The heat is on high energy users

  • Article by: KARA MCGUIRE , Star Tribune
  • Updated: January 12, 2011 - 2:46 PM

CenterPoint is testing tiered pricing to prod customers to use less natural gas; some could get hit with sticker shock.

Linda Schaetzel often keeps warm by sitting on the radiator of her 100 year old house, along with Montana, a 15 year old Alaskan malamute.

Photo: David Brewster, Star Tribune

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Some Centerpoint Energy customers in Minnesota opening their first heating bills of the winter may be in for a surprise.

The utility is charging people progressively higher rates for the natural gas they use as part of a three-year conservation experiment that began in July after winning approval from the Minnesota Public Utilities Commission.

Designed to encourage people to be more thrifty about energy use, the Centerpoint program charges customers a rate below cost for the first 30 therms of natural gas a household uses each month -- an amount typical during May or September. But the cost rises progressively with usage, so the cold start to the winter may prove costlier than some customers expected.

Centerpoint, which has more than 800,000 residential customers in Minnesota, estimates that eight out of 10 will pay about the same or less for natural gas under the new billing method, not including delivery charges. But that still leaves 160,000 who could be facing winter sticker shock.

While customers can always turn down their thermostats to cut usage, it could make for a long wait until spring.

Linda Schaetzel, who lives in a century-old Minneapolis home, sets her thermostat at 62 degrees and tells visitors to keep their coats on. She's attacked air leaks with plastic window sheeting and caulk and would love to do more to insulate, but was laid off from her job with the city of Minneapolis in 2009 and hasn't found a new one. Her winter natural gas bills are topping $300 a month.

"I can't and will not pay that much money," she said.

Changing incentives

CenterPoint is the first Minnesota natural gas provider to try conservation-tiered pricing. The change comes at a time when natural gas prices have dropped by two-thirds from a peak in the summer of 2008.

"There aren't many businesses out there that ask customers to use less of their product and therefore harm their business," said Jeff Daugherty, director of regulatory and legislative activities for CenterPoint. "What we're trying to do is advance the state policy broadly so that collectively we all win."

The system has five tiers, and each tier's price varies with the monthly cost of gas. In December, the lowest tier was 41 cents per therm. In the highest tier, every therm used above 200 costs 80 cents -- almost double the lowest rate.

If tiered pricing is successful at reducing natural gas use, CenterPoint stands to take in less money, even as its fixed costs for delivering natural gas stay the same. To avoid the possibility of CenterPoint losing money on tiered billing, regulators gave the company the right to add a separate fee to recover its fixed costs without seeking a rate hike. CenterPoint says it's too soon to say whether consumers will ever see a surcharge on their bills.

If the program isn't successful, and customers use higher-than-forecast amounts of natural gas, the company stands to make a windfall. That would trigger refunds to customers.

Minnesota is one of at least 35 states with policies to eliminate utilities' economic disincentives when they urge customers to use less natural gas and electricity, according to a 2010 report from the National Governors Association. In Minnesota, the 2007 Next Generation Energy Act requires utilities to reduce energy sales by 1.5 percent each year and set the stage for tiered pricing.

Minnesota Power, which delivers electricity in northeastern Minnesota, is the only other utility in the state offering conservation-tiered pricing. It doesn't charge customers extra fees if energy use declines.

Green versus poor?

The CenterPoint program forces consumers to grapple with a question: Should they place going green before saving green?

Replacing drafty windows or installing an efficient furnace is expensive, making the choice difficult or impossible for those with low incomes.

Concerned that CenterPoint had little proof that the measures would lead to energy conservation without harming consumers, the Minnesota Commerce Department's Office of Energy Security, which acts as a public watchdog in energy rate cases, opposed the new pricing methods.

Supporters say the changes will benefit many consumers while helping the environment.

The EnergyCENTS Coalition, a nonprofit advocacy group based in St. Paul, says tiered pricing will help low-income people who live in smaller dwellings and use less energy. "Think about your fixed-income senior in an apartment. This block rate structure is for those folks," said executive director Pam Marshall.

Yet Marshall and others dislike the prospect that customers will be hit with additional charges if they conserve too much.

Other advocates for low-income people are concerned about those living in poorly insulated homes or drafty apartments.

"This regressive kind of approach penalizes people because they happen to be low-income," William Davis, president and CEO of Community Action of Minneapolis, said. "I don't think this is the right time or right program to implement."

Kara McGuire • 612-673-7293

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