By Frank Vinluan
RALEIGH – When North Carolina natural gas customers get their November bills, they’re likely to see a slight increase due to rate changes that Piedmont Natural Gas and PSNC Energy have pending before state regulators.
What customers won’t immediately see is a proposed change that would give utilities the ability to seek further rate changes as energy use rises or falls. Some consumer advocates worry that such a rule – which would allow rate adjustments outside the parameters of a formal rate case – could leave utilities free to charge customers more, even if customers use less. Utilities say the energy rule change would give them greater flexibility and would actually encourage them to promote energy conservation.
The rate-change provision, along with the rest of each utility’s formal rate case, still must be approved by the North Carolina Utilities Commission. Separate commission decisions on the Piedmont and PSNC cases are expected in the coming weeks.
Both PSNC and Piedmont filed rate cases in the spring. Rate cases give utilities an opportunity to adjust their base rate, which covers operating costs and allows a return. On a customer’s bill, the base rate makes up about 20 percent of the total, says Jeff Davis, director of the natural gas division of the utilities commission’s Public Staff, which represents consumer interests in rate cases.
PSNC spokeswoman Angie Townsend says her company’s proposed increase in base rates would amount to about a 28-cent increase on a typical residential customer’s monthly bill. Piedmont does not yet have a breakdown of the customer impact.
The remaining 80 percent of a customer’s bill comes from the cost of the fuel itself. As the price that utilities pay for natural gas rises, the companies pass those increases directly to customers. Gas bills this year have gone up because of rising fuel prices, not because of rate changes.
“What’s volatile is gas costs, which, by law, is passed through,” Davis says.
What natural gas utilities are seeking to do is separate the amount of money they make from the amount of natural gas they sell, a capability the utilities industry calls “decoupling.” With utility revenue tied to sales, a utility makes more if it sells more fuel, Townsend says. But when consumption drops, revenue falls. That could leave a utility unable to cover its costs. Townsend says PSNC has seen consumption levels drop by about 2 percent a year for the past five years.
Rate decoupling allows a utility to seek a marginal increase in rates if consumption falls. Under proposed rate settlements involving the companies and the Public Staff, among others, PSNC would get a decoupling mechanism for the first time. Piedmont would be allowed to continue the decoupling capability it has had on a trial basis since its 2005 rate case.
The Public Staff supports decoupling. But Shana Becker, staff attorney for consumer group NC PIRG, has concerns about separating rates from energy consumption. She is concerned that customers could actually face higher rates for using less energy. She says utilities could also raise rates if winter consumption falls due to warm weather – a circumstance that Becker says does not amount to true energy conservation. Becker says that breaking the tie between rates and consumption must come with programs that ensure utilities are promoting conservation.
If PSNC’s new rates are approved, Townsend says, the utility will introduce new conservation programs that should become available by the start of 2009. Piedmont has in place several conservation programs, which spokesman David Trusty says might not be possible without decoupling. Trusty says decoupling also allows rates to change if usage rises. In that instance, utilities would not make a windfall from higher use because decoupling allows for a small reduction in rates.
“When we’re not depending on how much a customer uses or doesn’t use, it frees us up to promote conservation,” he says.
Davis says utilities commission decisions on both PSNC and Piedmont are expected in October. Both utilities have said they want to implement the new rates by Nov. 1, which marks the start of the winter heating season.
