The company serves more than five million metered customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. Assets total nearly $19 billion. With about 8,800 employees, CenterPoint Energy and its predecessor companies have been in business for more than 135 years.
In Minnesota, CenterPoint Energy is the state's largest natural gas distribution utility, serving about 8000 ,000 customers in 260 communities. The utility also operates a non-regulated business in Minnesota called Home Service Plus®. For more information, visit the Web site at www.CenterPointEnergy.com.
What is a rate case?
A rate case is the regulatory process that public utilities (natural gas, electric and telephone) must follow to formally change their rates. The Minnesota Public Utilities Commission (MPUC) regulates rate changes, and any proposed changes must first go through a review process before receiving a final decision by regulators.
What is the Minnesota Public Utilities Commission (MPUC)?
The MPUC regulates utility service industries in Minnesota, i.e., electricity, natural gas and telephone. It is responsible for ensuring that vendors of these services provide safe, adequate and reliable service at fair, reasonable rates.
The MPUC consists of five commissioners appointed by the governor to six-year, staggered terms. By law, no more than three commissioners can be of the same political party and at least one commissioner must reside, at the time of appointment, outside the seven-county metropolitan area. The governor designates one of these commissioners to serve as chair.
What are interim rates?
Interim (temporary) rates are an approved percentage increase on all customer bills that are effective two months after a rate filing. In our filing, we received an overall annual interim rate increase of $51 million. These temporary rates were collected without any changes to our rate structure. We are allowed to charge interim rates to recover the company's higher cost of providing natural gas service while regulators determine and approve the final rates.
What are refunds on interim rates?
State law allowed CenterPoint Energy to collect interim (temporary) rates while the MPUC considered its rate case. The company began collecting interim rates of $51 million on Jan. 2, 2009. Since the final rate increase is less than the interim rate increase, the company will refund the difference, with interest, beginning with the July 2010 billing cycle.
Additional adjustments were agreed to within this rate case pertaining to the Conservation Improvement Program Tracker, the Environmental Tracker and other ordered adjustments. A typical residential customer's total refund will be about $20.
Why did CenterPoint Energy file to change our rates?
The rate filing is necessary to help the company recover distribution costs that have increased substantially. Our current rates did not allow us to recover the increased cost of doing business.
The main reasons delivery costs have increased are:
Increased operating costs including higher uncollectible customer account expenses and the related collection and customer service costs, along with inflationary increases on other expenses.
Increased costs related to conservation improvement programs
Increased capital structure costs.
Declining use per customer, which affects the company's ability to recover distribution costs that, for the most part, do not change with the amount of gas used by customers. Use is declining because customers have reacted to higher natural gas prices by conserving energy, and because of more energy efficient equipment and building construction improvements.
What do we mean by declining natural gas use and why should we recover it?
Average customer use of natural gas has declined over the years as building construction has improved and appliances and equipment have become more energy efficient. In addition, natural gas customers have responded to higher prices by conserving more. The result is that the residential per customer use has declined. In our 2005 filing, the average customer used 986 therms annually; in this filing they will use about 922 therms annually - around a 6.5 percent decrease over three years.
Declining use per customer affects our ability to recover the costs of serving all customers because most of our costs are fixed and do not change, regardless of how much natural gas customers use.
Are the new rates needed to recover higher wholesale natural gas prices?
No. The wholesale cost of natural is passed through dollar-for-dollar to our customers with no mark-up. Currently and over the past year, natural gas prices have remained fairly low.
Will our filing increase the cost of the Service Plus plan?
No. The Service Plus plan is offered by the non-regulated part of our business and is not related to this filing.
Are customers still better off conserving energy?
Yes, customers are still better off conserving energy; which is the most effective way to save energy money and lower your total bill because you avoid paying the cost of gas, which is 70-80 percent of the total wholesale gas price paid per therm.
Will the revenue increase discourage conservation?
No. Reduced average customer use-as a result of energy conservation- is one of the reasons we have a new rate structure in place. The primary incentive for conserving and the potential for real energy savings for customers are with the cost of gas - which is 70-80 percent of a customer's bill.
The Inverted Block Rate (IBR) will allow customers the opportunity to pay a lower rate for the cost of gas if they conserve energy and use less natural gas. The IBR structure is designed to encourage and incent energy conservation and reduce energy usage.
What is the Basic Charge? Delivery Charge?
Our distribution costs are about 20-30 percent of a customer's bill and are recovered through the Basic Charge and the Delivery Charge. The other part of a customer's bill (about 70-80 percent) is the cost of gas, which is passed through to customers on a dollar-for-dollar basis with no mark-up.
