TNMP Says Retail Product Design Won't Change due to Higher Fixed Distribution Charge

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November 29, 2010

Increasing the costs of distribution service which are recovered through a fixed customer charge, rather than a volumetric charge, at Texas-New Mexico Power will not have a material impact on the design or structure of the products that REPs offer customers, TNMP contended in rebuttal testimony in its rate case (Docket 38480).

As only noted in Matters, TNMP is seeking to raise the fixed customer charge for residential customers from $1.40 to $19.93, and for the Secondary Less Than or Equal to 5 kW class, from $2.50 to $9.46 (11/17).  PUCT Staff, TXU Energy, and the Office of Public Utility Counsel are among the parties opposing such a change.

TXU, in particular, has argued that REPs will be compelled to include a similar, significant fixed charge in their products due to the change.

Michael Montgomery, a Regulatory Project Manager for pricing at PNMR Services, argued in rebuttal testimony that customer demand, and not TNMP's rate design, will dictate REPs' product offerings.

"I do not agree, however, that the structure of our pricing to the REPs in this deregulated, competitive market will have a material impact on how REPs choose to price their product after our proposed increase.  TNMP's current rates include a fixed customer charge that REPs already incorporate into their pricing decisions.  Some choose to pass along these customer charges directly to end-use customers, others do not.  I would assume that customers who want the maximum amount of usage-based bill control gravitate toward the REPs with fixed volumetric price/kWh to maximize their savings potential.  I have no reason to believe this will not continue," Montgomery said.

"To put this in perspective, the overall impact of TNMP's proposed rates to a REP for a customer using 1,000 kWh/month is approximately $11/month under the proposed rate design and $9/month under the more traditional rate design favored by [Staff and intervenors].  I am hard pressed to see how a REP that has traditionally chosen to not pass along our fixed monthly customer charges to their customers will change that practice simply because the net difference in TNMP charges to them for an average customer is $2 higher per month.  A safer assumption would be that they would simply increase their fixed volumetric price/kWh to cover the increase and not change their overall pricing structure that attracted customers in the first place," Montgomery testified.

Though OPC argued that TNMP's fixed charge proposal requires low usage customers to subsidize large usage customers, Montgomery responded that, "[p]resumably, low usage customers would select REPs with pricing structures that are best suited to their usage patterns," and that do not include a high fixed charge.

"Arguments raised regarding energy conservation generally stem from a belief that high fixed charges reduce incentives to conserve because the end-use customer will not readily see the impact of the reduction in their bill," Montgomery added.  "This is not accurate.  Even if the Retail Electric Providers choose to pass along the increased fixed customer charge directly, the customers will still see the impact of their reduction through lower charges on the much larger energy portion of their bill. Ultimately, I believe that the higher fixed charge sends a more accurate price signal to the REPs, along with the wholesale price of electricity, for their use in developing competitive retail products," Montgomery testified.

Ronald Darnell, Vice President for Regulatory Policy of PNM Resources, offered additional rebuttal testimony concerning the impact on conservation, stating that a higher fixed customer charge presents, "a greater opportunity for successful implementation of measures to eliminate the utility disincentive to pursue energy efficiency than is the case if the service charges remain at current levels."

Absent the requested higher fixed customer charge, TNMP said that its disincentive to pursue energy efficiency could be alternatively removed by granting it a lost revenue mechanism to compensate TNMP for reduced sales due to energy efficiency.  

The PUCT declined to include a lost revenue adjustment mechanism in its recent amendments to the energy efficiency rules (6/4/10).  Commissioner Donna Nelson has previously said that, from a purely legal standpoint, PURA does not grant the Commission the authority to implement such a mechanism (6/14/10).  REPs have opposed a lost revenue adjustment mechanism in several proceedings.

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