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Caught in a Fix: The Problem with Fixed Charges for Electricity

Recently, there has been a sharp increase in the number of utilities proposing to recover more of their costs through mandatory monthly fixed charges rather than through rates based on usage. Utilities prefer to collect revenue through fixed charges because the fixed charge reduces the utility’s risk that lower sales (from energy efficiency, distributed generation, weather, or economic downturns) will reduce its revenues.  However, higher fixed charges are an inequitable and inefficient means to address utility revenue concerns. This report provides an overview of (a) how increased fixed charges can harm customers, (b) the common arguments that are used to support increased fixed charges, (c) recent commission decisions on fixed charges, and (d) alternative approaches, including maintaining the status quo when there is no serious threat to utility revenues.