The Basic Charge partially covers the fixed costs of the services we provide every month, regardless of how much gas a customer uses. These fixed costs include meters and service lines - the basic facilities to get gas to customer homes and businesses.
The Delivery Charge recovers the costs not recovered through the Basic Charge and includes distribution system costs and other operating and maintenance costs, such as, billing and payment processing.
INVERTED BLOCK RATES
What are inverted blocked rates?
The Inverted Block Rate structure, which began with your July 2010 bill, will result in customers paying a lower rate for the cost of gas if you conserve energy and use less natural gas. CenterPoint Energy customers will notice a new Inverted Block Rate (IBR) price structure on bills that separates the cost of gas charge into five rate blocks based on natural gas usage.
Customers will see a reduced cost of gas charge on their bills when using less natural gas and a higher cost of gas charge when use is above the average residential usage level. The more natural gas a customer consumes, the more the customer will pay over the preceding block.
This new rate structure also allows the company to adjust its rates once each year to recover or refund any difference between the cost of gas amount paid by customers under the inverted block rate structure and the company's actual cost of gas. This rate adjustment will appear on customer bills in 2011.
The IBR only applies to residential and small commercial customers (less than 5,000 therms a year). It does not apply to dual fuel customers.
REVENUE DECOUPLING ADJUSTMENT
What is Revenue Decoupling and why is it being implemented now?
Revenue decoupling separates the link between the amount of revenue CenterPoint Energy collects from its customers and changes in the amount of natural gas they use. Revenue decoupling allows CenterPoint Energy to automatically adjust its rates for residential, commercial and small industrial customers once each year. These rate adjustments allow CenterPoint Energy to adjust its rates up or down each year to make up for any short fall or excess in sales revenue that is not due to weather. The purpose of revenue decoupling is to reduce CenterPoint Energy’s disincentive to promote energy conservation and energy efficiency. This rate adjustment appears on customer bills monthly beginning March 1, 2011 and is recalculated each March 1st thereafter.
Is Revenue Decoupling part of the 2008 Rate case? If so, how does this fit into the overall rate case structure?
Yes. Revenue decoupling separates the link between the amount of revenue CenterPoint Energy collects from its customers and changes in the amount of natural gas they use. Reduced average customer use-as a result of energy conservation- is one of the reasons we have a new rate structure in place. The primary incentive for conserving and the potential for real energy savings for customers are with the cost of gas – which is 70-80 percent of a customer’s bill.
How will this affect an average Residential customer’s bill over the next 12 months?
Over the next 12 months, the typical residential customer will receive a $1.60 credit as a revenue decoupling adjustment.
How is the Revenue Decoupling Adjustment calculated?
The revenue decoupling adjustment is calculated based on a comparison of actual usage by all customers compared to the usage that was approved in the recent rate case. In this case, residential customers used a little more natural gas, on average, than what was set in the rate case, so we are returning the difference back to residential customers over the March 2011-February 2012 time period.
Why does the Revenue Decoupling amount change every 12 months?
The revenue decoupling adjustment can change up or down depending upon the results of customer’s conservation efforts over the past 12 months.
Why is CenterPoint Energy implementing a Revenue Decoupling Adjustment?
The purpose of revenue decoupling is to reduce CenterPoint Energy’s incentive to distribute and sell more natural gas to recover its fixed costs and to reduce its disincentive to promote energy conservation and energy efficiency.
If there is so much natural gas, why do we need to conserve?
Nearly 25% of the energy used in the U.S. comes from natural gas, so it's a good idea to conserve both for the future, and to save money today. It is also good for the environment and reduces your carbon footprint. Although natural gas is the cleanest burning fossil fuel, it still releases carbon into the atmosphere when burned.
I can’t do anything more to conserve – what am I supposed to do so that I don’t have usage in the highest block?
CenterPoint Energy also offers low- cost home energy audits to help identify ways customers can reduce energy costs and increase their comfort. We have numerous rebate offerings for high-efficiency natural gas equipment that helps lower operating costs. We maintain a website for energy-saving ideas with many low-cost and no-cost ideas and information, including a tool to compare this year to last year for temperature and consumption: CenterPointEnergy.com/readyforwinter.
Why does CenterPoint Energy send bill inserts to encourage usage when Inverted Block Rates are supposed to send a message to use less?
