Customer Charge
This charge reflects the average fixed cost to serve customers. It is also referred to by some utilities using various other names
such as Fixed Charge, or Facilities Charge. All utility charges including the customer charge are authorized by the Public Service
Commission, based on annual cost estimates at the time of a utility's last rate case. The annual cost is normally collected through
a monthly charge. Although a daily rate is used by Madison Gas & Electric Company (MGE) and Wisconsin Power and Light Company (WPL)
dba Alliant Energy. MGE's and WPL's monthly customer charge listed here reflects the actual daily rate times 365 days and divided by
12 to arrive at a monthly rate for easier comparison to other utilities.
[More detailed explanation of customer and energy charges.]
Energy Charge
This charge reflects the average cost of purchasing or producing energy, distributing the energy, and other overhead costs not included
in the customer charge. The energy charge is also authorized by the Public Service Commission, based on annual cost estimates at the time
of a utility's last rate case. Energy is measured in kilowatt-hours (kWh) and is generally billed using a uniform per kWh rate every month.
However, Madison Gas & Electric (MG&E) and Wisconsin Power and Light Company (WPL) dba Alliant Energy have energy rates that are seasonal
with summer rates (approximately mid-Jun. to mid-Oct.) being higher than winter rates (approximately mid-Oct. to mid-Jun.). Some utilities
also offer time-of-day service with rates that reflect daily cost differences.
[More detailed explanation of customer and energy charges.]
FAC
This is an acronym for Fuel Adjustment Clause (FAC). It is also referred to by some utilities using various other names such as
Adjustment for Cost of Fuel, Energy Cost Adjustment Clause, Fuel Cost Surcharge, or Fuel Cost Credit. Instead of an automatic adjustment
clause mechanism like the PCAC, the state's largest investor-owned electric utilities: Madison Gas & Electric Company, Northern States
Power Company (dba Xcel Energy), Wisconsin Electric Power Company (dba WE Energies), Wisconsin Power & Light Company (dba Alliant Energy),
and Wisconsin Public Service Corporation; are subject to "fuel rules," which provides a mechanism to adjust rates when a utility's cost of
energy to meet the needs of its customers falls outside of a predetermined range.
[More detailed explanation of Fuel Adjustment Clause.]
PCAC
The Power Cost Adjustment Clause (PCAC) has been authorized by the Public Service Commission for the municipal utilities and small
investor-owned utilities. The PCAC is an automatic adjustment clause that allows a utility to adjust customer's monthly bills either
upward or downward to reflect the utilities average cost of purchasing and/or producing power that is either above or below the average
cost that is authorized by the Public Service Commission and reflected in the utility's base rates
Further explanation of Customer and Energy Charges.
Generally, all customers that are served by an electric utility are classified or grouped with similar customers for the purpose of
determining the cost to serve and the appropriate rates. The rates for each customer classification are designed to reflect the average
costs to serve that group of customers.
Historically, the Commission has approved separate charges to reflect the fixed and variable costs associated with serving residential and small commercial customers. The charge that reflects a utility's fixed cost goes by many names like customer charge, fixed charge, and facilities charge. However, they all recover the same costs. For residential and small commercial customers the charge reflecting a utility's variable cost is usually named the energy charge.
Generally, a utility makes investments and incurs expenses to provide safe, adequate, and reliable service to its customers on demand. Like any business a utility has both fixed and variable expenses. The energy charge primarily collects the variable costs associated with providing electric service. These costs include fuel and equipment associated with generating the electricity as well as the costs of the transmission system, necessary to transfer the electricity from the generating stations to the local utility grid. The monthly facilities charge collects the utility's fixed costs. The expenses that the utility incurs that do not depend on the amount of electricity used are the fixed costs. These expenses primarily include a return on the utility's investment in its meters, transformers, and electric services lines that are necessary to serve each and every customer as well as the average cost of meter reading, and billing. There are other fixed expenses that a utility has which are currently not included in the customer charge. These include but are not limited to a return on the utility's investment in its local utility grid (distribution system) and taxes. Often these other fixed expenses are included in the energy charge since they are less easily identified with service to specific customers.
Further explanation of the Fuel Adjustment Clause (FAC)
The Public Service Commission (PSC) determines any FAC rate that may be appropriate for a utility. It uses "fuel rules," that are defined
in Wis. Admin. Code chapter PSC 116. A utility that is subject to the rules must monitor its cost of energy to meet the needs of its
customers and file monthly reports with the PSC. If these costs fall outside of a predetermined range, the utility may file a request with
the PSC to change its rates. A public hearing is necessary in the cases where the request is an increase in rates. The PSC must issue an order
authorizing a new FAC surcharge before it can be applied to customer's bills. In the case of a FAC credit the new lower rate could go into
effect 10 days after the PSC receives the request to decrease rates without any hearing. The FAC is usually set to zero (0) when the PSC sets
new base rates for a utility.
The "fuel rules," primarily address changes in the cost of energy. Capacity costs are usually addressed in rate case proceeding that are regularly scheduled every year or two. Significant fluctuations in capacity costs may be deferred and addressed in the next rate case. New FAC rates are set on a forward-going basis. Therefore, utilities have a financial incentive to control their costs to produce or purchase energy, since they are only allowed to recover increased future costs (not costs already incurred) if such costs for the year exceed a given threshold. Utilities also have a financial incentive to control capacity costs, since such costs may only be deferred until the next rate case; however, there is no guarantee of cost recovery at that time.