Wyoming Liberty Group
Public Utilities: The Current State of Affairs
by Keith Phucas
Utility costs for a business aren’t cheap.
Roger Hovel, who own Crow Creek Meat Processing in Cheyenne, keeps a close eye on his monthly bill – especially his electricity usage. But given the numerous separate charges, fees and taxes reflected on his statements, it’s anything but easy reading.
The meat cutter has operated his shop at the corner of Ridge Road and Myers Court for a decade. During the fall hunting season, he takes in hunters’ game – deer, elk and buffalo – cutting up the carcasses, then packaging and storing the meat in a walk-in freezer until it’s picked up.
Hovel, who is 66 years old, said butchering a large animal is harder work now than when he was a younger man. He runs the business by himself. His wife, Donna, a certified public accountant, does the bookkeeping from their Cheyenne home.
The other nine months of the year, he supplements his income by selling seasoned brisket, pork ribs and other meat, occasionally catering luncheons.
Powering a freezer and walk-in cooler round the clock is expensive, and he’s seen plenty of his utility bills top $1,000 a month. Electricity costs the most; natural gas much less.
And as his electricity costs have continued to rise over the years, he’s cut back his power usage. In December, he shut off a large refrigeration unit and saved $115.46 that month. When an employee quit last fall, Hovel didn’t hire anyone to replace him. That also saves him money.
But, these cost-cutting measures also work to limit his business growth.
Electricity customers are primarily billed by how much power they used in a month, measured in kilowatt-hours (kWh), with one kilowatt-hour of energy being equivalent to one kilowatt of power expended over one hour.
In January 2005, Hovel paid Cheyenne Light Fuel & Power $781.85 for the 8,903 kWh of electricity his business needed. But eight years later, in December 2012, he paid more money for less electricity – $833.84 for just 5,824 kWh of power.
If he were to use 8,903 kWh of electricity today at his shop, it would cost him $400 more a month than in 2005.
Cheyenne Light Fuel and Power, operating as the city’s sole energy provider, also itemizes other charges on monthly statements, though the terminology is apt to leave customers wondering what it all means.
Hovel, who has made a study of those itemized charges during the past decade, understands most of it.
His January 2013 electricity bill, which is less than the previous month owing to the meatpacker’s energy saving measures, includes a “Service and Facility Charge” ($32); a “Capacity Charge” ($365.98); an “Energy Charge” ($156.82); a power cost adjustment ($15.06), abbreviated as “PCA”; a demand side management surcharge, or “DSM,” ($4.47); a “CPGS Rider,” ($4.92) to allow the power company to recover financing costs for the planned Cheyenne Prairie Generating Station scheduled to begin construction in March in Cheyenne; a franchise fee ($11.59); and a county, state and “Special County Option Tax” ($35.45) round out the electric service portion of the bill.
“I’ve got to get off that demand charge,” Hovel said, referring to the monthly capacity charge.
The “gas service” part of the bill ($99.96), which lists specific charges for natural gas consumed, also includes its own service and facility charge, DSM surcharge, franchise fee and the same three tax categories.
The butcher’s lament is a familiar one among struggling small business proprietors whose rising operating costs year after year erode their meager retail sales.
Cheyenne Light’s corporate contributions are a sore point for Hovel, who has seen notices posted in the company’s 18th Street office – even a roadside billboard – trumpeting the public utility’s many charitable donations.
“What gives them the right to take our money and donate to good causes?” he asked. Hovel wonders why the company doesn’t use some of its profits to reduce customers’ electricity costs.
However, according to Cheyenne Light Fuel and Power, the charitable contributions come from shareholders earnings not from utility customers’ pockets.
Electric monopoly: The current state of affairs
Like other city business owners, the meat merchant depends on Cheyenne Light for utility service. He has no recourse. No choice. Either pay the bill or close up shop.
“Basically, they’re a monopoly,” he said.
Hovel is correct and is not being pejorative. Cheyenne Light is a regulated monopoly operating as traditional public utilities have done in the United States for many decades, though deregulation that began in the mid-1990s has begun to change the energy landscape.
The Wyoming Public Service Commission (PSC) regulates electricity, natural gas, telephones, commercial water utilities and intrastate pipelines. The PSC works to ensure public utilities operating in Wyoming provide safe and reliable service at “just and reasonable rates,” according to the agency’s website.
Cheyenne Light, which was incorporated in 1900, is a subsidiary of Black Hills Corporation and serves 39,000 electric customers and 35,000 natural gas customers in the greater Cheyenne area.
