amount of fixed costs they recover through volumetric charges (see NGI, April 2, 2007; June 19, 2006) through the use of decoupling mechanisms. The National Association of Regulatory Utility Commissioners supports states' ability to use decoupling (see NGI, April 30, 2007). The Energy Information Administration has predicted that the use of decoupling mechanisms will grow (see NGI, Aug. 20, 2007).

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