Epilogue on "Tiered" Natural Gas Rates

Longtime readers will recall a series of posts last year on the subject of "inverted" block rates, or "tiered" rates for natural gas.

A quick recap, under "tiered" rates, the more natural gas you used, the higher the price you paid.  Of course, if you use more you pay more, but this system is more like charging a Prius driver $2/gallon for gasoline, while charging an SUV owner $5 per gallon.

A natural gas utility tried out the concept but was ordered by our state's utilities commission to drop the program, after a storm of protest.  Now it turns out that the utility has to refund some of the money it collected from customers who were innocent.

In calculating the penalty price, each user's natural gas monthly consumption was compared to the "average" user.  Above average users paid a higher price, below average users got a discount.

But wait.  It was discovered that some gas customers got bumped into the higher price bracket because the utility calculated usage based on a 32-day month, in some cases higher than 40-day "months."  Yes, your gas usage will look high if the utility counts 40 days of your usage and compares your figure to 31 days for an average user.

Unbelievable.

Minnesota Suspends Tiered Rates for Natural Gas: You Made the Difference

As expected, the Minnesota Public Utilities Commission (PUC) suspended the "tiered" rates program run by CenterPoint natural gas.  But the program is not dead yet, as they will try again to revamp the formula over the winter.

Under tiered rates (also known as inverted block rates or "use-more-pay-more") the price you pay for natural gas increases as your usage increases.  It's like charging a Prius driver $2 a gallon for gasoline, but a minivan driver $5 per gallon.  The minivan driver hauling her family around may use less gasoline per passenger-mile than a solo Prius driver, but the minivan tank holds more gallons, so she must pay more.

It's clear that public outrage made the difference in forcing the hand of the Commission.  Quoting Kate O'Connell of the state's Department of Commerce,

"Hundreds of consumer letters about this tiered rate plan are what made the difference.  They changed what happened at the PUC."

Congratulations everyone, this is your victory!

Followup: CenterPoint to end tiered pricing

Every now and again, some good news.  Minnesota's CenterPoint Natural Gas has filed with the Public Utilities Commission to end their controversial "use-more-pay-more" natural gas pricing system.  A change in state law ended the authorization for the program, which the utility is now seeking to suspend.

Such pricing mechanisms, known as "inverted block" rates or "tiered" rates, charge households a higher price for using more natural gas.  But it just works out to be a tax on families.

It's like charging the driver of a Fiat 500 $2 for a gallon of gasoline, but a minivan driver $5 per gallon.  The minivan driver is more efficient in gallons per passenger mile, moving her family about, but the single person gets the subsidy.  It's bad public policy and good riddance.

Water Water Everywhere...

...But not a drop to drink.  The Minneapolis Star Tribune reported that the City of Minneapolis' water utility is losing water at four times the rate previously reported.  The City's loss rate of 15.75 percent is substantially above the 10 percent standard recommended by the American Water Works Association.
The newspaper reports that "the city can't say where all of it is going." 

But don't you think that you should be so cavalier with your water use.  Wasting natural resources is a great sin, for which the Minnesota Department of Natural Resources wants consumers to pay punitive rates.  For example, in my town, the Minneapolis suburb of Edina, water rates increase as a customer's usage increases, with the top rate more than double the lowest rate.  This pricing structure is known as "inverted block" or "tiered" rates.  Meant to promote water conservation, it serves more as a tax on large households, as the rates don't distinguish between a home with a single resident or a family of 9.

But a water utility, like Minneapolis, is under no obligation to conserve, nor is it subject to a penalties for wasting water.  Conservation for thee, but not for me.

Updated 2: Inverted Block Rate Law Repealed (Bumped)

Tom Steward at Minnesota State News discusses the repeal of Minnesota's inverted block rate law for natural gas prices.

Update 1: 

• Here is the version on the Freedom Foundation website, emphasizing the support of DFL Attorney General Lori Swanson for the repeal.
• Here is the press release from the Attorney General.

Update 2:

• Here is the Channel 9 story on the AG's action yesterday
• The Star Tribune article on the AG
• The Pioneer Press writes on the AG
• Minnesota Public Radio on the AG

Update 3: 

• Here is Tom's original piece reposted at Watchdog.org.

Follow the Money: the Garfield Foundation (Bumped)

The Garfield Foundation of Massachusetts holds in trust the fortune of a 19th century Russian immigrant and his successful businessmen descendants.  As with all of these origin stories, the Garfield's is rich with irony.  The family company made soda chargers, small metal cylinders of compressed CO2, for making seltzer water.  Now, of course, this fortune built on CO2 is dedicated to the elimination of CO2.

The Garfield Foundation, following an unknown motivation, has chosen to be active in Minnesota and the Midwest, promoting global warming policies, which I document in this Google doc.

Although the Google doc is laid out in reverse-chronological order, I assembled the data in chronological order.  It was interesting to see how the group's giving has evolved since 2005, which has relevance for current policy debates.

In 2005 and 2006, the Garfield Foundation was active in funding efforts to stop new coal-fired power plants, specifically the Big Stone II plant, proposed for eastern South Dakota.  In more recent years, the Foundation has shifted its giving to efforts directed at shutting down existing coal-fired power plants, which our region relies upon for critical, baseload power.

When it was fashionable, in 2007 and 2008, the Garfield Foundation supported the work of the Midwest Governors Association and the Minnesota Climate Change Advisory Group, who worked to promote cap and trade policies.  But everything old becomes new again:  persistent rumors have the new Administration in St. Paul reviving the Minnesota Group to make another charge at cap and trade.

