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Why Do Pennsylvania’s Utility Bills Keep Rising?

While the majority of a utility bill was once composed of energy costs, it now includes other charges, like network expansion, investment in pipes and distribution charges. Even as energy costs fall, bill prices continue to grow.

(TNS) — Over the past 15 years, the cost of electricity and natural gas in Pennsylvania has dropped. A lot.

Utility bills, however, have not.

The fuel that's being delivered, whether it's the methane molecules that heat homes and cook food or the electrons that power lights, is just one part of a utility bill. Since fracking came to Pennsylvania en masse, unlocking a glut of natural gas, that part has been getting smaller and smaller.

The other charges have picked up the slack.

A look at how electric and natural gas utility bills for Southwestern Pennsylvania customers have changed in the past decade and a half shows commodity prices are not the driving force behind rate increases.

Take Peoples Natural Gas, a utility based on the North Shore.

In 2006, the average monthly bill for a residential customer was $46.06. Of that total, $25.19, or 55 percent was the cost of natural gas, according to data compiled by the Pennsylvania Public Utility Commission in its rate comparison reports. This year, the average bill was $33.40. The natural gas portion? $3.79 or 11 percent.

The same dynamic played out for customers of Columbia Gas of Pennsylvania, the Canonsburg-based subsidiary of NiSource Inc.

The portion of an average monthly bill devoted to commodity cost slid from 54 percent to 21 percent from 2006 and 2021.

"There's no question that the price of natural gas — the reduced price of natural gas over the last decade or so until very recently — had a substantial beneficial impact for both gas and electric throughout the state," said Sonny Popowsky, who served as the state's consumer advocate from 1990 until 2012.

"When the price of natural gas goes down in this region, the price of electricity will follow," he explained.

Start the Bidding

Indeed, as the supply of shale gas increased in the U.S. driving down its price, a wave of natural gas power plants began to nudge coal from its dominance over the regional grid. Because of the way electricity is priced in the PJM grid, gas also became a benchmark price for electricity.

Every day, generators that want to supply electricity to the grid submit their bids for serving the next day's load. The grid operator, PJM Interconnection, lines up the bids from least expensive to most and matches that against how much generation will be needed. The price named by the generator that's last in line when the generation threshold is reached sets the price for all the others who supply the next day.

More often than not, now, that last generator is a natural gas power plant, which means electricity prices in PJM are heavily correlated to swings in natural gas prices.

That's why when natural gas prices rose sharply in the fall, regulators and consumer advocates warned that utility customers, both gas and electric, would feel it in their bills.

But, it turns out, not that much and for not that long. Natural gas spot prices peaked above $6 per million Btus in early October. Last week, they were back down to below $4.

Electric generators in this region and natural gas utilities have an added price advantage: Appalachian gas trades at a discount to the benchmark hub at Henry Hub in Louisiana.

There is much more gas being produced in Pennsylvania than can be consumed here. Much of it is sent out of state through pipelines, but that adds to the cost and there aren't enough pipelines to divert the entire supply. So plenty of gas remains in the region at lower prices.

The benefit to the region, Mike Huwar, president of Peoples said recently, is "the benefit of supply and demand."

Peoples hasn't hedged the price of gas in years.

"We've had no volatility," he said.

The Other Part of The Bill

As gas prices were falling, Peoples' customer and distribution charges — this is the part of the bill called the base rate — have risen steadily over the past 15 years. The same is true for Columbia Gas, and the region's electric utilities, Duquesne Light and West Penn Power.

A customer charge is a flat fee for each residential customer while the distribution charge corresponds to the amount of fuel consumed. Utilities in Pennsylvania cannot make a profit on the sale of natural gas and electricity. But they are guaranteed a rate of return for the base rate.

Every part of a regulated utility's rate is reviewed and approved by the Pennsylvania Public Utility Commission in a months-long legal case that includes expert witness testimony, thousands of pages of technical documents and input from stakeholders. These rate cases often end in settlements where the utility is granted a smaller increase than it asked for, and may include pledges not to ask for further increases for a set time or other concessions.

"Rates tend to increase over time as utilities continue investing in critical infrastructure and technologies to ensure safe, reliable, resilient and affordable service for customers," Duquesne's spokeswoman, Ashley Masic said.

Duquesne's average monthly distribution charge has gone from $15.35 to $30.12 over the past 15 years. Its customer charge has also doubled to $12.50.

The gas utilities have also doubled their base rate charges during that time, in part to fund multibillion infrastructure improvement programs.

"All of Columbia Gas of Pennsylvania's investments in pipes, meters and all of its expenses that support safe and reliable gas service — including responding to gas-related emergencies — are recovered through the customer charge and distribution usage charge," spokesman Russ Bedell explained.

Columbia has spent $2.5 billion since 2007 on expanding and upgrading its distribution network in Pennsylvania. Peoples, which has a roughly $4 billion 20-year pipeline replacement plan, said the same.

"In the utility industry, the pipes and wires, when they get old, they have to be replaced," Mr. Popowsky said.

The price of labor, equipment and materials have increased in recent years, even before the most recent inflation spike. At the same time, interest rates have been low for years.

Mr. Popowsky said it's impossible to speculate whether the decrease in commodity costs gave utilities more freedom to seek higher increases in other portions of the utility bill.

"It's a fair question," Mr. Popowsky said. "Would they have asked for as much? Would they have gotten as much on the regulated side?

"Certainly the fact that the generation and commodity prices were going down decreased the impact on consumers."

It's possible that PUC commissioners would be less tolerant of utilities undertaking costly capital improvement plans if consumers were being slammed by high fuel costs.

The pandemic brought a rare glimpse into how the commission balanced the interests of utilities and cash-strapped consumers, wondering during hearings and testimony if worthy but costly programs shouldn't be deferred for better times.

Utilities also took the financial situation of Pennsylvanians into account and likely delayed filing rate cases longer than they otherwise would have, Mr. Popowsky suggested.

"Rates have to be set in context," he said.

The Other, Other Parts of The Bill

The other charges on the utility bill that aren't the base rate and the commodity cost include taxes, fees, surcharges, and credits.

For example, in 2011, Duquesne Light began collecting a smart meter surcharge to recover the cost of installing automatic meters across its distribution network. Over the past decade, the charge has varied from as little as 13 cents a month to as much as $5.44 a month.

The universal service charge, which tends to be a few dollars each month, pays for customer assistance programs for low-income utility clients. The idea is to collect a little from all customers so that those who have income restrictions can negotiate lower payments.

When utilities need to return money to consumers, they do it through credits.

When corporate taxes fell as a result of the 2017 Tax Cuts & Jobs Act, the Pennsylvania Public Utility Commission asked regulated utilities in the state to come up with plans to distribute those savings to consumers. Peoples and Columbia Gas customers began to see negative charges on their monthly bills starting in 2019. Duquesne Light, on the other hand, gave all customers a one-time refund ($25 for the average residential consumer). West Penn Power is scheduled to begin refunding its tax savings to consumers in January 2022.

(c)2021 the Pittsburgh Post-Gazette Distributed by Tribune Content Agency, LLC.
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