Smaller customers of Madison Gas & Electric could see the fixed portion of their monthly bill jump dramatically under a sweeping rate change proposal from the investor-owned utility.

Right now, homeowners and renters pay MGE a set charge of about $10 a month (called a "customer charge" on typical MGE bills) regardless of how much electricity they use. That would increase to $49 by 2016 under a two-year rate plan that is now before the state Public Service Commission.

For natural gas customers, the monthly fixed charge is proposed to go from $12 to $21 in 2015.

MGE says the changes are needed to ensure the company doesn’t have to rely so much on sales to its larger industrial customers to fund operations. About 90 percent of MGE customers are residential or small commercial users.

“Under MGE's current rates, lower usage customers are not paying an appropriate share of the fixed costs of service,” MGE’s rate analyst, Steve James, said in testimony to the PSC earlier this month, adding that the fixed charges could rise to $69 in 2017.

It’s unclear how much a homeowner’s monthly bill would increase since the MGE proposal also includes a lowering of the kilowatt hour (kWh) charge for the amount of electricity used. The utility says the average residential bill would go up 2.7 percent a month in 2015 but would dip 1.6 percent in 2016 as the new rate structure is phased in. The company did not say in its proposal what the average residential bill would look like in 2017 if the fixed charge rises to $69. 

Consumer advocates say the changes will have a chilling effect on customers who have taken steps to cut their electricity use.

“Increasing the minimum monthly payment from $10 to nearly $70 is a giant step backwards and runs completely counter to the concept of a ‘community energy company,’ ” says Kira Loehr, acting director of the Citizens Utility Board which is fighting the proposal.

For a public utility, “fixed costs” refer to administration and employee salaries, along with the expense of owning and maintaining power plants, power lines or other infrastructure. Those costs represent about 40 to 50 percent of MGE’s total expenses.

Under the current rate structure, MGE relies on electric and natural gas sales to cover about 90 percent of its total costs. The utility says that isn’t fair to large industrial customers, which use more energy and end up picking up a larger share.

“Our obligation to serve everyone carries with it a responsibility to ensure all customers pay fairly for the grid services they use,” MGE spokesman Steve Kraus says in an email. “In the end, our rates will be more transparent.”

But environmental groups say that raising the fixed charges while lowering the cost of electricity used will act as a disincentive for customers to purchase energy-efficient appliances or make other improvements. A lowering of electric rates could especially hurt those who have invested in solar power installations based on calculations of how much money they will save over the long term.

“The bottom line is that bills are going down for big users and going to go up for smaller users,” says Michael Vickerman of Renew Wisconsin, which has done its own analysis of the proposal.

Vickerman also takes issue with MGE’s estimate on how much residential bills might increase, noting those calculations are based on customers using 550 kilowatt-hours of electricity per month. Many customers use far less per month, he says.

And the proposal could have an especially big impact on the city of Monona, which has recently invested in a large solar installation projected to save the city $9,000 annually on its MGE bill. The municipality has filed with the PSC to intervene in the case.

Electric utilities nationwide have been feeling cost pressures with both a growth in energy efficiencies and investments in alternative energy — especially solar installations not owned by power companies. Some states like Arizona are now charging a tariff to those who have installed solar panels on their homes or businesses in an attempt to make up for lost electric sales.

“As the growth of solar increases, utilities are looking at ways to keep things running so other customers don’t have to pick up the difference,” says Jeff Ripp, a deputy administrator with the Wisconsin Public Service Commission.

But shifting more costs to smaller customers isn’t fair to those who have little choice than buying electricity off the grid, says Katie Neloka of Clean Wisconsin.

“I especially worry about people who are living on a fixed income and trying to save money by keeping the lights off,” she says.

MGE’ s Kraus says he expects the issue will get a full public airing as the rate case moves through the PSC approval process. The commission needs to make a final ruling before the end of 2014.

“We just submitted these rate proposals to the commission last week,” he says. “I'm certain much discussion will ensue and modifications to the overall structure are likely.”

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