Refunds to PGW customers for high May bills could cost $12 million — and counting

Got a question about Philly’s neighborhoods or the systems that shape them? PlanPhilly reporters want to hear from you! Ask us a question or send us a story idea you think we should cover.

Editor’s note: This story has been updated to reflect a Friday order by the Pennsylvania Public Utility Commission.

PGW, the city-owned utility that supplies gas to Philadelphians for heating and cooking, will  refund unusually high charges on some gas bills this month that cost customers millions.

The company filed a petition with the Pennsylvania Public Utility Commission (PUC) Thursday to reverse the “unprecedented” Weather Normalization Adjustment charges for the month of May 2022 — which the utility estimates cost customers upwards of $12 million. The PUC released an order granting PGW’s petition Friday, meaning credits could appear on customers’ July or August bills. The order goes into effect immediately, but will be considered at the PUC’s next public meeting.

“While the equation performed as designed, it produced an effect which is not what is intended and is unfair to our customers,” PGW President and CEO, Seth Shapiro, said in a statement released Thursday. “As a company, we do not believe it is fair for our customers to be impacted by the significant increase of this monthly charge, particularly as many households confront financial strain in this current economic environment.”

The utility noted in its petition that not all customers have been billed for May usage yet — so the $12 million price tag is likely an underestimate.

The Pennsylvania Office of Consumer Advocate (OCA) announced Wednesday it was investigating the situation.

The bills have put a spotlight on a little-known tool the utility uses to adjust for weather fluctuations, which records show has cost PGW customers millions of dollars in recent years.  Some worry the tool puts customers on the hook for things they can’t control, such as warming temperatures due to climate change.

“My office’s charge is to look out for the interests of consumers and make sure they’re paying affordable, fair, just, and reasonable rates that provide reliable service,” said Pa. Consumer Advocate Patrick Cicero. “I think it’s incumbent upon us to look at whether this has shifted too much of the risk onto consumers.”

A report in the Philadelphia Inquirer revealed numerous customers were hit with shockingly steep gas bills — some hundreds of dollars — for a month where warm weather made heat largely unnecessary. PGW also supplies gas for stoves and other appliances.

“Something obviously went wrong when you have these huge spikes, and the question is, what went wrong and what needs to happen to fix it?” said Philadelphia City Controller Rebecca Rhynhart, who sits on the city Gas Commission, which approves PGW’s operating budget.

The charges were a result of an obscure tool, known as the Weather Normalization Adjustment (WNA), that the utility has used for two decades to smooth out its revenue in the face of unpredictable weather.

The gas utility initially did not acknowledge any problem with the recent bills, blaming them on “much higher than usual” temperatures in late May. PGW’s Shapiro, in his letter Thursday, maintained that the revenue was billed properly, but said the company is “uncomfortable with the resulting impact.”

“Customers can also be assured that PGW is diligently seeking a longer-term solution to prevent this highly unusual circumstance from repeating in the future,” Shapiro wrote.

According to the petition filed Thursday, PGW is launching an internal investigation into the “WNA formula, inputs, and current information about weather trends as they affect May.”

PGW told WHYY news partner 6ABC that approximately 270,000 PGW residential heating customers’ bills will be affected.

PGW is one of just two utilities in the state that use a WNA, according to PA’s Consumer Advocate. The adjustment is calculated through a complex formula laid out in the utility’s tariff, which takes into account a customer’s usage, historic temperature data for a billing period, measured in heating degree days, and the actual temperatures that month.

When a month is hotter than expected based on past years, requiring less heat, PGW charges customers. When a month is colder, the company credits them. But in recent years, customers have not benefited overall, according to reports PGW filed with the PUC.

PGW is allowed to charge the WNA October through May. This year, May 31, the last day of the spring that PGW can charge the adjustment, reached 96 degrees — 17 degrees higher than normal.

Cicero, Pa.’s Consumer Advocate, said he has received several complaints, and plans to look into not only whether PGW made a mistake calculating the June 2022 bills, but whether the WNA should be modified or eliminated.

Cicero said his office will also look into whether the bills were “discriminatory,” based on when a customer’s bill was generated.

“In other words, some customers were more affected than others by this charge,” he said.

Key to the investigation will be getting hold of more information, Cicero said, so that OCA can “check the math.”

“We’re going to look at the rate impacts for consumers and whether the formula does what it’s supposed to be doing,” he said.

Are customers paying for climate change?

PGW defends the WNA as a way to keep customers’ heating bills more predictable and stable, to help utilities pay to maintain their systems even when gas use dips, and to help delay base rate increases.

