PGW will refund about $12.4 million to customers hit with ‘weather normalization’ charges

Philadelphia Gas Works said Thursday that it will reverse the onerous weather normalization adjustment charges (WNA) for May natural gas usage that caused some customer bills to balloon by hundreds of dollars last month.

The city-owned gas utility’s decision to reverse the charge was made after customers voiced outrage to The Inquirer, other media outlets, and on social media after receiving bills in recent weeks that were triple, quadruple or even quintuple the size of their bills from last year.

The reversal will result in about $12.4 million in customer refunds, the company said in an emergency filing Thursday with the Pennsylvania Public Utility Commission, which oversees PGW. The refunds would apply to most of PGW’s 520,000 customers, though some paid only nominal weather charges. Some commercial customers got hit with charges of about $500.

» READ MORE: The weather was warm last month. So why did many Philly gas customers get hit with ‘outrageous’ heating bills?

PGW, which initially did not acknowledge the magnitude of the problem, said in its PUC filing that a “significant anomaly” occurred in the application of the weather charge in May that “produced unusually large and unanticipated charges” to many customers.

If the PUC approves the request, PGW would apply a credit for the weather charges to bills in July and August.

PGW needs to seek state approval to reverse the charge because it says it was properly following the PUC-approved formula spelled out in its 157-page tariff, the formal document that details how gas rates are assessed. Seth Shapiro, PGW’s president and chief executive, said in a statement that the weather formula worked as designed, but that it “produced an effect which is not what is intended and is unfair to our customers.”

The company’s announcement came a day after the Pennsylvania Office of Consumer Advocate announced it was investigating whether the method that PGW uses to calculate the weather normalization adjustment is unjust and discriminatory, and whether the WNA should be modified or revoked.

The weather normalization adjustment, which has been in place for 20 years, allows PGW to stabilize its finances by adding or crediting dollars to consumer bills when the weather diverges from historical averages. When it’s warm, as it was in May, it allows the company to boost customer bills to generate more revenue.

Only one other gas utility in the state, Columbia Gas of Pennsylvania, is authorized to assess a weather charge.

Typically the weather adjustment results in relatively small customer charges or credits. But many customers received bills in recent weeks with WNAs that were larger than their entire bills during the coldest months in winter.

“In all the years I’ve been a PGW customer, I have never seen anything like this,” said Jeannine Baldomero, who got an $130 bill this month for her Spring Garden apartment, including what she called an “outrageous” $93 weather normalization charge.

On Thursday, she expressed gratitude that PGW “did the right thing” and reversed the charges, though she added: “It’s a little bit of a shame that we had to go to such an extent to get them to take ownership of the mistake that they made.”

Shapiro said the company regrets the disruption to customers.

“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,” Shapiro said in the statement. “So, while all of the revenue was billed properly, and in accordance with our Gas Service Tariff, we are uncomfortable with the resulting impact.”

The WNA is an important financial tool for a nonprofit municipal utility such as PGW. It stabilizes the utility’s cash flow and assures lenders that PGW can still pay its bills even when the weather is unusually warm or cold.

The weather normalization charge can also protect consumers because the utility credits bills during very cold months when gas usage is greater than expected. During the very cold winter of 2014-2015, PGW credited customers with $12.3 million. But the following winter of 2015-16, which was very warm, the WNA generated $41.5 million in additional revenue, or 7.2% of total PGW revenue.

The weather normalization adjustment applies to most of PGW’s 520,000 customers, including those on budget plans and those served by competitive gas suppliers. It doesn’t apply to non-heating customers, because their gas use should not be affected by weather. Nor does the WNA apply to about 54,000 households enrolled in the customer assistance program for low-income families.

Shapiro said the WNA is under review. “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,” he said.

City Councilmember Derek S. Green, who chairs the city’s gas commission, said PGW needs to come up with a longer-term solution.

“It’s important to address this issue that’s impacting constituents right now, especially as many are dealing with rising costs of all basic goods because of inflation,” Green said. “But it’s also important that we don’t only correct this issue right now, but going forward we address this issue so that this does not happen again.”

It’s still unclear exactly how the weather normalization adjustment for May went off the rails to generate some customer bills that were huge, while others contained barely noticeable WNAs of a few dollars. One Point Breeze customer interviewed by The Inquirer received a $235 bill for her studio apartment that included a $200 weather normalization adjustment. The same bill a year ago was $27.

The complicated formula that PGW uses to calculate the weather normalization adjustment generates a unique amount for each customer and changes with each billing cycle, depending upon PGW’s calculation of each customer’s expected heating usage and how much the weather deviated from normal during the billing cycle. Billing cycles are staggered based on the most recent meter readings.

The WNA kicks in only when the temperature deviates from a 20-year historical average during any customer’s billing cycle. “Normal” is determined by adding up “heating degree days,” which measure the average daily temperature below 65 degrees. Heating degree days quantify how much heat is needed to keep a house at 65 degrees — the bigger the number, the more heat required.

But May typically accounts for only about 2% of the annual heating degree days in Philadelphia, according to National Weather Service data. So even if it is exceptionally warm, as it was after May 11, the reduction in heating load should not dramatically impact customer heating bills that even during a normal year would not be very high.