Minnesota attorney general says poor, elderly suffer under CenterPoint's pricing policy

Minnesota Attorney General Lori Swanson said Wednesday that CenterPoint Energy's pilot program of charging customers higher rates as they use more natural gas was "unfairly picking winners and losers" and should be suspended pending further review.

The three-year pilot, which used something called "inverted block rate pricing," was designed to encourage energy efficiency and was supported by environmental and energy efficiency advocates.

Simply put, it charged progressively higher rates as more energy was used. Traditionally, utilities charge a flat rate for natural gas use no matter how much is used.

The Minnesota Public Utilities Commission approved the pilot project last year, and it was started in July. CenterPoint, Minnesota's largest natural gas provider, said at the time that it expected 20 percent of its customers to pay more but 80 percent to be unaffected or to pay less.

But Swanson said the new billing procedure had unintended consequences. She said it penalized people who had taken many measures to be energy efficient but still were pushed into the highest rates, especially during winter.

Swanson said the program also unfairly hurt people who could not lower their energy bills, such as low-income families with no money to insulate a drafty house, seniors who need more heat to stay warm, people with medical conditions affected by cold and large families.

Jack Ross, 84, and his wife, Marjorie, 72, both have cancer and live in Lakeland. They said they bought energy-saving windows and a more efficient furnace after getting a home energy audit, but their December gas bill was $375.85-about $58 more than the previous December under the old flat-rate structure.

"Senior citizens, like my wife and me, tend not to have the circulation they used to when younger, necessitating a warmer house," Jack Ross said in a statement included in the attorney general's filing to the PUC.

At a news conference, Swanson said: "You can only incentivize behavior if people can do something to change their behavior. In some cases, it seems to be financially punishing people who've done all they can."

CenterPoint Energy spokeswoman Rebecca Virden said the Houston-based utility will review the attorney general's comments and file its comments with the PUC this month.

CenterPoint is the state's largest natural gas provider and serves more than 718,000 customers, mostly in Minneapolis. But it also provides service to the suburbs, including Apple Valley, Lino Lakes and Woodbury.

Swanson wants the PUC to look into another aspect of the new pricing structure. After CenterPoint instituted its inverted block rate plan, it also increased the length of its billing cycles beyond 30 days, she said. The extra billing days pushed many customers into higher rates, Swanson said.

Swanson said the PUC should order CenterPoint to refund or credit customers who had elongated billing periods under the new rates.

Virden said it's not uncommon for billing periods to vary from month to month. Usually, a long period is followed by a shorter one, she said, and it evens out in the end.

The varying lengths of the months didn't matter under the old flat rate, but the system penalized people under the new variable rates, the attorney general said.

She also said she was dissatisfied with CenterPoint's explanation that the months of December and January-traditionally the most expensive heating months - involved holidays and bad weather that prevented the meters from being read in time.

In December 2009, before the new pricing plan took effect, 8.4 percent of CenterPoint bills involved an "elongated" cycle of more than 33 days. But in December 2010, under the new plan, 20 percent of the utility's bills measured use for more than 33 days, Swanson said.

In January 2010, 21.3 percent of CenterPoint's bills were "elongated," or more than 33 days, while in January of this year, that share rose to 40.7 percent, she said.

The attorney general said the program needs more evaluation before she can say whether CenterPoint designed the program poorly or whether the concept itself is fatally flawed.

"It's well-meaning in theory but not in practice," she said. "I think rate payers have been hammered through no fault of their own behavior."

Energy-efficiency experts defended inverted pricing theory.

"In general, I think the concept is right," said Chris Duffrin, executive director of the Neighborhood Energy Connection in St. Paul. "We do want people to have a really clear price signal to reduce their energy consumption, and I think inverted block rates do that."

Other states, including New York, have used inverted block rates for years and structure the rates so they don't hurt the poor or elderly, said Linda Taylor, director of clean energy and energy efficiency programs at Fresh Energy, a nonprofit advocacy group.

But the Minnesota Chamber of Commerce opposes the idea, saying it sends the wrong price signal and penalizes the most-efficient homes.

"It should be more in line with a market," said Bride Siefert, the chamber's manager of energy policy.

The chamber persuaded the Legislature last session to drop mention of inverted block rates as a mechanism in a state statute calling for more energy efficiency, Siefert said.

The new language does not outlaw the tiered pricing but it does not encourage it either, and it won't affect the CenterPoint pilot, Siefert said.