But advocates argue it insulates the utility from risks associated with climate change, while customers foot the bill.

“I have substantial concerns about how PGW’s Weather Normalization Adjustment functions to shift the costs of climate change onto ratepayers, a problem that will only grow as winters continue to warm,” Devin McDougall, an attorney at the nonprofit environmental law organization Earthjustice, wrote in an email.

McDougall, representing the Pennsylvania Chapter of the Sierra Club and Clean Air Council, challenged PGW’s use of the WNA in the context of climate change in the utility’s 2020 rate case.

Winter is the fastest-warming season across Pennsylvania and most of the United States. Philadelphia’s average winter temperature rose nearly 5 degrees Fahrenheit since 1970, according to data analyzed by Climate Central.

But PGW uses a 20-year weather record to predict expected heating degree days for its WNA, meaning if temperatures are warmer in a given year than they were in the past, customers can be charged.

The adjustment is designed to be revenue-neutral, to help the utility smooth out its revenue during fluctuating weather, said Dave Hixson, deputy press secretary of the Pennsylvania Public Utility Commission. But depending on weather trends, PGW can charge more than it credits through the WNA over a given year or decade. And PGW’s current formula “captures older/colder winters,” Hixson said.

With temperatures rising due to climate change, PGW customers could lose out.

“The HDD [heating degree day] projections have been steadily dropping year over year, so usage of gas for heating will continue to drop because of more moderate temperatures in winter months,” Hixson wrote in an emailed response to questions. “As a result, when you set rates today for residential heating customers based on a projected annual usage associated with historic HDD’s [heating degree days], actual usage will move away from those projections and the Weather Normalization Adjustment will start collecting additional revenues from customers.”

In three of the last four fiscal years, PGW has – on net – charged, rather than credited, customers using the WNA, according to annual reports the utility submitted to the PUC. The number of heating degree days decreased each year between September 2017 and the end of August 2021, and PGW used the WNA to charge customers a net total of over $20 million.

At-large City Councilmember Derek Green, who chairs the city Gas Commission, said climate change should be factored into the WNA policy — for example, by shrinking the portion of the year that PGW is allowed to charge it.

“Because we’ve been having warmer winters,” he said.

Cicero, Pa.’s Consumer Advocate, said he wants to evaluate the length of historical data PGW uses in its WNA calculation — but not specifically because of climate change. PGW switched from using a 30-year to a 20-year normalization period in 2017, Cicero said, which could have increased the volatility in the data.

“The reality is, we just don’t know,” he said.

According to PGW’s petition filed Thursday, the utility will also be reexamining its formula.

“Not only is PGW concerned about the financial impacts on customers, PGW also views this reexamination as warranted to determine whether the WNA mechanism or formula should be revised based on weather or otherwise,” the document reads.

A utility under pressure to adapt

PGW, which sells gas that contributes to climate change, has used warming winters to justify base rate increases before.

In 2017, the utility secured a $42 million, or 6.8%, rate increase, which the company blamed in part on decreased demand due to warming winters as a result of climate change. The company also switched from a 30-year to a 10-year historical weather record to predict gas heating demand.

“[It] gives us a better and more accurate ability to predict demand because it’s focused on the winters we’ve had recently, not winters we’ve had 30 years ago,” PGW’s then-spokesperson Barry O’Sullivan said at the time.

Advocates and elected officials have been pushing PGW to transition to a business model not reliant on fossil fuels.

A “diversification study” released late last year explored several possible routes forward for the utility, including supplying geothermal energy, electrifying or weatherizing buildings, and harvesting gas from sewers or landfills to make energy.

But it also warned PGW’s path to a carbon-neutral future could be laden with stranded assets, high upfront investments, and possible increases for ratepayers.

Green, the Gas Commission chair, said he’ll continue to push PGW to adapt.

“People are using less gas, because equipment and appliances are becoming more and more efficient, and we have climate change, which is a real issue,” Green said. “So we can’t wait until ten years from now to start to really look at how PGW diversifies its income.”

How to challenge a high bill

Customers who think a recent high gas bill was in error can file a dispute with PGW by calling (215) 235-1000 for residential customers, (215) 235-7077 for business customers, or going to an in-person Customer Service Center.

Customers struggling to pay a gas bill can also contact the utility to set up a payment arrangement. 

Customers who are not satisfied with the result of a dispute can then appeal it to the PA Public Utility Commission by filing an informal or formal complaint.

Customers with questions can also call the OCA’s consumer hotline at 1-800-684-6560, Monday through Friday during normal work hours, or by email at consumer@paoca.org.