Analysis of select utilities passing fuel costs and risks onto customers

Abstract

AbstractAn electric utility bill often includes a fuel adjustment clause (FAC) charge that can be changed up or down to recoup the utility's fuel costs. The fuel adjustment clause was first introduced after fluctuations in coal prices during World War 1. The continued use of the FAC, which shifts the risk of fuel price spikes to the customer, is particularly concerning where energy burdens for vulnerable residents are high. To estimate the impact of an increase in natural gas prices on residential electricity bills because of the rise in the use of gas to generate energy in recent years. In 2020, electricity production accounted for around 33% of gas usage. One approach to address the high‐energy burden is providing clean and efficient energy for households, reducing energy bills, and freeing up household resources for other necessities. To determine this; first, a few utilities were selected, then the residential rate schedules were examined so a model could be built to calculate the bill based on a range of usage levels. The selected utilities, Florida Power & Light, Duke Energy Florida, Duke Energy Progress, and Duke Energy Carolinas, all rely on different fuel mixes to serve customers. Our findings suggest that with a heavy reliance on gas and a direct pass‐through of gas prices to customers, customers bear the risks of the volatile gas market. A slight increase in electric bills can have an outsized impact on customers, particularly low‐income households and individuals on fixed incomes.