Fixed Utility Distribution Rates Policy Statement

The Pennsylvania Public Utility Commission (the commission) invited parties including researchers, energy companies, and consumer advocates to testify regarding the efficacy and appropriateness of alternative rate methodologies for public utilities. The invitees testified about whether alternative rate methodologies could encourage utilities to better implement energy-efficiency-and-conservation (EE&C) programs and whether the alternative methodologies would be just, reasonable, cost-effective, and in the public interest. One alternative methodology discussed was revenue decoupling (i.e., finding ways for utilities to recover authorized revenues other than tying revenues to sales). Several utilities and environmental interest groups (e.g., the Natural Resources Defense Council) supported revenue decoupling in some form, noting that revenue decoupling would allow utilities to recover their capital investments and mitigate revenue losses caused by energy efficiency and distributed-energy resources (DERs). However, consumer advocates opposed revenue decoupling, arguing that lower-income households would be unfairly impacted by rate increases due to decoupling because they would not be able to participate in energy-efficiency programs that would allow them to reduce their energy consumption. Large industrial utility customers also opposed decoupling, claiming that it was illegal and that the commission could not ensure that rates were just and reasonable. Another alternative methodology discussed was straight fixed/variable (SFV) pricing (i.e., allowing the recovery of the utility’s fixed costs through higher fixed charges on customers’ bills, rather than through charges related to customers’ variable volume-based electricity use). Although one utility supported SFV pricing, consumer advocates and environmental interest groups argued that making fixed charges too high would work against EE&C efforts because consumers would face higher utility charges regardless of whether they conserved electricity and thus would not have a price signal to change their behavior. A third alternative methodology discussed was demand-side-management (DSM) performance-incentive mechanisms (i.e., methodologies to be implemented in combination with revenue decoupling to incentivize utilities to promote EE&C programs). A utility and the environmental-interest groups supported implementing performance-incentive measures to encourage EE&C measures. After hearing the parties’ testimony, the commission gave thoughts on the merits of the proposed alternative methodologies.