Would You Rather Have Low Energy Rates or Low Energy Bills?
Utility companies make a big deal out of the rates they charge their customers. When they go before state public service commissions to plead for relief from demand side management measures, they like to talk about the impact of such measures on their rates.
Utility companies make a big deal out of the rates they charge their customers. When they go before state public service commissions to plead for relief from demand side management measures, they like to talk about the impact of such measures on their rates.
But what do you, their customer, actually pay? Rates or bills? You’re charged at their rate, but what you pay is the bill they send you, based on that rate and the amount of their energy that you use.
The bottom line is that when you focus on the rate you’re paying, you’re looking at the wrong thing. If all you care about is the rate, it’s easy to lose sight of the amount of kilowatt-hours, gallons, or cubic meters that you’re going through? And then, you get the bill only once a month, so the connection between having a house that’s leaky and underinsulated and how much you’re paying for it isn’t so obvious.
In addition, like the proverbial frog in the pot of water that’s gradually raised to the boiling point, you don’t notice when the rate goes up from 8 to 10 cents, then 11, 12, 14, 16… The gradually rising rates mean hundreds, perhaps thousands, of extra dollars on what you actually pay – your energy bill.
Because energy rates have been so low for so long, we’ve got a huge stock of grossly inefficient housing. If rates are low and bills are not exorbitant, we have little reason to change. I say, let’s raise the rates even further—at least so that they reflect the true costs. Then we can have real incentive to fix our homes. High rates don’t necessarily lead to high bills. Because they make home energy efficiency measures more cost effective, they could even lead to lower energy bills.
Utility companies, give me your high rates! I want to lower my bills.
Photo by Images_of_Money from flickr.com, used under a Creative Commons license.
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I equate our low rates here
I equate our low rates here in the Southeast to an all you can eat buffet. The rationale tends to be, like you said, “Hey, it’s cheap, I don’t care what it costs!”
There’s probably a good parallel to the low cost of water from our utility companies, as well. But I suppose that topic is best suited for a later post.
Why not both low prices and
Why not both low prices and low bills?
Maybe food prices should be higher so we won’t eat as much. Let the free market determine where prices should be – not artificially high or low.
Adam: I
Adam: I like the buffet analogy. I’ll have to use that. Thanks!
Steve: Let me know when you find a place where free markets exist. Energy prices here in the US are about as far from the free markets as you can get.
i know i won’t be able to
i know i won’t be able to describe this well, but the austrian passivhaus group talks about if/when energy companies invest in conservation (e.g. new construction to PH, retrofits to PH) they can make more money by charging more per kWh, even on significantly lower consumption. not significantly more per kWh – but by investing in conservation and not, say, several multi-billion dollar power plants to deal with demand. it was a really compelling argument, i’ll see if i can find some data on it.
Mike E.:
Mike E.: In the mid ’90s here in the US, there was some talk about ‘decoupling,’ which would allow utilities to become service companies rather than selling a product. The term refers to decoupling profits from sales of energy, but it never really gained a foothold. It sounds like what you’re talking about must be something similar.
The real costs for utility
The real costs for utility companies comes from keeping up with peak demand. Building power plants, improving infrastructure, and buying peak power off the grid are all expensive. Utility companies are already installing “smart meters” that can determine what time of day power is used.
OG&E; is offering 4.5cent KWH power during off peak times in exchange for paying 23cents KWH during peak times (2-7pm weekdays June 1 through Sep 30). “Standard rate” is 8.4cents per KWH.
AZ recently passed an EE law
AZ recently passed an EE law that requires utilities to demonstrate 22% savings through efficiency and conservation programs by 2020. During the hearings, the utilities put the Commission on notice that this will lead to higher rates, since it will reduce revenue faster than the current growth rate. I say bring it on!
But as Bob points out, peak demand is the real villain here, since that’s what drives the need for new power plants.
There are more cost-effective ways (than general-purpose EE & EC) to reduce the peaks. In most markets, C&I; customers must pay a demand rate in addition to the energy rate.
Some utilities offer demand and/or TOU rates to residential customers but regulators have been reluctant to mandate them. Secretary Chou acknowledged that this is where we’re heading. Clearly, price signals are the only way to motivate change in behavior, and demand/TOU rate structures are by far the most effective means for changing the shape of the load curve.
Setting the correct price
Setting the correct price structure for TOU rates is the key. Make the financial incentive strong enough to encourage peak consumption reduction. Most regulators require TOU plans to be “revenue neutral”, that is if no changes are made in a typical users usage patterns their bill won’t change. Only by changing usage patterns will you receive discounts for peak demand reduction.
Bob, one of the challenges in
Bob, one of the challenges in designing a revenue-neutral TOU rate is that it can only be neutral in the aggregate. When you offer discounted rates to customers for off-peak vs. on-peak usage, then someone else must pay more. O/W the utility loses. The savings (from power plants avoided) only happens over the long haul.
The problem with voluntary TOU rate programs is that customers with high on-peak usage don’t opt-in. Those who opt-in already have lower than average peak usage (self selection). New load shifting is generally modest for those folks. The reason utilities even offer these programs is to appease their regulators (who often don’t understand these nuances).
Mandatory TOU/demand rates for residential, when they come, should be phased in over time. But make no mistake about it. There will always be winners and losers.
When this happens, home performance consultants will need to become versed in load-shifting concepts (controls, storage and behavior). As well, modeling tools will need to consider time-of-use, and historical utility bill analysis will need to consider coincident demand, once that data exists. One of the major reasons for developing smart grid and smart meter technology is to facilitate this transition.
