Electricity: Good policy can produce bad results

Sometimes, bad things happen to good people.  Take electricity.  The more you save, the more it may cost.

You reduce your consumption of electricity by using more efficient equipment and appliances and changing all your light bulbs.  Because you now use fewer units of electricity – kilowatt-hours or kWhs, you expect lower electric bills. 

Now look at this situation from the viewpoint of your electric utility.  It owns the poles and wires used to bring electricity from the generator to you.  In many parts of the country, though not in Maine and most of New England, it owns the generator.

Regulators allow the utility to charge for the use of its grid by the amount of kWhs you use. The owner of the generator gets paid much the same way for the power itself.

With new wind generators coming on line, the utility may have to build new transmission lines to connect suppliers in remote locations.   Federal regulators have ruled that customers rather than power developers should pay for the cost of the new lines.

To try to avoid such rate increases, the Maine Public Utilities Commission is now considering how to develop non-transmission alternatives (NTAs).  It seems to be headed toward some sort of central control rather than requiring that NTAs be considered whenever new transmission is proposed.  Utilities themselves might be allowed to offer NTAs for their own customers

But there is also the problem of wires costs increasing even with no new transmission, because customer use is decreasing.  Utilities face a problem under the current rate system.  By raising kWh rates to recover their costs, utilities run the risk of encouraging customers to cut their use even more.

You can reduce your consumption through conservation and efficiency, but your bill will not decline.  In fact, it is likely to increase because of reduced sales, some customers quitting the grid entirely to self-generate or when remote renewables are added.

The trade organization of the investor-owned utilities has said its members face a “death spiral.”  The obvious solution from the utilities’ perspective is to charge for the wires without linking the rate to the number of kWhs. 

The utility reasons it was authorized by regulators to build new transmission lines and to recover their costs from customers, and it went ahead based on that assurance.  The regulators should honor that deal by allowing a new way to recover costs.

The problem exists for wires, but not really for generators.  The owners of power plants are supposed to be investors taking on the risk of a competitive market.  The wires companies operate regulated monopolies where there is no direct competition.

One solution would be to charge each customer a fixed fee while reducing the unit charge. A Wisconsin utility proposed that plan, but was forced by consumer protests to drop it.

This looks like a serious problem with nobody at fault and no way out.  But, realistically, the wires companies cannot be allowed to fail.

Perhaps the solution comes from how you look at the problem.  The current model is based on the electric utility as it was invented in the Nineteenth Century.  But the world has changed, even if the industry lags behind.

People are increasingly interested in avoiding the grid and the costs of power supply, even if competitive.  An executive of NRG, a generation company, says the country faces the “era of personal power.”

People are reducing their use of electricity from the grid.  Efforts to promote renewables and efficiency are paying off.  Most important, people accept change far more readily than in the past.

The new smart meters and the smart grid, already paid for by customers, can realize their potential and integrate power coming off utility lines with local measures.  That should be done automatically without the customer having to control switching.

In an important new development, Tesla, the battery powered car company, has just announced that it expects to launch home-level electric storage in about six months.  That would make renewables more reliable and encourage purchasing from the grid only when low-cost power is available.

Answering the problem of falling customer demand could turn out to be the salvation of utilities.   If they get fixed fees, these charges should be phased out over a set period, and the utilities should be allowed to try to make up for lost revenue by setting up unregulated affiliates to compete with others in providing “personal power” and NTAs.    

This is the new world for electric customers and utilities, and both could benefit from it.