Rethinking Consumer Electric Rate Structures

The electric bill. Although many of us loathe it depending on the time of year, in some ways the electric bill is secretly embraced. Electricity has been found to be directly linked to quality of life. As we all become more cognizant of the harm we are causing from our electricity production and understanding that it's easy not to waste, it's time to rethink how consumers pay for their consumption.

August 26, 2013 - The electric bill. Although many of us loathe it depending on the time of year, in some ways the electric bill is secretly embraced. Electricity has been found to be directly linked to quality of life. Who doesn't enjoy coming into an air-conditioned home, drinking an ice cold Coca-Cola, reading your favorite book at night, playing tennis video games with your 70+-year-old father?

But we are very wasteful as Americans with our consumption of electricity. Not intentionally, we just are used to living that big large American lifestyle. As we all become more cognizant of the harm we are causing from our electricity production and understanding that it's easy not to waste, it's time to rethink how consumers pay for their consumption.

This article is not addressing the rate structures utilities use to charge their largest customers; businesses, companies, and industry. I continue to stand for a free market and allowing business to do business. However, consumers at home will never ever be the largest customer. In fact, an argument could be made that for utilities to do business where it's profitable on the commercial side of things, serving consumers is a much more burdensome and less profitable endeavor.

Here's a Little History:

The reason we have regulated utilities is because when electrification happened it was a completely open, free market wild, wild West scenario. Of course with that kind of market environment a lot of inequity and public concern was raised. Have you ever seen a picture of all the wires from the early 20th century when telephone companies and electric companies were running wire everywhere to get every single customer possible? That's when the government stepped in and started regulating those industries. Regulation in that scenario is very necessary.

Many people do not understand why regulation happens. It happens when any industry steps over the bounds of business and either intentionally or inadvertently hurts people. I am not condoning the level of regulation we have currently. After a certain period of time, things can go back to being deregulated. Look at the telephone system, natural gas markets, airlines and in some states electricity.

Moving Forward

This article is not suggesting that we deregulate electricity across the board. This article is suggesting it's time to look at how we structure consumer rates. Recently, my county restructured its water rates during the severe drought of several years back. The idea was to reward those who use the least and charge a premium for those who use the most. Now some of you might protest. At some level the highest users, might never be able to reduce their water usage to the next level down. However, every ratepayer in this structure has the opportunity to reduce consumption and therefore save money. Besides shouldn’t the heaviest users who use the most and therefore are the biggest burden on the system pay the most?

The utilities have no choice but to serve consumers. Shouldn't the utilities be open to this rate structure change? There are a lot of reasons why utilities have avoided this kind of plan in the past. Most of them were honorable, better business models, and a win for the consumers.

Past arguments against this kind of rate structure included the burden on the poor who are usually extremely high consumers due to lack of energy efficiency in their living space. Another argument was the accounting nightmares that would be too difficult to manage for the utility. The list goes on. Let’s address the first two.

It's a New World Out There

Technology! We love it and although on any given day any of us might shake our fists at which ever piece is driving us crazy, we simply cannot live without it. With these advancements, has come a large ability to customize everything. Utility companies regulated or not are now implementing a variety of voluntary rate plans, so offering a tiered rate structure is not the nightmare it used to be. Therefore implementing a new rate structure across the board should not be either cost prohibitive or non-actionable.

Make no mistake there is a cost associated with changing rates but as with all other things when it comes to rates there's no reason for the consumer to pick up at least part of this restructuring. Consumers who are wise will end up saving a lot of money over the long haul for allowing this kind of rate structure to happen. Just like consumers adjust to higher gas prices by decreasing usage so will electricity customers.

Additionally, it does not have to be overly complicated. In my county, DeKalb, they implemented a three tiered rate structure for water and sewage that rewards those who use the least. If the county government can implement a plan for 730,000 residents then it should be scalable either up or down for utilities and EMCs.

Give Them Fishing Poles, Not Fish

For Southerners, this phrase should be very familiar. Someone, somewhere, who is a family member who either worked or supported missions used this phrase. This phrase is ubiquitous in missionary circles.

How does this apply to rate structures? When I started thinking about this article, I decided to do a little research. I asked a couple of my energy all-stars why had this not happened sooner? The answer I received was it would disproportionately affect the poor because they have the highest bills. That is a relative statement but if their home is old and energy inefficient their per capita spending on their electricity bill is probably already through the roof. But let's be honest, the current system does not really address their problems.

Very graciously utility companies will allow people to donate money to help others who cannot afford their electric bills. However, this is the fish solution. It never weans the poor off of their energy addiction. What disadvantaged households really need are energy efficient upgrades to reduce their bills permanently. That is the fishing pole solution.

There are plenty of ways to solve this. Partnering with groups like Habitat for Humanity and other mission minded organizations with grant money being carved out of the new tiered structure would be the quickest and easiest way to solve the problem. Also, leveraging the DOE weatherization program more effectively is another place to start. This gives a community solution with community volunteers and an opportunity to serve the least of these right next-door. It also helps struggling ratepayers to really address their bill challenges.

Let's Get 'Er Done

Changing rate structures is not going to happen overnight, but here in Georgia with rate structures currently being discussed by the Georgia Public Service Commission, why not add a carve out test location to see how the program could be implemented. The utilities are very amenable to pilot projects, so why not start now?

For more information about pricing plans check out this great piece from Smart Grid Consumer Collaborative, Become a Smart Power Consumer.