Electric Utility Residential Customer Charges and Minimum Bills, a new policy brief from the Regulatory Assistance Project (RAP), recommends that states carefully examine requests to increase the monthly residential customer charge and consider alternatives such as revenue regulation or minimum bills before approving significant increases.

“All users of the grid have an interest in the utility recovering adequate revenues to ensure safe and reliable service,” said Jim Lazar, author of the policy brief. “Increasing the customer charge is not the answer. That type of rate design is only possible for monopolies, and regulation was created to prevent the exercise of monopoly pricing power by public service utility companies.”

The short policy brief evaluates the impact of higher customer charges. Of particular concern is that high fixed charges remove a customer’s incentive to conserve. Mr. Lazar suggests that the additional consumption likely to ensue as a result of this change in price signal is quite possibly enough to offset a full decade of utility programmatic energy efficiency efforts.

“The bottom line is that rate design should align utility compensation with societal goals such as conservation,” added Rich Sedano, director of U.S. programs at RAP. “Volumetric pricing, combined with revenue regulation, is a more effective tool to do that.”

The policy brief offers the minimum bill as another alternative. Minimum bills ensure that all customers contribute to distribution costs without significantly stimulating consumption or raising the bills of lower-income, low-use customers. Unlike high customer charges, a very small number of customers will be adversely affected by the minimum bill, because a large majority of customers have usage in excess of the minimum billed amount.

The author also provides an illustrative example of the impact of low customer charge, high customer charge, and minimum bill rate designs on customer bills, while still generating the same level of revenue for the utility.