Utilities Strike Back! Bad rates for solar, good rates for “aircon”

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Utilities Strike Back!

Gareth Weeks, stock.xchng

Australia continues to show the U.S. what the future looks like when you price incorrectly.

In case you have not been following Australia, here is a thumbnail of the situation that makes utilities strike back. Back in the mid-2000s, air conditioning (“aircon” to Aussies) took off. In response, utilities built lots of new transmission and baseload power plants to meet a significant increase in peak demand that occurred in a very small number of hours each year.

Retail prices soared to over 30¢/kWh. Price structures did not change, so people without air conditioning subsidize those with aircon by about $330/year. They instituted retail competition that created artificial profits for retailers, so now people pay an extra $138/year for the privilege of retail competition that does nothing to lower their rates.

Then solar became much cheaper. People started installing it on their roofs to avoid the 30¢/kWh retail prices even though there is no net metering. Instead, the utilities/retailers only pay 6¢/kWh for any excess power they receive from households with solar panels.

Now the utilities want to change their price structures for solar customers to recoup the $30/year in costs they say solar households avoid. No  changes for the retailer subsidy, though. No changes for the aircon subsidy either. People are incensed.

Does the ESAA suggest that air conditioning households should be hit with higher fixed tariffs to pay for network extensions? No, of course not, because the increased use of air conditioners adds to the revenue pool of the electricity industry, and they want to get a return on their grid investment.

The use of solar, however, detracts from the incumbents because rooftop solar households draw less electricity from the grid – leading to the now well documented “death spiral.”

The ESAA wants to arrest this spiral by lifting fixed charges or introducing tariffs for solar households to maintain the revenue pool and protect its business model. This has already begun in several states, and to make itself look like an innocent bystander, the industry has brought the violins to play a song of woe on behalf of the least well off. But this is not about protecting less wealthy households, it is about protecting the business model of the utilities.

What seems inevitable however is that the industry will one day soon need to change its business model of face the same decline as fixed priced telephony or printed photos. They are fast approaching their Kodak moment. (emphasis added) Utilities want higher charges to shade business model from solar : Renew Economy.

This is exactly what Idaho Power tried to do recently. It is similar to what Hawaii Electric tried to do to forestall solar. The comments on the Renew Economy article were very knowledgeable and can be summarized pretty succinctly: charge prices that reflect how costs are incurred and make every customer subject to them.

The problem for the utilities is that they have no concept of pricing or customer service or listening to customers to retain customers and sales. They have been monopolies and have not had to deal with these issues to make money. Now they do and they are woefully equipped, tone deaf,  ham-handed, and pig-headed.

The future is being written on the walls of Australia for our utilities to see, but they do not want to look. They are worried about the next quarter, about investing more capital to raise prices to increase profits, completely unaware or uninterested that they now must compete at the point of use on price, service, and customer relationship. Long term equity and debt investors should be concerned, as an EEI report states, but instead we continue to roll toward a coming train wreck.

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4 comments on “Utilities Strike Back! Bad rates for solar, good rates for “aircon”

  1. John Nistler on said:

    Why do we have this inherent idea that Utilities who have already been given a monopoly somehow have the right to be paid for bad decisions? At 30 cents per kWh, a homeowner or business invests in solar power to save money and now you expect them to support a business that arbitrarily makes decisions to invest in long term power options? A utility customer is a customer. Do not listen or respond well to your customer and you will loose that customer permanently.

    Utilities do not have a “Right” to obtain return on investment, it must be earned as with any company. There options are simple, change their plans, invest in solar including on their customer’s roofs, provide capital to improve solar installations, aka, financing and obtain finance return on investment immediately, not projected 7 to 17 years out. If a utility starts to install solar and storage, they still control power generation. If they do not, they will continue to see their income dwindle with negative response from their customers.

    • Doug Short on said:

      Hi John – I tend to agree with you. From my perspective, the problem is with expectations. Many utility regulatory agencies have not made clear the responsibilities utilities must bear. Generally, this has happened in places where things have worked out for customers so far, i.e., low electricity prices. For example, Georgia and Florida let utilities charge for nuclear power plant costs as the plants are being built rather than waiting to see if they are used and useful.

      Here in New England we went through a spate of expensive nuclear power plants in the 1980s, some of which were completed (Seabrook 1, Millstone 3) and many which weren’t. At the time it focused the regulatory agencies on being clear about what the rules were and the risks. It ultimately led to competitive generation because the whole process of incremental cost overruns year after year made it difficult to pull the plug and to hold the utility responsible. I think people in Georgia, Florida, North Carolina, and South Carolina are finding that now. Unfortunately, the lack of clear rules favors the incumbent monopolies, not customers.

  2. joan mccaffrey on said:

    There is an actual cost to the utility for transmission and distribution, so those charges are fair to access to a solar home or any home or business, as it uses the grid as an always available “battery” in the absences of solar yield. However, the customer always expects reliable power, meaning the utility must still purchase and produce baseline power to be available when solar yields fluxuate and they must also more constantly adjust the frequency of the grid to accomadate the fluxuating nature of solar generation, thus the “unfair” tarriff is really paying for grid reliability. If the facility or homeowner, on the other hand were to have some form of energy storage that smoothed out this pattern, and thus exposure to the grid operator, then they should have a better tarriff as well as payment for energy at Locational Marginal Price, or LMP.

    • Doug Short on said:

      Hi Joan -

      I completely agree with you. The problem is that the utilities only want to change rates for those that have solar instead of for all customers, which is discriminatory on its face. Additionally, they want to do it immediately with no transition time and with no exception for those who invested in solar under the old rules and who will now see their investment made uneconomic. When prices change radically in a free market, people may not like it, but they mostly do not attribute it to some conspiracy. But these are government set prices, and that makes all the difference.

      There are so many solar households now that they are organizing as voters to oppose any rate structure changes, at least as proposed. Especially complicating for the government is that many of the utilities are government owned so there is not a separate private business to take the losses. It is really a mess.

      My post on Idaho Power (link in this post) addresses how the price changes need to be made to work. The problem is that this takes time, and if utilities, especially those in California, don’t get started now, it will be too late.