From 2005 to the present, the Garfield Foundation has given millions of dollars to develop and operate RE-AMP, the body coordinating non-profit and foundation efforts to promote climate change policy in the Midwest.  RE-AMP claims credit for killing the Big Stone II project, and implementing new energy efficiency, building code, and utility rate decoupling (inverted block rate) laws in Minnesota.

Social Engineering at Work: Water Rates

The Pioneer Press reports on water rates in east metro communities.  Note the prevalence of the inverted block rate structure, which is far more common with water utilities than with natural gas.

What I found most interesting about the article was the unashamed social engineering at work:  we hate business, we love business, we hate irrigation, we hate "big" users.  What happened to just running a utility and charging the cost of service?

KSTP--Ch. 5--On Inverted Block Rates Bill

Last night, the local ABC affiliate--KSTP-5--ran a report on the bill introduced by state Sen. Michelle Benson (R-Ham Lake) to repeal inverted block rate pricing for natural gas service (Senate File 817).

Inverted Block Rate Hearing in State Senate

Jon Miltimore reports on yesterday's state Senate committee hearing on the inverted block rates bill.

Tom Steward on Inverted Block Rates

Tom Steward of the Freedom Foundation of Minnesota blogs about the controversial reason why some customers' natural gas bills skyrocketed this past winter:  inverted block rates.

The theory behind inverted block rates centers on the idea that the more fuel you use the more you should pay.  It's like charging a Prius owned $2 a gallon for gasoline but charging a Hummer owner $6 a gallon for gasoline.

Now some customers are coming forward, complaining that they have the most efficient gas appliances available, but their bills are going up simply because they made the mistake of owning a bigger house or having a larger family.

Update on "Tiered Natural Gas Prices" Story

The Star Tribune reporter, Kara McGuire, who did last Sunday's story on the natural gas company's tiered pricing (inverted block rates), updates the story on her blog, KABLOG, which is much more cleverly named than my effort.  She includes helpful tips on saving energy and shows where to file comments with the Public Utilities Commission.

"Tiered Pricing" Story Finally Posted Online

The Minneapolis Star Tribune finally posted online their Sunday story on the "tiered pricing" structure of the local natural gas utility.

See my Sunday, January 9th post for a discussion of this use of "inverted block rates".  I have been involved in utility rate regulation for more than 15 years.  This is a rare occasion where the public's imagination seems to be engaged on a usually esoteric subject.  The last time I checked, the story had 181 comments on the paper's website.

Update:  Now 189 comments on the Star Tribune website for the story.

"Inverted Block Rate" Pricing Discussed in Today's Star Tribune

Under a headline likely to rival "Worthwhile Canadian Initiative", the Minneapolis Star Tribune discusses "Tiered Natural Gas Pricing".  The local natural gas company has started a program where it charges higher prices based on how much gas a customer uses in a given month.  (The link takes the reader to a chart with the pricing formula.  The full story is not yet available online.  I'll post an updated link when it's up.)

The analogy I've been using to describe "Inverted Block Rate" pricing goes as follows:  the driver of a Toyota Prius would be charged $2 a gallon for gasoline but the Hummer owner would have to pay $5 per gallon, based on the MPG rating of each vehicle.  The idea is to reward the "high efficiency" vehicle and punish the "gas guzzler".  Forget the idea of volume pricing, market set prices, or the fact that the Hummer owner will pay more for gas because she uses more of the product, anyway.

Lately, I've been thinking that a different analogy gets closer to the facts:  say you charge a motorcyclist $2 per gallon, but the minivan owner $5 per gallon.  The motorcycle typically sits in the garage half of the year (in this climate) and the other half it is typically used just on weekends.  The mom with the minivan has her vehicle in motion all the time, running errands, commuting, and taking her kids hither and yon.

Inverted block rate pricing does not reward efficiency, it only punishes usage.  So if you have made the unfortunate decision to have a family, state energy policy says you must be punished with higher prices for your poor lifestyle choice.  You could have the Prius of hot water heaters, the Insight of furnaces, and the Volt of clothes dryers, but if you have a large family, you will pay more for natural gas, simply because you use these appliances more intensely.  How is this family supposed to "cut back"?  This policy needs a rethink.

Campaign against Inverted Block Rates Heats Up

Hate to be a bore, but the campaign against inverted block rates and revenue decoupling is heating up (so to speak).  WCCO TV, channel 4 on your local dial, did a story on last night's 10 o'clock news on Centerpoint's new rate structure for natural gas.  The story makes the great point that higher prices for large users discriminates against big families and has more than a little social engineering element to it.

Inverted Block Rates--Wait, don't fall asleep yet!

It's just getting interesting.  Twin Cities Business magazine, in the December issue, has an article on this new utility ratemaking concept, of which I am not a fan.  With inverted block rates, the more natural gas you use, the higher price you pay per unit.  As an analogy, consider the idea that the driver of a Hummer should pay $5 a gallon for gasoline, but the driver of a Prius, should only pay $2 per gallon.  It penalizes the large user (forget economies of scale and volume discounts).  So you can see why environmentalists like it, it has that punitive element they crave.

But it also penalizes the low-income user, who lives in an old, poorly-insulated home.

It's all part of "revenue decoupling", removing the connection between the profit a utility makes and actually delivering the commodity they sell.  Good work if you can get it!