In January 2013, Cheyenne City Council approved a franchise agreement with the public utility company, extending its monopoly in the city for another 25 years. At the same meeting, City Council also approved a similar franchise agreement with High West Energy, allowing the not-for-profit utility cooperative to continue serving 14 of its long-time customers residing inside city limits – consumers who, if they were newcomers and had just moved into a new homes next door to each those 14 people, would be Cheyenne Light’s customers by default.
The PSC must give final approval to Cheyenne Light and High West’s pending franchise agreements
High West has customers outside Cheyenne, as well as parts of northern Colorado and eastern Nebraska. The cooperative, which began in 1942, is owned by its customers and serves about 10,000 member accounts, including residential homes, businesses and government facilities.
High West is not permitted to compete against Cheyenne Light for customers; however, if Wyoming deregulated the market for electricity and natural gas, competition could occur between those two companies and other utility suppliers.
With free market competition, Cheyenne business owners and area residents would have a choice of energy providers, as is the case in others states.
In the U.S., 17 states and the District of Columbia deregulated their electricity markets; 21 states and D.C., including Wyoming, have legislation or existing programs allowing natural gas choice, according to the U.S. Energy Information Administration (EIA).
But giving Wyoming natural gas customers a choice of suppliers does not necessarily guarantee cost savings.
Choice no guarantee of savings
SourceGas Energy Services Company, who serves natural gas customers in Arkansas, Colorado, Nebraska and Wyoming, offers the Choice Gas Program that lets customers pick their suppliers.
The program, which began in SourceGas’s Torrington Division in 1996, was later approved for the company’s Casper and Gillette service areas. Customers choose between fixed-price, market index, blended rate options or “Pass-on Rate,” the only rate regulated by the Public Service Commission, according to a 2008 annual report, “SourceGas Choice Gas 5-year Review,” published by the Office of Consumer Advocate (OCA), an independent division of the PSC that represents Wyoming’s utility customers.
The fixed-rate option has gas customers pay a pre-determined amount each month for a year, while market index rates for consumers are based on the Colorado Interstate Gas (CIG) index’s published price at the first of each month plus additional costs. The blended option is a combination of market price and fixed per-unit price.
The Pass-on Rate, or regulated rate, is based on a combination of stored gas, fixed-contract and index prices.
Customers in the three participating regions had a choice of five suppliers – SourceGas, Alliance for Community Energy, Seminole Energy Services, Wyoming Community Gas and Wyoming Producer Consumer Alliance.
During each of the five years of the study, from 2004 to 2009, the Pass-on Rate was among the lowest rate options, according to the review.
“We looked at the numbers,” said OCA Deputy Administrator Denise Parrish. “We don’t think customers (choosing competing suppliers) are better off than they are with the regulated rates.”
Over the five-year period of the study, the average Pass-on Rate customer in the Casper division paid $4,082.08; the average customers choosing the market index paid $4,192.33; and the fixed-rate customers paid the highest amount, $5,054.60.
Rates in the Torrington area during that same period were more competitive. While Pass-on Rate customers paid an average of $4,317.77; Wyoming Community Gas customers’ five-year bill average utilizing the market index was $4,322.40; and those choosing Seminole Energy Services, also dependent on the market index, paid an average of $4,329.11.
The 2008 study shows with this volatile commodity, any cost benefit depended on which supplier consumers happened to choose.
“It’s a little bit of a crap shoot,” Parrish said.
Electricity choice: Talking ‘bout my generation
Deregulation in electricity markets began in the mid-1990s, but it took more than a decade for customer choice to gain momentum, according to “Retail Electric Choice: Proven, Growing, Sustainable,” an analysis by Philip R. O’Connor based on data from DNV KEMA Energy & Sustainability and EIA.
Since 2008, customer accounts served by competitive electric suppliers have grown more than 53 percent – from 8.7 million to 13.3 million in 2011, according to the report. And the total electricity load “served competitively” has grown 40 percent since 2008, from 488 million megawatt-hours (MWh) to 685 million MWh in 2011.
By the end of 2011, competitive providers supplied nearly one in every five kilowatt-hours of electricity in America, according to the energy analysis, despite the fact that choice only accounted for 44 percent of the U.S. electricity market.
As of February 2013, of Pennsylvania’s 5.6 million electricity customers, more than 2 million have switched from their traditional public utilities to alternative electric generation suppliers, according to the Pennsylvania Public Utility Commission website, PAPowerSwitch.com.
According to the state’s Public Utility Commission, statewide about 34 percent of residential customers have switched from their former monopoly public utility for electric generation; 39.8 percent of commercial customers; and 72.7 percent of industrial customers switched.
In the Philadelphia region, PECO Energy is the public utility that has served customers for more than a hundred years. Formerly Philadelphia Electric Company, the company was incorporated in 1902 and later became PECO. The Pennsylvania utility, like Cheyenne Light, traces its origins back to the Brush Electric Light Company.
