Recently, Mon Power and Hope Gas both filed with the Public Service Commission for rate increases — requests that were met with public indignation.
Figuring out how utilities get paid is complicated, but we’ve done our best to figure it out for you. In the simplest possible terms, regulated utilities — like Mon Power and Hope Gas — are given a monopoly and guaranteed a certain amount of profit in exchange for providing essential products and services (e.g., electricity, heat and water) to customers at a “reasonable” cost that must be approved by the PSC.
Here are the bare essentials for you to know: A revenue requirement is the total sum of money the Public Service Commission approves (you could perhaps call it a budget); that total is then spread across all ratepayers’ bills. The revenue requirement is based on operating expenses, base rate and allowed rate of return.
Operating expenses cover the costs of fuel to produce energy, moving energy, buying energy from other sources and environmental compliance. The base rate is comprised of personnel, taxes, debt, property and other assets. The allowed rate of return is the profit margin — around 10%, paid for by ratepayers — for the utility’s shareholders.
How much profit a utility makes is directly related to the base rate. Utilities make more money when they buy or build property (included in the base rate), which has been found to incentivize utilities to spend more money than necessary on tangible assets.
That brings us to Mon Power’s latest request: a $207 million base rate increase (a little less than $19 per month). Mon Power says this would be its first base rate increase since 2014, but it would be on top of three operating expense rate increases the company has received in the last two years — and this would be an increase from which Mon Power profits to the tune of roughly $20 million for its shareholders. Ironically, the increase is partly to pay for more support for low-income customers — you know, the ones already struggling to pay the bill.
Around the same time, Hope Gas asked for a $66.5 million rate increase as part of its Pipeline Replacement and Expansion Program ($6.45 a month). As best we can tell, PREP falls under the base rate and therefore contributes to Hope Gas’ profits.
The original idea of a regulated utility was to incentivize building infrastructure — power lines, poles, pipelines, etc. — when electricity and gas heating were just getting started.
The regulated utility model isn’t working anymore. Not when the infrastructure is already built, but utilities only profit by building or buying up more property; not when irresponsible business practices cost the customers instead of the companies; not when utilities are constantly raising rates on a captive customer base; not when the wages for said customer base have stagnated, and more and more people live on a fixed income.
This system must change.
In the meantime, the PSC must deny the rate increases to protect customers.
