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CUSTOMER FRIENDLY ELECTRIC AND GAS BILLS – A Perspective from a Rate Payer and Industry Professional

image credit: © Robert Norris | Dreamstime.com

This item is part of the Special Issue - 05/2020 - Customer Care, click here for more

What would customers really like to see when they open an electric or gas bill?  I believe customers would like to see bills that are:

  1. Clear and simple to understand
  2. Demonstrably fair

As I look at my latest electric bill from New York State Electric and Gas, it tells me that my bill is made up of thirteen components, grouped into four subtotals.  It shows me sixteen other figures used to calculate the thirteen components, and a grand total of the four subtotals on another page.  Another whole page describes each of the thirteen components of the bill and other figures used to calculate them. 

If a customer wants to know his total cost per kWh or total cost per CCF of gas, he could search through the four pages of the bill in vain.  The figure I most want to know is simply not there.

The second figure that customers should really know is the interest rate that will be charged if they get behind in their bills.  At the very end of page 4, it says “Payments received after the ‘Late Fee After’ date will be subject to a 1.5% late payment charge per month.”  Some utilities are even less clear than that, leaving some customers in doubt as to whether the utility company means a one-time fee of 1.5%, 1.5% interest per year, or 1.5% interest per month.  The word “interest,” which most people understand, is rarely on a utility bill.  An interest rate of 1.5% per month compounds to an effective annual interest rate of 19.5%.  Every bank, every credit card company, and every mortgage company is required to disclose the effective annual interest rate, but utility companies do not.  Is it any surprise that some of our poorer customers get over their heads in debt and never climb out while paying 19.5% interest?

Some of you are already seeing a conflict between two of my recommendations.  How can we disclose the price per kWh and show that we are fair at the same time?  We can’t, unless we really are.  

More and more people are finding out that most utility companies do not charge all residential customers the same price, and it doesn’t make them happy.  When I figured out that my price per kWh of electricity and my price per CCF of gas both went up by 43% in the year following the death of my wife, I certainly didn’t think that was fair.  Representatives and members of AARP are now showing up at public rate hearings to protest higher than average prices for senior citizens, especially widows and widowers living alone.  Utility companies respond by sending the best teams of lawyers that money can buy to perpetuate the status quo, but sooner or later customers will get their way.

The utility companies should lead the way in making rates fair, instead of waiting to be forced to do so by enraged customers and the politicians who represent them.  The main mechanism that causes the different prices for different customers, of course, is the fixed portion of each utility bill, often called the “basic service charge” or the “customer charge.”  Customers who purchase a lower number of kWh get charged a higher than average price, because when the fixed customer charge is divided by a smaller number of kWh, the price per kWh comes out higher.  Customers who live alone, live in small apartments, or invest in LED lights, efficient appliances, and solar panels end up paying a higher price per kWh than the average customer.

So far, critics of the utility industry have not made this a racial issue.  Sooner or later, if someone takes a survey and finds that black customers are being charged a higher price per kWh than white customers, the utility industry is not going to look good.  This is certain to be true as long as average white customers have larger houses than average black customers. Discrimination was never the intention, but many court cases have ruled that any practice that has the result of unequal treatment is discrimination.

Could the utility industry survive a change to charging all residential customers the same price?  Tennessee already does that.  Rich people in Tennessee are still building mansions.  It never occurs to them that poor people should be subsidizing the higher electric use of their mansions.  Rhode Island, Massachusetts, and California are close to having equal prices for all residential customers, while New York and many other states have a long way to go.

The math is really simple:

Revenue allowed to cover costs and profits   

____________________________________      =   price per kWh

Number of kWh sold to residential customers

Are high “customer charges” justified by costs that are related to the number of homes served?  That’s the tradition that has been used to justify them in the past, but it’s contrary to established laws of science.  Distribution losses in electric wires, hence the size of wires needed, vary with the square of the amps, so the largest users are using the most distribution capacity.  With gas, the math is similar.  Pressure drop of gas going through distribution pipes, hence the size of pipes needed, is proportional to the square of the flow rate.  Therefore, the largest users of gas are using the most distribution capacity of the gas system.  

Some say, shouldn’t all customers contribute the same amount to our fixed costs?  That’s not the way the rest of the economy works.  Every company in the world has some fixed costs and some variable costs.  Every company that does not have a monopoly includes a portion of the fixed costs in the price of every unit sold.  When I go to the gas station and fill my Prius with ten gallons of gas, I pay the same price per gallon as the guy at the next pump putting 20 gallons into his pick-up truck.  No attendant comes out and says, “The price for you is $6.00 per gallon because you have to pay your fair share of our overhead costs.”   

The gas industry has a second mechanism for increasing inequality, called “declining block rates.”  Where I live in New York, customers using 50 CCF or less per month had a delivery price of $.373 per CCF last February.  Usage over 50 CCF per month was billed at $.102 per CCF.  Those with larger houses, using more gas and a high percentage at the over 50 CCF rate, ended up with a lower average price per CCF.

Perhaps the most confusing, inaccurate, and customer-alienating feature on bills is the “estimated” bill every other month.  First of all, estimates are sometimes very inaccurate.  One of my electric bills was over-estimated by 95%.  When revised bills have to be issued, that is an extra expense for the utility company.  Why not just eliminate estimated bills and send bills every two months for the actual amount of energy used?  Billing one-eighth of the customers every week for eight weeks in each two-month billing period would even out revenues.  Budget billing is available for anyone who thinks he cannot manage his own budget to pay for two months of usage at a time.     

What really needs to be on an electric bill?  I think only:

Latest meter reading and date    Previous meter reading and date        kWh used

Supply cost per kWh and amount

Distribution cost / kWh and amount

Sales tax % and amount

Total cost/ kWh and amount

Effective annual interest rate for unpaid bills

That makes a total of 14 numbers on the bill, in place of the present 34 numbers and the two that are not presently included.

I know that high, fixed customer charges have been a tradition for a long time, but it is time for a change.  The utility industry needs to plan for the future, not wait until changes get forced upon us.

 

Discussions

Matt Chester's picture
Matt Chester on May 26, 2020

The utility companies should lead the way in making rates fair, instead of waiting to be forced to do so by enraged customers and the politicians who represent them.

Well said, Richard. Utilities can and should be pillars of the community and must avoid putting themselves in the position where customers instead see them as adversaries. 

Richard Ford's picture

Thank Richard for the Post!

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