CenterPoint Energy sends bill inserts encouraging customers to install natural gas appliances, such as furnaces and water heaters, because using clean-burning, efficient, reliable natural gas is a better energy choice than electricity, propane, or fuel oil. By directly using natural gas whenever possible for space heating, water heating, cooking, and clothes drying, customers will enjoy greater comfort and cost savings, and it is better for the environment than other fuels, especially electricity. CenterPoint Energy does not encourage customers to use more natural gas in the appliances they already own, in fact, we offer many energy conservation programs encouraging customers to use less natural gas.
Why is the Utility getting involved in social issues?
The mechanics of this pricing program is compliant with the state policy on conservation and environmental goals.
Why is it fair that that CenterPoint Energy charges more for some usage – is the company just making more money on the extra usage?
There are many low-use customers for whom the rate design is intended to benefit. Our best estimate is that 80 percent of our residential customers will pay approximately the same or less if we strictly isolated the IBR and compared bills to the traditional method of charging for gas costs. The actual commodity cost of gas typically fluctuates monthly. The purpose of the IBR is to lessen the financial burden on low-use customers while encouraging high-use customers to conserve. It is important to remember that all customers can be rewarded for conserving under the IBR. The majority of our customers will realize a lower annual natural gas bill than they would under traditional practices. Under the new IBR structure, the average customer began benefiting from the gas price rate reductions in July and paid less for the cost of gas then CenterPoint Energy paid. Current increases due to higher use are offsetting those reductions. The average residential customer that uses approximately 900 therms per year should see a reduction of about $30 annually, compared to traditional billing. Additionally, we offer a Budget Plan, which balances out payments so customers pay more in the summer than the actual bill and less in the winter when they use more – helping avoid bill peaks.
Why should CenterPoint Energy be able to take more than 30 days to read a meter if it pushes usage into a higher block?
Inverted block rates are for the recovery of wholesale gas costs and CenterPoint Energy cannot over- or under-recover these costs from our customers on an annual basis. Consequently, CenterPoint Energy does not profit from longer billing periods. If these costs were over-recovered, we would build a credit into rates to return the excess amount starting in September. We understand the impact that a longer-than-expected billing period can have on our customers in the winter with the inverted block rates. We have recently implemented some changes that will reduce the number of these longer bills and we will continue to read customers’ meters as close to a 30-day period as practical.
Does CenterPoint Energy simply adjust the number of days to make sure that the total usage is elevated to a higher tier cost?
CenterPoint Energy attempts to read customer meters so that the billing period is as close to 30 days as practical. However, due to holidays, weekends and sometimes inclement weather billing periods may be longer or shorter than 30 days. For these reasons, a bill period from 25 to 35 days is not uncommon.
Do other utilities use similar rate design with a decoupling mechanism?
Yes, similar programs are in use by 26 other utilities in 13 other states. In 2007, the Minnesota Legislature passed legislation specifically permitting such a pilot program.
DEFINITIONS
Basic Charge: Partially covers the cost of those services we provide every month, regardless of how much gas a customer uses. These fixed costs include maintenance of gas service lines and regulators; gas meters; meter reading; billing; maintaining facilities; and vehicles and equipment.
BTU: British thermal unit
Capital structure costs: The cost of the capital structure (cost of debt and cost of equity). Known as rate of return (ROR) that the company should have an opportunity to earn and also considered as the overall cost of capital.
Cost of Gas: Covers the total costs paid to CenterPoint Energy to purchase and transport natural gas to our distribution system. The cost per therm usually varies from month to month as the prices we pay producers and suppliers change, typically increasing in the winter, when demand is high, and decreasing in the summer, when demand is low.
Delivery Charge: Recovers all the costs not recovered through the Basic Charge, including taxes, salaries, depreciation, interest, etc.
Decoupling: to eliminate the interrelationship of SEPARATE utilities revenues from sales
IBR: Inverted Block Rate is an alternative to a flat rate. The customer's consumption is divided into blocks; each block has a price per unit of energy consumed. The price for the cost of gas increases with each succeeding block. The customer is billed based on consumption per block multiplied by the cost of gas associated with the usage block. This pricing method is designed to encourage customer conservation since the higher the usage-the higher the rate.
Interim Rates: Interim rates are a temporarily approved overall percentage increase on all customer bills that are effective two months after a rate filing. These rates are collected without changes to our overall rate design. We are allowed to charge interim rates to recover the company's higher cost of providing natural gas service while regulators use the next year to determine the final rates to approve.
Therm: A therm is a measurement unit for natural gas and is the equivalent of 100,000 BTUs. Our average residential customer uses approximately 922 therms per year.
