MGE’s Radical Rate Redesign Threatens Solar Market

Summary of MG&Es Rate Proposal for 2015 and 2016

 Overview: MGE is proposing to restructure electric rates, effective January 1, 2015. The restructuring would take the form of sharply higher fixed charges each month and lower rates for energy use.  From the current level of $10/month, MGE proposes increasing monthly fixed charges to $22 in 2015 and $50 in 2016. The per-kilowatt-hour rate would decline during this period. This shift will affect customers positively or negatively based on their usage. This proposal, which surfaced in MGEs current rate case in early June, is on a fast track.  The Public Service Commission will review MGEs proposal and make a decision on it in late fall 2014.

Big picture impacts:  Shifting revenue capture from variable energy rates to fixed charges will increase monthly bills for lower-use customers (<550 kWh/month) while lowering them for higher-use customers (>550 kWh/month). Low and middle income households are predominately lower-use customers and high income households are the heaviest users of electric energy. The lower energy rates will greatly weaken the economic rationale for efficiency measures and on-site solar generation. Moreover, efficiency and on-site solar will have no effect on fixed charges, which will become a larger component of monthly bills for all customers. There appears to be no upside for lower use customers.

Higher use customers will see lower electric bills, and very high use customers will realize significant bill reductions. They too would see little economic benefit from energy-saving measures and/or self-generating with solar should they want to pursue such options.

For residential and small commercial customers, the most significant changes would occur in 2016, when MGE would institute a demand charge that cannot be lowered through behavior changes (e.g. time of use) or more efficient appliances. For the majority of customers, fixed charges would account for more than 50% of their monthly bills.

Impacts on Solar Market: A radically flattened rate structure would likely reduce the Madison-area solar market to near-nonexistence in a very short time. Compared with 2014 rates, the rates in 2016 would cut the economic return from solar energy in half. MGEs offer to grandfather existing systems under the current rate structure is a tacit admission of the suppressing effects that future rates will have on solar self-generation. Moreover, the proposed cut-off date for grandfathered solar systems has passed (June 1, 2014). Installations planned for the second half of 2014 will not be protected from the energy rate reductions proposed for 2015 and 2016.

Conclusions: If adoptedMGEs rate restructuring proposal would:

  • Penalize lower-use customers (ie: solar customers [SA ed])
  • Discourage energy efficiency across the board
  •  Throw Madisons solar market in reverse
Prepared by RENEW Wisconsin

June 2016