Currently, more than 40 electric suppliers compete against PECO in its southeastern Pennsylvania service area. Many competing suppliers, but not all, offer less expensive rates than PECO. Also, many electric suppliers offer fixed-rate contracts to lock in rates, and prospective customers may be able to negotiate with companies to tailor service, according to PAPowerSwitch.
Customers can stay with PECO for both their electric and gas service, but even if they switch to an alternative electricity generation supplier, PECO remains their electricity distributor.
While just 31 percent of PECO’s residential customers have switched electric generation suppliers, a majority of the company’s commercial (48 percent) and industrial (88 percent) customers have signed up with competing firms, according to the Pennsylvania Public Utility Commission.
The chances of deregulation in Wyoming
Article 1, Section 30, Wyoming State Constitution, adopted in 1889, prohibits monopolies as “contrary to the genius of a free state, and shall not be allowed,” but apparently exempted electric and gas companies, which existed in Cheyenne at the time of the constitution’s adoption:
“Corporations being creatures of the state, endowed for the public good with a portion of its sovereign powers, must be subject to its control.”
In the 1880s, the Brush-Swan Electric Light Company provided electricity in Cheyenne and other parts of Laramie County, while Cheyenne City Gas Company supplied natural gas to the capitol city, according to Cheyenne Light’s website. The two companies eventually sold all their rights to provide power to Cheyenne Light.
David M. Mosier, Rocky Mountain Power’s Wyoming regulatory affairs manager, does not envision utilities competition occurring any time soon in the Equality State.
“It’s not going to happen in Wyoming,” he said.
Mosier believes that commercial power suppliers offering essentially the same service would spike energy costs.
“Whenever you have duplication of service, you end up with a higher cost,” he said.
Rocky Mountain Power serves utility customers in California, Idaho, Oregon, Utah, Washington and Wyoming. California, Oregon and Montana are the only three western states that offer electricity choice but currently choice in those states is limited, according to “Retail Electric Choice: Proven, Growing, Sustainable.”
Wyoming Sen. Cale Case (R-Fremont), a leading advocate for free market competition, believes energy choice could come to the state if utility customers demand it.“I could happen if customers decide to push the choice envelope,” he said. “Why shouldn’t they have choice?”
When customers walk into Crow Creek Meat Processing, they wait by the front door a few seconds until Roger Hovel emerges from his work area and walks down a narrow hallway to greet them. He’s always wearing a baseball cap and a butcher’s apron.
The meat cutter will tell you that running a small business in Cheyenne isn’t easy. Starting the business was difficult enough with all the zoning regulations. But after 30 years in business, the Haxtun, Colorado native is used to dealing with government bureaucracy.
In order to gain approval to build his shop, the zoning rules mandated he plant three trees near the Dumpster behind his building. After wrangling with the city’s planning department, he received a waiver that required he only plant one tree there. But he was charged $185 a piece for the other two trees, he said, shaking his head.
“They’re just dictating more to us all the time,” he said.
One afternoon in February, Hovel leaned on a counter near the front door looking down at a recent utility bill. A line item charge labeled “CPGS rider” animated him, and he turned to his office desk and rummaged through some documents.
Under a small stack of paper, he located a one-page photocopy of a Wyoming Business Report column written by Mark Wilcox discussing the planned Cheyenne Prairie Generating Station slated to begin construction in March.
According to the column, “Energy efficiency, rates key to economy,” the proposed combustion turbine-power plant is to be built on a 250-acre parcel owned by Black Hills Corporation, about five miles southeast of downtown Cheyenne.
The plant’s cost is $237 million, with Black Hills and Cheyenne Light co-owning the large facility. Currently, Cheyenne Light’s customers all pay a monthly charge, the CPGS rider, to help defray financing costs for the plant’s construction.
Hovel points to a highlighted paragraph in the center of the page that quotes Cheyenne Light vice president Mark Stege saying, “Typically, when you have any new large asset there is a large rate impact and rates will go up.” Stege didn’t elaborate.
The passage portends tougher times ahead in Hovel’s mind. Higher electricity costs. Even as he cuts his usage, he knows rates typically go up, not down.
“I’m just one voice out in the wilderness,” he said.
On Friday, Feb. 22, 2013, Hovel said he talked to Cheyenne Light and a representative there agreed to charge him by kWh usage, not the “capacity charge,” or what Hovel repeatedly referred to as the “demand charge.”
This would save him a significant amount of money on his monthly bills.
But Hovel shouldn’t have to beg the only electric utility in town for a better rate. He should be free to choose between competing companies in a vibrant marketplace.