If the utility pays more for
If the utility pays more for the peak power vs off peak power doesn’t the utility save money? The utility claims running older power plants and buying peak power off the grid is very costly. Delaying the power plant construction of course is the bulk of the savings.
I think all major utility companies will go to TOU only plans eventually, it’s already happening in Canada. TOU just makes sense from an overall energy savings prospective, since large amounts of electricity cannot be effectively stored.
From a home building prospective, perhaps some way to store the heat/cool for use in off peak periods is in order? Having a well insulated house also helps delay the heat transfer into the structure.
Allison,
Allison,
That’s a tad inflammatory. I work for a public utility and can tell you we try to keep rates low because our constituency demands low rates. I work in the energy services department and we do all we can to buy “negawatts”. Conservation is simply the least cost acquisition of power. A large part of the problem exists in that the government continues to push the real price of power further into the future with subsidies. We currently have a rate of $0.0731/kWh. Our rate payers are taxed and then a share of that comes back to us to run our conservation programs. For every $500,000 in incentives paid to conserve above funding we receive back, we would have to raise rates by 1%. Unfortunately, rate payers would revolt. The same holds true for the country. We have an antiquated transmission system that only gets older, as taxpayers are reluctant to pay the full price of power. This does not even address the fact that we would have to redesign our system to meet transmission needs that a really good/aggressive rooftop solar movement would create. Germany for example has the ability to step power up and down as needed to move power, but they are the size of Oregon. The large open spaces that we all enjoy so much create a major problem when it comes to that. I’d like to see us move to more localized transmission.
End of rant.
Yea for Vic.
Yea for Vic.
Bob wrote:
Bob wrote:
“…perhaps some way to store the heat/cool for use in off peak periods is in order?”
This can be done with careful application of thermal mass in the building envelope, and/or by actively storing off-peak energy in water or ice.
Thermal mass techniques require careful analysis or you end can end up wasting a lot of money on unproductive mass, or worse, shift the cooling load from a medium peak to a higher peak.
For example, heavy concrete roof tiles tend to backfire in hot climates. High mass roofs delay the cooling load until late in the day or early evening, just when folks are arriving home from work and cranking down the AC. When mass is disconnected from conditioned space (as with roof tiles), it takes much more mass to affect the desired time shift.
Designing high mass structures is tricky business. And given the cost of high mass components, we need better modeling tools to help optimize placement and thickness. Ideally, a designer could enter the utility’s rate schedule and the software would allow the designer to model various mass options to find the optimal design, or apply different rate plans to a given design in a deregulated market. But we’re a long way from that in the residential market.
I work for a subsidiary of a
I work for a subsidiary of a large electrical utility and also see some unqualified bias in the opening paragraphs. But I think the main point Allison is trying to make is, “Because energy rates have been so low for so long, we’ve got a huge stock of grossly inefficient housing.” That point is 100% accurate and it also applies to the commercial building sector. Keep cranking out the content, Allison, and keep this fun conversation going!
The bottom line is there is a
The bottom line is there is a “redistribution of wealth” going on in the energy sector. Tax dollars are being used to subsidize energy costs (natural gas, diesel, car gasoline, heating oil also) to keep energy bills low. The top 1/2 of the taxpayers (the bottom 1/2 don’t pay anything) help pay everybody’s energy bills.
If the government would stop using taxpayer dollars to fund energy subsidies then more efficient construction would become more cost effective. Look in Europe where they don’t subsidize energy costs, virtually nobody has standing pilot light water heaters or other “energy hogs”. They laugh at us in the USA about wasteful we are with our giant SUV’s and other energy wasting practices.
Bob & David
Bob & David B.: Great discussion! Yes, the utilities’ peak demand has a huge effect. They’re charging most of us a flat rate, but the electricity they generate is a lot more expensive at their peaks. I think time-of-use (TOU) rates are a great way to go.
Vic & Dan K.: Sorry about that. I’ve edited the article because my intention was simply to make the point that utilities’ customers pay bills, not rates, and that has an effect on energy efficiency. I didn’t mean for it to sound like an anti-utility rant.
Even the terminology that utility folks use – like calling us ‘rate payers’ when we’re really bill payers – helps to perpetuate the problem. What if you made that change in your language, Vic? Maybe if utilities struck the term rate payers from all their publications, speeches, and websites, your customers would start to see what they really are: bill payers.
I agree totally with your comment about subsidies, Vic: “A large part of the problem exists in that the government continues to push the real price of power further into the future with subsidies.” That’s really what’s behind the article. Let the rates rise to reflect the true costs so we can start to deal with all the inefficiency in our buildings, both residential and commercial.
Believe me, there are MANY
Believe me, there are MANY things I wish I could change about how things are done, both in the higher level legislative approach to energy and the utility end. There’s a lot of misinformation and agendas that work against where I see we ultimately need to go as a nation. Hopefully things will change before everthing crashes down around us.
This just in… Arizona Power
This just in… Arizona Power Service (APS) is moving forward with its proposal to decouple the fixed portion of its tariffs from the variable (kWh) portion, to ensure they can recover their infrastructure costs under AZ’s new “22% by 2020” energy conservation mandate (see my initial comment in this thread). The utility commission got an earful from concerned customers in its first schedule public hearing in Sun City (west of Phoenix)…
http://bit.ly/qYb1JP
Currently, large customers heavily subsidize electric infrastructure costs in most areas of the country. A price scheme that fairly allocates fixed costs by customer class would see residential customers paying *much* higher monthly fixed charges offset partly by LOWER kWh charges (leaving aside for the moment the possibility of mandatory demand charges and TOU differentials).
Ironically, a very ambitious EE mandate appears to be backfiring, since shifting the rate base from variable to fixed pricing can’t be good for energy efficiency and renewables.